As filed with the Securities and Exchange Commission on March 11, 1999
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2811925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
DAVID E. CREAMER, DIRECTOR AND PRESIDENT
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(215) 328-3164
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
ROBERT L. SCHWARTZ, ESQ.
MANAGING DIRECTOR AND GENERAL COUNSEL
GMAC MORTGAGE GROUP, INC.
3031 West Grand Boulevard
Detroit, Michigan 48232
DIANE CITRON, ESQ. JOSHUA E. RAFF, ESQ.
MAYER BROWN & PLATT ORRICK, HERRINGTON & SUTCLIFFE LLP
1675 Broadway 666 Fifth Avenue
New York, New York 10019-5820 New York, New York 10103
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. |_| _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Offering Price Aggregate Amount of
Being Registered to be Registered Per Unit (1) Offering Price (1) Registration Fee
---------------- ---------------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $1,000,000 100% $1,000,000 $278
======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus supplement and the accompanying prospectus is
not complete and may be amended. We may not sell these securities until we
deliver a final prospectus supplement and accompanying prospectus. This
prospectus supplement and the accompanying prospectus are not an offer to sell
nor are they seeking an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 11, 1999
Prospectus Supplement to Prospectus Dated ______ __, 1999
$[_____________]
GMAC Commercial Mortgage Securities, Inc.
Depositor
GMAC Commercial Mortgage Corporation
Servicer
Mortgage Pass-Through Certificates, Series 199[_]-C[_]
- --------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page S-__ in this prospectus
supplement and page _ in the prospectus.
The certificates will represent interests only in the trust created for Series
199[_]-C[_] and will not represent interests in or obligations of GMAC
Commercial Mortgage Securities, Inc., GMAC Commercial Mortgage Corporation or
any of their affiliates.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus. This prospectus supplement
and the accompanying prospectus relate to the offering of the offered
certificates only.
- --------------------------------------------------------------------------------
The Series 199[_]-C[_] trust will issue [four] classes of offered certificates.
Underlying the offered certificates will be a pool of multifamily and commercial
mortgage loans. Each class of offered certificates will receive monthly
distributions of interest, principal or both, beginning on ______ __, 199_. The
table on page S-4 of this prospectus supplement contains a list of the classes
of offered certificates, including the initial principal balance, initial
interest rate, rating and certain special characteristics of each class.
<TABLE>
<CAPTION>
Approximate
initial Approximate
certificate initial Rated final
balance or Description of pass-through distribution
Class Ratings notional amount pass-through rate rate date
----- ------- --------------- ----------------- ---- ----
<S> <C> <C> <C> <C> <C>
X $ (b) Variable Rate I/O %
A $ Variable Rate %
B $ Variable Rate %
C(a) $ Variable Rate %
R $ Variable Rate %
</TABLE>
(Footnotes to table on page S-4)
Credit enhancement:
The trust also will issue [one] class of certificates in the principal amount of
$[________________]. These certificates are subordinated to the offered
certificates and provide credit support for the offered certificates.
Underwriting:
The underwriter will offer the offered certificates at varying prices to be
determined at the time of sale. The proceeds to GMAC Commercial Mortgage
Securities Inc. from the sale of the offered certificates will be approximately
[__]% of the principal balance of the offered certificates plus accrued
interest, before deducting $[_______] in expenses. The underwriter's commission
will be the difference between the price it pays to GMAC Commercial Mortgage
Securities Inc. for the offered certificates and the amount it receives from the
sale of the offered certificates to the public.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or determined
that this prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed the
merits of this offering. Any representation to the contrary is unlawful.
Underwriter
[Name of Underwriter]
______ __, 199[ ]
<PAGE>
Important notice about information presented in this
prospectus supplement and the accompanying prospectus
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some of
which may not apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
If the description of your certificates in this prospectus supplement differs
from the description in the accompanying prospectus, you should rely on the
information in this prospectus supplement.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Principal Definitions" beginning on page S-__ in this document
and under the caption "Index of Terms" beginning on page __ in the accompanying
prospectus.
The depositor's principal offices are located at 650 Dresher Road, Horsham,
Pennsylvania 19044-8015 and its phone number is (215) 328-4622.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Transaction Overview ........................................................... S-4
Summary ........................................................................ S-6
The Trust ................................................................... S-6
The Mortgage Pool ........................................................... S-6
The Mortgage Loan Sellers ................................................... S-7
The Certificates ............................................................ S-7
Certificate Designations .................................................. S-7
Initial Certificate Balances of the Certificates .......................... S-7
Distributions on the Offered Certificates ................................... S-7
General ................................................................... S-7
Pass-Through Rates ........................................................ S-8
Distributions of Principal ................................................ S-8
Distributions of Prepayment Premiums ...................................... S-8
Allocation of Losses and Certain Expenses ................................... S-9
Subordination ............................................................... S-9
Advances .................................................................... S-9
Optional Termination ........................................................ S-9
Yield and Prepayment Considerations ......................................... S-9
Book-entry Registration ..................................................... S-10
Denominations ............................................................... S-10
Ratings ..................................................................... S-10
Legal Investment ............................................................ S-10
ERISA Considerations ........................................................ S-10
Tax Status .................................................................. S-10
Risk Factors ................................................................... S-12
Risks related to the certificates ........................................... S-12
Risks related to the mortgage loans ......................................... S-13
Description of The Mortgage Pool ............................................... S-29
General ..................................................................... S-29
Certain Terms and Conditions of the Mortgage Loans .......................... S-29
[Delinquent and Nonperforming Mortgage Loans] ............................... S-30
The Mortgage Loan Seller .................................................... S-31
Certain Underwriting Matters ................................................ S-31
Representations and Warranties; Repurchases ................................. S-31
Changes in Mortgage Pool Characteristics .................................... S-32
Servicing of the Mortgage Loans ................................................ S-32
The Master Servicer ......................................................... S-32
Servicing and Other Compensation and Payment of Expenses .................... S-32
Modifications, Waivers and Amendments ....................................... S-33
Inspections; Collection of Operating Information ............................ S-34
Description of the Certificates ................................................ S-35
General ..................................................................... S-35
Book-Entry Registration of the Class A Certificates ......................... S-36
Distributions ............................................................... S-37
Subordination; Allocation of Losses and Certain Expenses .................... S-42
Advances .................................................................... S-43
Reports to Certificateholders; Certain Available Information ................ S-45
Voting Rights ............................................................... S-45
Termination; Retirement of Certificates ..................................... S-46
The Trustee ................................................................. S-46
Yield and Maturity Considerations .............................................. S-46
Yield Considerations ........................................................ S-46
Weighted Average Life ....................................................... S-49
Yield Sensitivity of the Class X Certificates ............................... S-53
Additional Yield Considerations Applicable Solely to the Class R Certificates S-54
Certain Federal Income Tax Consequences ........................................ S-54
New Withholding Regulations ................................................. S-56
Special Tax Considerations Applicable to REMIC Residual Certificates ........ S-56
Method Of Distribution ......................................................... S-57
Legal Matters .................................................................. S-59
Rating ......................................................................... S-59
Legal Investment ............................................................... S-60
ERISA Considerations ........................................................... S-60
Index of Principal Definitions ................................................. S-62
Annex A ........................................................................ S-64
Annex B ........................................................................ S-
Annex C ........................................................................ S-
Annex D ........................................................................ S-
</TABLE>
S-3
<PAGE>
Transaction Overview
This transaction overview highlights selected information from this prospectus
supplement and does not contain all of the information that you need to consider
in making your investment decision. To understand all of the terms of the
offered certificates, read carefully this entire document and the accompanying
prospectus.
This transaction overview provides an overview of certain calculations, cash
flows and other information to aid your understanding and is qualified by the
full description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
<TABLE>
<CAPTION>
Approximate
initial Approximate Approximate
certificate percent of Approximate Description initial Weighted
balance or initial percent of of pass- avg. Principal
notional pool credit pass-through through life (d) window (e)
Class Ratings amount (b) balance support (c) rate rate (in years) (month/year)
----- ------- ---------- ------- ----------- ---- ---- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X $ N/A N/A Variable % N/A _/__ - _/__
rate I/O
A $ % % Variable % _/__ - _/__
rate
B $ % % Variable % _/__ - _/__
Rate
C(a) $ % % Variable % _/__ - _/__
Rate
R $ % % Variable % _/__ - _/__
Rate
</TABLE>
- -------------
(a) This class is not offered by this prospectus supplement.
(b) The Class X Certificates will accrue interest on the Class X notional
amount. The initial Class X notional amount will be approximately
$[________]. The Class X Certificates will only be entitled to receive
distributions of interest.
(c) Reflects the aggregate certificate balances of all classes of certificates
that will be subordinate to each class on the date the certificates are
issued, expressed as a percentage of the initial pool balance.
(d) The weighted average life of a security is the average amount of time that
will elapse from the time the security is issued until the investor
receives all principal payments on the security, weighted on the basis of
principal paid (or in the case of Class X Certificates, the reduction in
notional amount). The weighted average life of each class is calculated
assuming that there are no prepayments on the mortgage loans, and subject
to the maturity assumptions described under "Yield and Maturity
Considerations" in this prospectus supplement.
(e) The principal window is the period during which each class would receive
distributions of principal, assuming that there are no prepayments on the
mortgage loans and subject to the maturity assumptions described under
"Yield and Maturity Considerations" in this prospectus supplement. The
principal window for the Class X Certificates is the period during which
that class would have an outstanding notional balance, based on the same
assumptions.
S-4
<PAGE>
The following table shows certain information regarding the mortgage loans and
the mortgaged properties as of __________ __, 199_. All weighted averages set
forth below are based on the balances of the mortgage loans as of that date. The
balance of each mortgage loan as of _______ __, 199_ is its unpaid principal
balance as of that date, after applying all payments of principal due on or
before that date, whether or not those payments are received. See "Description
of the Mortgage Pool" in, and Annex A to, this prospectus supplement.
Mortgage Pool Characteristics
Characteristics Entire mortgage pool
- --------------- --------------------
Initial pool balance................................ $
Number of mortgage loans............................
Number of mortgaged properties......................
Average balance as of ______ __, 199_...............
Weighted average mortgage rate...................... %
Weighted average remaining term to maturity or
anticipated repayment date..................... months
Weighted average debt service coverage ratio........
Weighted average loan-to-value ratio................ %
"Loan-to-value ratio" and "debt service coverage ratio" are calculated as
described in Annex A to this prospectus supplement.
S-5
<PAGE>
Summary
This summary highlights selected information from this document and does not
contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offered certificates,
read carefully this entire document and the accompanying prospectus.
This summary provides an overview of certain calculations, cash flows and other
information to aid your understanding and is qualified by the full description
of these calculations, cash flows and other information in this prospectus
supplement and the accompanying prospectus.
Capitalized terms used in this prospectus supplement and not otherwise defined
herein have the meanings assigned in the prospectus.
The Trust
Each offered certificate represents a proportionate ownership interest in the
assets of the trust. The trust contains a pool of mortgage loans secured by
first mortgage liens on fee simple and/or leasehold interests in one or more
mortgaged properties used for commercial or multifamily residential purposes and
certain other assets. See "Description of the Certificates --General" in this
prospectus supplement for a discussion of the assets of the trust.
The offered certificates represent interests only in the assets of the trust.
All payments of interest and/or principal on the offered certificates will be
made only from the amounts received in connection with those assets.
The Mortgage Pool
General. The mortgage pool consists of approximately [_____] fixed-rate mortgage
loans with an aggregate principal balance as of ______ __, 199_ of approximately
$[________]. The number of mortgaged properties that are located in the five
states with the highest concentrations, and the approximate percentage of the
initial pool balance represented by those mortgage loans, are as follows:
Number of Percentage
mortgaged of initial
State properties pool balance
- ----- ---------- ------------
[Texas].............. %
[New York]........... %
[California]......... %
[Arizona]............ %
[Illinois]........... %
The remaining mortgaged properties are located in __ other states and the
District of Columbia.
The number of mortgaged properties that are operated for each indicated purpose,
and the approximate percentage of the initial pool balance represented by the
related mortgage loans, are as follows:
Number of Percentage
mortgaged of initial
Property type properties pool balance
- ------------- ---------- ------------
Multifamily.......... %
Retail............... %
Skilled nursing...... %
Hospitality.......... %
Office............... %
Independent/assisted
living............ %
Mixed use............ %
Industrial........... %
Other................ %
Each mortgage loan bears interest at a mortgage rate that is fixed for the
entire remaining term of the mortgage loan. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans--Mortgage Rates;
Calculations of Interest" in this prospectus supplement.
[_______] of the mortgage loans, which represent approximately [___]% of the
initial pool balance, are balloon loans that provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of those mortgage loans. In some cases, monthly payments of
principal begin after an interest-only period. As a result, a substantial
principal amount will be due and payable together with the corresponding
interest payment on each balloon loan on its maturity date, unless the borrower
prepays the balloon loan prior to its maturity date. [____] of the mortgage
loans, which represent approximately [___]% of the initial pool balance, are
fully amortizing.
S-6
<PAGE>
Call protection. None of the mortgage loans currently prohibit voluntary
principal prepayments; however, [certain] of the mortgage loans impose some
restriction on voluntary principal prepayments by requiring the payment of a
prepayment premium with any voluntary principal prepayment. The prepayment terms
of the mortgage loans are described under "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment Provisions"
in this prospectus supplement and in Annex A.
For a further description of the mortgage loans, see "Description of the
Mortgage Pool" and Annex A in this prospectus supplement.
The Mortgage Loan Sellers
The depositor will acquire the mortgage loans from [________], an affiliate of
[_____], one of the underwriters, and GMAC Commercial Mortgage Corporation, an
affiliate of the depositor. Each of these mortgage loan sellers will make
certain representations and warranties with respect to its mortgage loans, and
all of these representations and warranties will be assigned by the depositor to
the trustee. See "Description of the Mortgage Pool--The Mortgage Loan Seller" in
this prospectus supplement.
The Certificates
The depositor will deposit the mortgage loans into the trust. The trust has been
created for the purpose of issuing the mortgage pass-through certificates,
Series 199[ ]-C[ ].
The approximate initial class principal balance, initial pass-through rate and
interest type of each class of the offered certificates will be as shown under
"Transaction Overview" in this prospectus supplement.
Certificate Designations
In this prospectus supplement we will refer to the certificates, or particular
groups of the certificates, by the following designations:
- --------------------------------------------------------------------------------
Designation Related Class(es)
----------- -----------------
Offered certificates Classes X, A, B and R
- --------------------------------------------------------------------------------
Senior certificates Classes X, A and B
- --------------------------------------------------------------------------------
Interest only certificates Class X
- --------------------------------------------------------------------------------
Variable rate certificates Classes X, A, B and C
- --------------------------------------------------------------------------------
Subordinate certificates Classes B and C
- --------------------------------------------------------------------------------
Residual certificates Class R
- --------------------------------------------------------------------------------
In addition to the offered certificates, the trust will issue the Class C
Certificates. These certificates will be subordinated to the offered
certificates and will provide credit support for the offered certificates. They
are not being offered by this prospectus supplement.
Initial Certificate Balances of the Certificates
The aggregate principal balance of the certificates issued by the trust will be
approximately $[________] (subject to an upward or downward variance of no more
than 5%). The senior certificates will comprise approximately [__]% and the
subordinate certificates will comprise approximately [__]% of the initial
aggregate Certificate balance of the certificates. The Class X Certificates will
not have a certificate balance, but will accrue interest on the Class X notional
amount.
Distributions on the Offered Certificates
General
On each distribution date, distributions will be made to the certificates in the
order shown in the following chart. A distribution date is the 15th day of each
month (or if the 15th day is not a business day, on the next business day). The
first distribution date will be [____, _], 199[ ].
The borrowers pay their interest and principal during the monthly collection
period to the servicer. The servicer will deduct its servicing fee and send the
remainder to the trustee. On the distribution date for that month, the trustee
will distribute the remaining amount, up to the available distribution amount,
to the certificateholders. For a description of the calculation of the available
distribution amount, see "Description of the Certificates-- Distributions" in
this prospectus supplement.
S-7
<PAGE>
On each distribution date, the trustee will distribute the available
distribution amount to the certificateholders as follows:
- --------------------------------------------------------------------------------
Available distribution amount
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Step 1
Distribution of interest to the senior certificates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Step 2
Distribution of principal to the
Class A Certificates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Step 3
Distribution to the
Class B and Class C Certificates in the following order:
Interest due to the Class B Certificates
Principal due to the Class B Certificates
Interest due to the Class C Certificates
Principal due to the Class C Certificates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Step 4
Any remaining funds to the residual certificates
- --------------------------------------------------------------------------------
Not all classes of certificates will receive distributions on each distribution
date. Payments to each class of certificates will be made in the order described
above. Because payments are made in an order of priority, there may not be
sufficient funds to make the payments described above after distributions to
classes of certificates with a higher priority.
The Class X Certificates will not receive any distributions of principal.
For a detailed description of how distributions of principal will be allocated
among the various classes of certificates, see "Description of the Certificates
- - Principal Distributions on the Senior Certificates" in this prospectus
supplement.
Pass-Through Rates
Until paid in full, each class of offered certificates will be entitled to
receive monthly distributions of interest. Each class of offered certificates
will receive its distributions in the order shown in the chart above.
Accordingly, on any given distribution date, there may not be sufficient
payments from the mortgage loans for all classes of certificates to receive the
full amount of their interest distributions. If this happens, those certificates
that do not receive full interest distributions (generally the most subordinate
outstanding class or classes) will be entitled to receive any shortfall in
interest distributions in each month thereafter up to the aggregate amount of
the shortfall, in the same priority as their distribution of current interest.
However, there will be no extra interest paid to make up for the delay.
The amount of interest distributed on each class on each distribution date
generally will equal:
o 1/12th of the pass-through rate for that class
multiplied by
o the related class certificate balance or class notional amount
The pass-through rates for each class of certificates will be the respective
pass-through rate specified for that class under "Transaction Overview."
Distributions of Principal
Any principal due will be distributed among certain classes of certificates in
accordance with their respective certificate balance in the priorities described
under "Description of the Certificates - Distributions of Principal of the
Certificates" in this prospectus supplement.
Distributions of Prepayment Premiums
Any prepayment premium actually collected with respect to a mortgage loan will
be distributed among certain classes of certificates in the amounts and
priorities described under "Description of the
Certificates--Distributions--Distributions of Prepayment Premiums" in this
prospectus supplement.
S-8
<PAGE>
Allocation of Losses and Certain Expenses
A loss is realized on a mortgage loan when the servicer determines that it has
received all amounts it expects to recover from the mortgage loan, and that
amount is less than the outstanding principal balance of the loan plus accrued
and unpaid interest. Losses will be allocated to the certificates by deducting
those losses from the certificate balances of the certificates without making
any payments to the certificateholders. In general, losses are allocated if the
aggregate outstanding principal balance of the mortgage loans immediately
following the distributions to be made on the certificates on any distribution
date is less than the aggregate outstanding certificate balance of the
certificates. If this happens, the certificate balances of the certificates will
be reduced as shown in the following chart:
- --------------------------------------------------------------------------------
Step 1
Reduce the certificate balances of the Class C and
Class B Certificates to zero, in that order
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Step 2
Reduce the certificate balances of the Class A
Certificates to zero
- --------------------------------------------------------------------------------
A deficit may be the result of losses incurred on the mortgage loans and/or
certain expenses relating to defaulted mortgage loans and other unanticipated
expenses of the trust. Reductions in the certificate balances of the
certificates as the result of the allocation of losses and expenses also will
have the effect of reducing the notional amount of the Class X Certificates.
For a detailed description of the allocation of losses and expenses among the
certificates, see "Description of the Certificates--Subordination and Allocation
of Losses and Certain Expenses" in this prospectus supplement.
Subordination
The senior certificates will receive all distributions of interest and principal
before the subordinate certificates are entitled to receive distributions of
interest or principal. This subordination of the subordinate certificates to the
senior certificates will provide credit support to the senior certificates. In a
similar fashion, the Class C Certificates will provide credit support to the
Class B Certificates with earlier alphabetical class designations. In addition,
the residual certificates will provide credit support to the other classes of
certificates.
Advances
For any month, if the servicer receives a payment on a mortgage loan that is
less than the full scheduled payment (or if no payment is received at all), the
servicer will advance its own funds to cover that shortfall. However, the
servicer will make an advance only if it determines that the advance will be
recoverable from future payments or collections on that mortgage loan. The
servicer will not be required to advance the full amount of any delinquent
balloon payment. If the servicer fails to make a required advance, the trustee
will be required to make that advance. The servicer and the trustee each will be
entitled to interest on any advances made by it and certain servicing expenses
incurred by it or on its behalf. See "Description of the Certificates--P&I
Advances" in this prospectus supplement and "Description of the Certificates--
Advances in Respect of Delinquencies" and "The Pooling and Servicing Agreements
- --Certificate Account" in the prospectus.
Optional Termination
At its option, the servicer or the depositor may purchase all of the mortgage
loans and related properties in the trust on any distribution date on which the
remaining aggregate principal balance of the mortgage asset pool is less than 1%
of the initial pool balance. If the servicer or depositor exercises this option,
the trust will terminate and the outstanding certificates will be paid off. For
a description of the calculation of the principal balance of a mortgage loan,
see "Description of the Certificates--Certificate Balances and Notional Amounts"
in this prospectus supplement. See also "Description of the
Certificates--Termination; Retirement of Certificates" in this prospectus
supplement and in the prospectus.
Yield and Prepayment Considerations
The yield to maturity of each class of certificates will depend on, among other
things:
o the purchase price of the certificates;
S-9
<PAGE>
o the applicable pass-through rate (if any);
o the actual characteristics of the mortgage loans; and
o the rate and timing of payments on the mortgage loans.
A higher than anticipated rate of prepayments would reduce the aggregate
principal balance of the mortgage loans more quickly than expected, reducing the
aggregate interest payments with respect to the mortgage loans. Accordingly, a
higher rate of principal prepayments could result in a lower than expected yield
to maturity on classes of certificates purchased at a premium. Conversely, a
lower than anticipated rate of principal prepayments could result in a lower
than expected yield to maturity on classes of certificates purchased at a
discount, since payments of principal on the mortgage loans would occur later
than anticipated.
The interest only certificates and certain other classes of certificates will be
especially sensitive to the rate of prepayments. For a discussion of special
yield and prepayment considerations applicable to these classes of certificates,
see "Risk Factors" and "Yield and Maturity Considerations" in this prospectus
supplement.
Book-entry Registration
In general, the offered certificates will be available only in book-entry form
through the facilities of The Depository Trust Company in the United States or
through Cedelbank or the Euroclear System in Europe. See "Description of the
Certificates-- Book-Entry Registration of the Offered Certificates" and Annex D
in this prospectus supplement and "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the prospectus.
Denominations
The offered certificates other than the Class X Certificates are offered in
minimum denominations of $[_____________] each and multiples of $1 in excess
thereof. The Class X Certificates are offered in minimum denominations of
$[____________] initial notional amount each and multiples of $1 in excess
thereof.
Ratings
The offered certificates are required to receive ratings from _____________ and
_______________ that are not lower than those indicated under "Transaction
Overview." The ratings on the offered certificates address the likelihood of the
receipt by holders of offered certificates of all distributions on the
underlying mortgage loans to which they are entitled. A security rating is not a
recommendation to buy, sell or hold a security and is subject to change or
withdrawal at any time by the assigning rating agency. The ratings also do not
address the likely actual rate of prepayments. This rate of prepayments, if
different than originally anticipated, could adversely affect the yield realized
by holders of the offered certificates or cause the Class X certificateholders
to fail to recover their initial investments.
Legal Investment
As of the date of their issuance, the offered certificates will [not] be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. See "Certain Legal Investments" in this prospectus
supplement for important information concerning possible restrictions on
ownership of the offered certificates by regulated institutions. Investors
should consult their own legal advisors in determining whether and to what
extent the offered certificates constitute legal investments for them.
ERISA Considerations
Subject to important considerations described under "ERISA Considerations" in
this prospectus supplement and in the accompanying prospectus, the senior
certificates may be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts. The subordinate and
residual certificates are not available for purchase by such persons except to
the limited extent described under "ERISA Considerations" in this prospectus
supplement.
Tax Status
For federal income tax purposes, the depositor will elect to treat the asset
pool that makes up the trust as a real estate mortgage investment conduit. The
certificates, other than the residual certificates, will represent ownership of
regular interests in this pool. The certificates, other than the residual
certificates,
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generally will be treated as representing ownership of debt for federal income
tax purposes. Certificateholders will be required to include in income all
interest and original issue discount on their certificates in accordance with
the accrual method of accounting regardless of the certificateholders' usual
methods of accounting. For federal income tax purposes, the residual
certificates will be the residual interests in the pool.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the residual certificates, see "Certain Federal Income Tax
Consequences" in this prospectus supplement and in the accompanying prospectus.
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Risk Factors
The offered certificates are not suitable investments for all investors. In
particular, no investor should purchase any class of offered certificates unless
the investor understands and is able to bear the prepayment, credit, liquidity
and market risks associated with that class.
The offered certificates are complex securities and it is important that
each investor possess, either alone or together with an investment advisor, the
expertise necessary to evaluate the information contained in this prospectus
supplement and the accompanying prospectus in the context of that investor's
financial situation.
Risks related to the certificates.
Subordination and The yield to maturity on the subordinate
allocation of losses on certificates, including the Class B and Class C
the mortgage loans may Certificates, will be extremely sensitive to most
affect payments and yield realized losses on the mortgage loans. After the
on your certificates. principal balance of the Class C Certificates has
been reduced to zero, most losses on the mortgage
loans, together with certain expenses relating to
defaulted mortgage loans, will be allocated
exclusively to the Class B Certificates, reducing
amounts payable to that class. In addition, if the
principal balance of all of the subordinate
certificates has been reduced to zero, these
losses and expenses will be allocated to the Class
A Certificates. Whenever the certificate balance
of a class is reduced due to allocation of losses
and expenses, the notional amount of the Class X
Certificates will be reduced by a corresponding
amount. See "Description of the
Certificates--Subordination; Allocation of Losses
and Certain Expenses" in this prospectus
supplement.
Conflicts of interest may The servicer will have considerable latitude in
occur when determining whether to liquidate or modify
certificateholders of defaulted mortgage loans. See "Servicing of the
various classes have Mortgage Loans--Modifications, Waivers and
differing interests. Amendments" in this prospectus supplement. The
servicer expects to acquire, in connection with
the initial issuance of the certificates, [a
portion of the Class X Certificates and certain of
the subordinate certificates, including a portion
of the Class C Certificates]. Following its
purchase of these certificates, the servicer will
have rights as a holder of certificates in
addition to rights as servicer. Consequently, the
servicer's purchase of certificates could cause a
conflict between its duties as servicer and its
interest as a holder of a certificate, especially
to the extent that certain actions or events have
a disproportionate effect on one or more classes.
In addition, under certain circumstances, the
holder or holders of certificates representing
more than 50% of the voting rights allocated to a
certain class (initially the Class C Certificates)
may terminate the rights and obligations of the
servicer in respect of specially serviced mortgage
loans and properties acquired through foreclosure
and appoint a replacement to perform these duties.
Investors should be aware that, although the
servicer is required to administer the mortgage
loans in accordance with certain servicing
standards without regard to its ownership of any
certificate, the servicer's interests as the
holder of certificates representing 50% of the
voting rights allocated to the specified class
with respect to defaulted mortgage loans may be in
conflict with those of the holders of the offered
certificates. See
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"Servicing of the Mortgage Loans--Termination of
the Servicer with Respect to Specially Serviced
Mortgage Loans and REO Properties" in this
prospectus supplement.
For a description of the controlling class, see
"Servicing of the Mortgage Loans--Termination of
the Servicer with Respect to Specially Serviced
Mortgage Loans and REO Properties" in this
prospectus supplement. For a description of
specially serviced mortgage loans, see "Servicing
of the Mortgage Loans--General" in this prospectus
supplement. For a description of property acquired
through foreclosure, see "The Pooling and
Servicing Agreements--Collection and other
Servicing Procedures" in the prospectus.
Risks related to the mortgage loans.
Environmental conditions "Phase I" environmental site assessments (or
may affect risk of loss on updates of previously conducted assessments) were
the mortgage loans. performed for all of the mortgaged properties.
"Phase II" environmental site assessments were
performed for certain mortgage loans on behalf of
the related mortgage loan seller, or the related
report was delivered to the related mortgage loan
seller in connection with its acquisition or
origination of the related mortgage loan. For all
but [_____] of the mortgage loans (which represent
[______]% of the initial pool balance), these
environmental assessments (or updates) were
performed during the 12-month period prior to
______ __, 199_. None of the environmental
assessments revealed material adverse
environmental conditions or circumstances with
respect to any mortgaged property, except:
o those cases where the adverse conditions
were remediated or abated prior to ______
__, 199_;
o those cases in which an operations and
maintenance plan or periodic monitoring of
the mortgaged property or nearby properties
was recommended;
o those cases involving a leaking underground
storage tank or groundwater contamination
at a nearby property, which had not yet
materially affected the mortgaged property
and as to which a responsible party either
has been identified under applicable law or
was then conducting remediation of the
related condition; and
o those cases in which groundwater, soil or
other contamination was identified or
suspected, and an escrow reserve, indemnity
or other collateral was provided to cover
the estimated costs of continued
monitoring, investigation, testing or
remediation.
The servicer must obtain an environmental site
assessment of a mortgaged property prior to
acquiring title thereto or assuming its operation.
This requirement effectively precludes enforcement
of the security for the related mortgage loan
until a satisfactory environmental site assessment
is obtained (or until any required remedial action
is taken), but will decrease
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the likelihood that the trust will become liable
for a material adverse environmental condition at
the mortgaged property. There is no guarantee that
this requirement will effectively insulate the
trust from potential liability for a material
adverse environmental condition at any mortgaged
property. See "The Pooling and Servicing
Agreements--Realization Upon Defaulted Mortgage
Loans," "Risk Factors--Environmental Conditions
May Affect Risk of Loss on the Mortgage Loans" and
"Certain Legal Aspects of Mortgage Loans
--Environmental Considerations" in the prospectus.
Geographic concentration The mortgaged properties are located in [ ] states
may affect risk of loss on and the District of Columbia. Except as set forth
the mortgage loans. in the table under "Summary--What You
Own--Information About the Mortgage Pool--General"
in this prospectus supplement, no state contains
more than 5.0% (by principal balance as of _____
__, 199_) of the mortgaged properties.
In general, the level of geographic concentration
increases the exposure of the mortgage asset pool
to any adverse economic or other developments that
may occur in the applicable states, including
earthquakes, hurricanes and other natural
disasters. In addition, improvements on mortgaged
properties located in California may be more
susceptible to certain types of special hazards
not covered by insurance (such as earthquakes)
than properties located in other parts of the
country. In general, the mortgaged properties are
not insured for earthquake or hurricane risk. With
respect to mortgaged properties located in
California, the related mortgage loan seller
generally conducted seismic studies to assess the
"probable maximum loss" for the related mortgaged
properties. In certain circumstances, the related
borrower was required to obtain earthquake
insurance covering the mortgaged properties.
Certain mortgaged properties may be insured for
amounts less than the outstanding principal
balances of the related mortgage loans.
The mortgage loans are not None of the mortgage loans is insured or
insured. guaranteed by the United States, any governmental
entity or instrumentality, by any private mortgage
insurer or by the depositor, the underwriters, the
servicer or any mortgage loan seller. In certain
limited circumstances, a mortgage loan seller may
be obligated to repurchase or replace a mortgage
loan if its representations and warranties
concerning that mortgage loan are breached. There
is no guarantee, however, that any mortgage loan
seller will be in a financial position to carry
out that repurchase or substitution. See
"Description of the Mortgage Pool--The Mortgage
Loan Seller," " --Assignment of the Mortgage
Loans; Repurchases and Substitutions," and
"--Representations and Warranties; Repurchases" in
this prospectus supplement.
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<PAGE>
The mortgage loans are Substantially all of the mortgage loans are
non-recourse loans. non-recourse loans. In the event of borrower
default on these mortgage loans, the only recourse
will be to the related mortgaged property. Even if
the mortgage loan documents permit recourse to the
borrower or a guarantor, however, the trust may
not be able to ultimately collect the amount due
under that mortgage loan. Consequently, you should
consider payment on each mortgage loan to depend
primarily on:
o before maturity, the sufficiency of the
cash flow of the related mortgaged
property; and
o at maturity (whether at scheduled maturity
or, in the event of a default, upon the
acceleration of maturity), on the then
market value of the related mortgaged
property or the ability of the related
borrower to refinance the mortgaged
property.
Balloon payments may [____] mortgage loans, which represent [__]% of
affect risk of loss the initial pool balance, require balloon payments
on the mortgage loans. at their stated maturity, unless previously
prepaid. These mortgage loans involve a greater
degree of risk than fully amortizing loans,
because the ability of a borrower to make a
balloon payment typically depends on its ability
to refinance the mortgage loan or sell the related
mortgaged property. See "Description of the
Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans" in this prospectus supplement and
"Risk Factors-- Investment in Commercial and
Multifamily Mortgage Loans Is Subject to Certain
Risks" in the prospectus.
To maximize recoveries on defaulted mortgage
loans, the servicer may, under certain
circumstances, extend and/or otherwise modify
mortgage loans that are in material default or as
to which a payment default (including the failure
to make a balloon payment) is reasonably
foreseeable. See "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" in
this prospectus supplement. There is no guarantee,
however, that an extension or modification will in
fact increase the present value of recoveries in a
given case. Any delay in collection of a balloon
payment that otherwise would be distributable to a
class, whether this delay is due to borrower
default or to modification of the related mortgage
loan by the servicer, is likely to extend the
weighted average life of that class. See "Yield
and Maturity Considerations" in this prospectus
supplement and in the prospectus.
The value and successful [___] mortgaged properties, securing mortgage
operation of multifamily loans that represent [___]% of the initial pool
properties will be balance, are secured by multifamily rental
affected by various properties. The following is a description of
factors. significant factors determining the value and
successful operation of a multifamily property.
Occupancy and rent levels may be affected by:
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o adverse local, regional or national
economic conditions, which may limit the
amount of rent that can be charged for
rental units or result in a reduction in
timely rent payments or a reduction in
occupancy levels;
o construction of additional housing units;
o local military base closings;
o developments at local colleges and
universities;
o national, regional and local politics,
including, in the case of multifamily
rental properties, current or future rent
stabilization and rent control laws and
agreements; and
o the level of mortgage interest rates, which
may encourage tenants in multifamily rental
properties to purchase housing.
Tax credit and city, state and federal housing
subsidy or similar programs may:
o impose rent limitations and adversely
affect the ability of the applicable
borrowers to increase rents to maintain
their mortgaged properties in proper
condition during periods of rapid inflation
or declining market value of those
mortgaged properties; or
o impose income restrictions on tenants,
which may reduce the number of eligible
tenants in those mortgaged properties and
result in a reduction in occupancy rates.
The differences in rents between subsidized or
supported properties and other multifamily rental
properties in the same area may not be a
sufficient economic incentive for some eligible
tenants to reside at a subsidized or supported
property, which may have fewer amenities or
otherwise be less attractive as a residence.
All of these conditions and events may increase
the possibility that a borrower may be unable to
meet its obligations under its mortgage loan.
The value and successful [___] mortgaged properties, securing mortgage
operation of retail loans that represent [___]% of the initial pool
properties will be balance, are secured by retail properties.
affected by various Significant factors that determine the value of
factors. retail properties are the quality of the tenants,
as well as fundamental aspects of real estate such
as location and market demographics.
The correlation between the success of tenant
businesses and property value is more direct with
respect to retail properties than other types of
commercial property, because a significant
component of the total rent paid by retail tenants
often is tied to a percentage of gross sales.
Significant tenants at a retail property play an
important part in generating customer traffic and
making a retail property a desirable location for
other tenants at that property. Accordingly, a
retail property may be adversely affected if a
significant tenant ceases doing business at that
location (which may occur because of the tenant's
voluntary
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<PAGE>
decision not to a renew a lease, the bankruptcy or
insolvency of the tenant, the tenant's general
cessation of business activities or for other
reasons). In addition, certain tenants at retail
properties may be entitled to terminate their
leases or pay reduced rent if an anchor tenant
ceases operations at that property. There is no
guarantee that any anchor tenants will continue to
occupy space in the related retail property. See
"Description of the Mortgage Asset Pool--Certain
Terms and Conditions of the Mortgage Loans--Tenant
Matters" in this prospectus supplement.
Furthermore, the correlation between the success
of tenant businesses and credit quality of the
mortgage loan increases when the property is a
single tenant property. For a description of risk
factors relating to single tenant properties see
"--Tenant Credit Risk May Affect Risk of Loss on
the Mortgage Loans" below.
Unlike office or hospitality properties, retail
properties also face competition from sources
outside a given real estate market. Catalogue
retailers, home shopping networks, the Internet,
telemarketing and outlet centers all compete with
more traditional retail properties for consumer
dollars. Continued growth of these alternative
retail outlets (which often are characterized by
lower operating costs) could adversely affect the
rents collectible at the retail properties which
secure mortgage loans in the trust.
The value and successful [___] mortgaged properties, securing mortgage
operation of health care loans which represent [__]% of the initial pool
facilities will be balance, are secured by mortgages on properties
affected by various operated as skilled nursing facilities.
factors. Significant factors that determine the value of
these properties include:
o Federal and state laws. Providers of
long-term nursing care and other medical
services are highly regulated by federal,
state and local law and are subject to,
among other things:
o federal and state licensing
requirements;
o facility inspections;
o rate setting;
o reimbursement policies; and
o laws relating to the adequacy of
medical care, distribution of
pharmaceuticals, equipment, personnel,
operating policies and maintenance of
and additions to facilities and
services.
o Competition with similar properties on a
local and regional basis.
o The continued availability of revenue from
government reimbursement programs,
primarily Medicaid and Medicare. Skilled
nursing facilities may receive a
substantial portion of their revenues
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<PAGE>
form government reimbursement programs,
primarily Medicaid and Medicare. Medicaid
and Medicare are subject to the following
factors that can adversely affect revenues
from operation:
o statutory and regulatory changes;
o retroactive rate adjustments;
o administrative rulings;
o policy interpretations;
o delays by fiscal intermediaries; and
o government funding restrictions and
cost-containment measures by
governmental payors that limit
payments to health care providers.
Any or all of these factors can increase the cost
of operation, limit growth and, in extreme cases,
require or result in suspension or cessation of
operations.
Under applicable federal and state laws and
regulations, Medicare and Medicaid reimbursements
generally may not be made to any person other than
the provider who actually furnished the related
medical goods and services. Accordingly, in the
event of foreclosure on a nursing facility, a
subsequent lessee or operator of the facility
generally would not be entitled to obtain any
outstanding reimbursement payments from government
payors that relate to services furnished prior to
the foreclosure.
Skilled nursing facilities may be subject to state
regulation that requires the operators to be
licensed (generally on an annual basis), and the
facilities to meet various state licensure
requirements that relate, among other things, to
qualifications of personnel, quality of care and
the adequacy of their buildings, equipment and
suppliers. In the event of foreclosure, the
trustee or purchaser at a foreclosure sale may not
be entitled to the rights under any required
licenses and regulatory approvals. The trustee or
purchaser at a foreclosure sale, if required to
apply in its own right, may not be able to obtain
a new license or a new approval. In addition,
skilled nursing facilities generally are "special
purpose" properties that are not readily converted
to general residential, retail or office use.
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<PAGE>
The value and successful [_________] mortgaged properties, securing
operation of office mortgage loans that represent [__]% of the initial
properties will be pool balance, are secured by office properties.
affected by various Significant factors determining the value of
factors. office properties are:
o Quality of tenants. Office properties may
be adversely affected by an economic
decline in the businesses operated by the
tenants. The risk of adverse effect is
increased if revenue is dependent on a
single tenant or if there is a significant
concentration of tenants in a particular
business or industry. For a description of
risk factors relating to single tenant
properties see "--Tenant Credit Risk May
Affect Risk of Loss on the Mortgage Loans"
below.
o Physical attributes of the building in
relation to competing buildings. Office
properties are subject to competition with
other office properties in the same market.
Competition is affected by a property's
age, condition, design (for example, floor
sizes and layout), access to transportation
and ability or inability to offer certain
amenities to its tenants, including
sophisticated building systems (such as
fiberoptic cables, satellite communications
or other base building technological
features).
o Strength and stability of the market area
as a desirable business location. The
success of an office property depends on
the local economy. A company's decision to
locate office headquarters in a given area,
for example, may be affected by factors
such as labor cost and quality, tax
environment, and quality of life issues
such as schools and cultural amenities. A
central business district may have an
economy which is markedly different from
that of a suburb. The local economy and the
financial condition of the owner will
affect an office property's ability to
attract stable tenants on a consistent
basis. In addition, the cost of refitting
office space for a new tenant often is more
costly for office properties than for other
property types.
The value and successful [_____] mortgaged properties, securing mortgage
operation of hospitality loans that represent [__]% of the initial pool
properties will be balance, are secured by hospitality properties.
affected by various Various factors affect the economic viability of a
factors. hospitality property, including:
o Location. The proximity of a hospitality
property to major population centers or
attractions will affect room rates and
occupancy levels.
o Economic conditions. Adverse local,
regional or national economic conditions
may limit room rates and reduce occupancy
levels. The construction of competing
hospitality properties can have similar
effects. Because hospitality property rooms
generally are rented for short periods of
time, hospitality properties tend to
respond more quickly to adverse economic
conditions and competition than do other
commercial properties.
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<PAGE>
o Quality and franchise affiliation. The
viability of hospitality properties that
are franchisees of national or regional
hotel chains depends in large part on the
continued existence and financial strength
of the franchisor, the public perception of
the franchise service mark and the
continued existence of the franchise
license agreement. In addition, the
transferability of franchise license
agreements may be restricted.
o Liquor licenses. A hospitality property's
ability to attract customers and a portion
of its revenues may depend on its having a
liquor license. A liquor license may not be
transferable in the event of a foreclosure
on the related mortgage property.
o Seasonality. In many parts of the country
the hotel and lodging industry is generally
seasonal in nature. This seasonality can be
expected to cause periodic fluctuations in
room and other revenues, occupancy levels,
room rates and operating expenses.
The value and successful [______] mortgaged properties, securing mortgage
operation of industrial loans that represent [__]% of the initial pool
properties will be balance, are secured by industrial properties.
affected by various Significant factors determining the value of
factors. industrial properties are:
o Quality of tenants. Concerns about the
quality of tenants, particularly major
tenants, are similar in both office
properties and industrial properties,
although industrial properties are more
frequently dependent on a single tenant.
For a description of risk factors relating
to single tenant properties see "--Tenant
Credit Risk May Affect Risk of Loss on the
Mortgage Loans" below.
o Environmental concerns. Properties used for
many industrial purposes are more prone to
environmental concerns than other property
types.
o Building site design and adaptability. Site
characteristics valuable to an industrial
property include:
o clear heights;
o column spacing;
o zoning restrictions;
o number of bays and bay depths;
o divisibility;
o truck turning radius; and
o overall functionality and
accessibility.
o Building site location. An industrial
property requires availability of labor
sources, proximity to supply sources and
customers, and accessibility to rail lines,
major roadways and other distribution
channels.
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The value and successful Mortgage loans secured by other property types,
operation of other including parking garages, mixed use, mobile home
property types will be parks and hospitals, may pose risks not associated
affected by various with mortgage loans secured by liens on other
factors. types of income-producing real estate. [______]
mortgaged properties, securing mortgage loans that
represent approximately [__]% of the initial pool
balance, are secured by types of property other
than those described above. These properties may
be "special purpose" properties that may have
limited alternative uses.
Tenant credit risk The income from, and market value of, retail,
may affect risk of loss on office and industrial mortgaged properties would
the mortgage loans. decline if:
o space leases expired or tenants defaulted
and the borrowers were unable to renew the
leases or relet the space on comparable
terms. Even if borrowers successfully relet
vacated space, the costs associated with
reletting, including tenant improvements,
leasing commissions and free rent, can
exceed the amount of any reserves
maintained for that purpose and reduce cash
flow from the mortgaged properties.
Although many of the mortgage loans require
the borrower to maintain escrows for
leasing expenses, there is no guarantee
that these reserves will be sufficient.
o tenants were unable to meet their lease
obligations. If tenant sales in retail
properties decline, rents based on sales
also will decline, and tenants may be
unable to pay their rent or other occupancy
costs. If a tenant defaults, the borrower
may experience delays and costs in
enforcing the lessor's rights.
o if a significant tenant were to become a
debtor in a bankruptcy case under any
bankruptcy or similar law related to
creditors rights, or if for any other
reason rental payments could not be
collected.
The value and successful The successful operation of a real estate project
operation of commercial depends on the performance and viability of the
properties will be property manager of that project. The property
affected by the quality of manager is responsible for the following
property management. activities:
o responding to changes in the local market;
o planning and implementing the rental
structure, including establishing levels of
rent payments; and
o ensuring that maintenance and capital
improvements are carried out in a timely
fashion.
Sound property management controls costs, provides
appropriate service to tenants and ensures that
improvements are maintained. Accordingly, sound
property management can improve cash flow, reduce
vacancy, leasing and repair costs and preserve
building value. On the other hand, management
errors can impair the long term viability of a
real estate project.
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<PAGE>
The managers of certain mortgaged properties and
the borrowers may experience conflicts of interest
in the management and/or ownership of those
mortgaged properties because:
o the mortgaged properties may be managed by
property managers affiliated with the
borrowers;
o the mortgaged properties may be managed by
property managers who also manage and/or
franchise additional properties, including
mortgaged properties or other properties
that compete with the mortgaged properties;
and
o affiliates of the managers and/or the
borrowers, or the managers and/or the
borrowers themselves, also may own other
properties, including competing properties.
Appraisals are not An appraisal was conducted for each mortgaged
guarantees of the value of property at mortgage loan origination, and
mortgaged properties. loan-to-value ratios as of ______ __, 199_
referred to in this prospectus supplement are
based on the resulting estimates of value. Those
estimates of value represent only the analysis and
opinion of the person performing the appraisal or
market analysis and are not guarantees of present
or future values. In addition, the values of the
mortgaged properties may have changed
significantly since the appraisal or market study
was performed in connection with mortgage loan
origination and, generally, no update of that
appraisal or market study has been obtained.
Moreover, appraisals seek to establish the amount
a typically motivated buyer would pay a typically
motivated seller. This amount could be
significantly higher than the amount obtained from
the sale of a mortgaged property under a distress
or liquidation sale. For information about the
values of the mortgaged properties available to
the depositor as of ______ __, 199_, see Annex A
and Annex C to this prospectus supplement. You
should be aware that, because of the factors
described above, we have provided this information
for illustrative purposes only.
Secured subordinate Certain mortgaged properties are encumbered by
financing may affect risk subordinate debt that is not part of the mortgage
of loss on the mortgage asset pool. The holder of any material subordinate
loans. debt on the mortgaged properties has agreed not to
foreclose for so long as the related mortgage loan
is outstanding and the trust is not pursuing a
foreclosure action. Substantially all of the
mortgage loans either prohibit the related
borrower from encumbering the mortgaged property
with additional secured debt or require the
consent of the holder of the first lien prior to
so encumbering the mortgaged property. A violation
of this prohibition, however, may not become
evident until the related mortgage loan otherwise
defaults.
The existence of additional subordinate
indebtedness may adversely affect the borrower's
financial viability or the lender's security
interest in the related mortgaged property
because:
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<PAGE>
o refinancing the related mortgage loan at
maturity for the purpose of making any
balloon payments may be more difficult;
o reduced cash flow could result in deferred
maintenance; and
o if the holder of the subordinated debt
files for bankruptcy or is placed in
involuntary receivership, foreclosing on
the mortgaged property could be delayed.
Related borrowers may Certain borrowers under the mortgage loans are
affect risk of loss on the affiliated or under common control with one
mortgage loans. another. When borrowers are related, any adverse
circumstances relating to one borrower or its
affiliates, and affecting one mortgage loan or
mortgaged property also can affect the related
borrower's mortgage loans or mortgaged properties.
In particular, the bankruptcy or insolvency of one
borrower or its affiliate could have an adverse
effect on the operation of all of the mortgaged
properties of that borrower and its affiliates and
on the ability of those related mortgaged
properties to produce sufficient cash flow to make
required payments on the mortgage loans. For
example, if a person that owns or directly or
indirectly controls several mortgaged properties
experiences financial difficulty at one mortgaged
property, it could defer maintenance at one or
more other mortgaged properties to satisfy current
expenses with respect to the mortgaged property
experiencing financial difficulty. Alternatively,
it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of
interrupting payments for an indefinite period on
all the related mortgage loans. See "Certain Legal
Aspects of Mortgage Loans - Bankruptcy Laws" in
the prospectus.
Concentration of mortgage Several mortgage loans, either individually or
loans may affect risk of together with other mortgage loans with which they
loss on the mortgage loans. are cross-collateralized, have outstanding
balances that are substantially higher than the
average outstanding balance. In general, if a
mortgage pool is made up of a fewer number of
loans with larger-than-average balances, losses
are likely to be more severe, relative to the size
of the pool, than would be the case if the
aggregate balance of the pool were more evenly
distributed.
Limitation on [____] mortgage loans, representing [__]% of the
enforceability of initial pool balance, are cross-collateralized
cross-collateralization with one or more other mortgage loans.
may affect risk of loss on Cross-collateralization arrangements involving
the mortgage loans. more than one borrower could be challenged as a
fraudulent conveyance by creditors of a borrower
or by the representative or the bankruptcy estate
of a borrower, if that borrower were to become a
debtor in a bankruptcy case. Generally, under
federal and most state fraudulent conveyance
statutes, the incurring of an obligation or the
transfer of property by a person may be avoided
under certain circumstances if:
o the person did not receive fair
consideration or reasonably equivalent
value in exchange for that obligation or
transfer; and
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o the person either:
o was insolvent or was rendered insolvent by
that obligation or transfer;
o retained an unreasonably small amount of
property or capital for the business or
transaction in which it was engaged or was
about to engage; or
o intended to, or believed that it would,
incur debts that would be beyond its
ability to pay as those debts matured.
Accordingly, a lien granted by a borrower to
secure repayment of another borrower's mortgage
loan could be avoided if a court were to determine
that (i) the borrower was insolvent at the time of
granting the lien, was rendered insolvent by the
granting of the lien, or was left with inadequate
capital or was unable to pay its debts as they
matured and (ii) when it allowed its mortgaged
property to be encumbered by a lien securing the
entire indebtedness represented by the other
mortgage loan, the borrower did not receive fair
consideration or reasonably equivalent value in
return. Thus, while cross-collateralization may
appear to provide additional security for loans,
this additional security may not be considered to
be available if a court should determine that the
grant was a fraudulent conveyance. See
"Description of the Mortgage Pool -Certain Terms
and Conditions of the Mortgage Loans Related
Borrowers, Cross-Collateralized and
Cross-Defaulted Mortgage Loans" in this prospectus
supplement.
Tax considerations related If the trust acquires a mortgaged property after a
related to foreclosure default on the mortgage loan pursuant to a
may affect payments to foreclosure or delivery of a deed in lieu of
certificateholders. foreclosure, that property will be considered
"foreclosure property" under the tax rules
applicable to real estate investment trusts. It
will continue to be considered "foreclosure
property" for a period of [two][three] full years
after the taxable year of acquisition by the
trust, with possible extensions. Under these tax
rules, the servicer will be required to retain an
independent contractor to operate and manage that
mortgaged property. Any net income from this
"foreclosure property" other than qualifying
"rents from real property," will subject the real
estate mortgage investment conduit containing the
mortgage loans to federal (and possibly state or
local) tax on that income at the highest marginal
corporate tax rate. Payment of these taxes will
reduce the net proceeds available for distribution
to certificateholders.
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Mortgage loans secured by Some states, including California, limit the
mortgaged properties may remedies available to the holder of a mortgage or
be affected by state law deed of trust in a foreclosure.
limitations on remedies.
[____] of the mortgaged properties, securing
mortgage loans that represent [__]% of the initial
pool balance, are located in California. This
section contains a general summary of certain
legal aspects of loans secured by income-producing
properties in California. It does not provide a
complete study of California state law or reflect
the laws of any other state. See also "Certain
Legal Aspects of Mortgage Loans" in the
prospectus.
Mortgage loans in California generally are secured
by deeds of trust. If a deed of trust contains a
private power of sale, the lender may foreclose
either non-judicially or judicially. Most lenders
choose non-judicial foreclosure because the
process typically may be completed within a much
shorter time frame. After a non-judicial
foreclosure, however, a lender is barred from
obtaining a deficiency judgment. If the lender
opts for judicial foreclosure, an application for
a deficiency judgment must be filed with the court
within three months of the foreclosure sale. A
deficiency judgment may not exceed the excess of
the indebtedness over the fair value of the
property as determined by the court. Unless the
lender waives the right to a deficiency judgment,
the borrower has a right to redeem the property
following a judicial foreclosure sale for the
following periods from the date of sale:
o three months, if the proceeds from the sale
were sufficient to satisfy the debt; or
o one year, if the proceeds were insufficient
to satisfy the debt.
Junior lienholders do not have a right to redeem
the property following a judicial foreclosure sale
unless the junior lien was created before July 1,
1983. California's form of the "one action rule"
requires the lender to look first to the property
for satisfaction of the debt if the lender wants
to pursue a deficiency judgment. In general, a
lender who takes any action to enforce the debt
other than judicial or non-judicial foreclosure
violates the one action rule and may be deemed to
have waived its security for the indebtedness. In
some cases, that lender may be prevented from
collecting the indebtedness altogether.
Mortgage loans secured by [____] mortgage loans, which represent [__]% of
leasehold properties will the initial pool balance, are secured solely by a
be affected by various mortgage on the borrower's leasehold interest
factors. under a ground lease. [____] mortgage loans, which
represent [__]% of the initial pool balance, are
secured by a mortgage on both the borrower's
leasehold interest and fee simple interest in the
mortgaged property. Unless a mortgage loan is
secured by a lien on both the ground lessor's and
ground lessee's interest in the mortgaged
property, each mortgage loan secured by mortgages
on leasehold estates was underwritten taking into
account payment of the ground lease rent. Mortgage
loans secured by leasehold interests may provide
for the resetting of ground lease rents based on
certain factors such as the fair market value of
the related mortgaged property or prevailing
interest rates. Increases in ground rents may
adversely impact a borrower's ability to make
payments under a related
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mortgage loan.
Upon bankruptcy of a lessor or a lessee under a
ground lease, the debtor entity has the right to
assume (that is, continue) or reject (that is,
terminate) the ground lease. Section 365(h) of the
Bankruptcy Code (as it is currently in effect)
permits a ground lessee whose ground lease is
rejected by a debtor ground lessor to remain in
possession of its leased premises under the rent
reserved in the lease for the term (including
renewals) of the ground lease. The ground lessee,
however, is not entitled to enforce the obligation
of the ground lessor to provide any services
required under the ground lease. If a ground
lessee/borrower in bankruptcy rejected any or all
of its ground leases, the leasehold mortgagee
would have the right to succeed to the ground
lessee/borrower's position under the lease only if
the ground lessor had specifically granted the
mortgagee that right. If the ground lessor and the
ground lessee/borrower are involved in concurrent
bankruptcy proceedings, the trustee may be unable
to enforce the bankrupt ground lessee/borrower's
obligation to refuse to treat a ground lease
rejected by a bankrupt ground lessor as
terminated. If this happened, a ground lease could
be terminated notwithstanding lender protection
provisions contained therein or in the mortgage.
If the borrower's leasehold were to be terminated
after a lease default, the leasehold mortgagee
would lose its security. Each of the ground leases
related to the mortgage loans, however, contains
the following protections to mitigate this risk:
o It requires the lessor to give the
leasehold mortgagee notice of lessee
defaults and an opportunity to cure them.
o It permits the leasehold estate to be
assigned to and by the leasehold mortgagee
at and after a foreclosure sale.
o It contains certain other protective
provisions typically included in a
"mortgageable" ground lease.
See "Description of the Mortgage Pool - Certain
Terms and Conditions of the Mortgage Loans -
Ground Leases" in this prospectus supplement.
Zoning and building code Each mortgage loan seller has taken certain steps
compliance may affect risk to establish that the use and operation of the
of loss on the mortgage mortgaged properties securing its mortgage loans
loans. are in compliance in all material respects with
all applicable zoning, land-use, building, fire
and health ordinances, rules, regulations, and
orders. Evidence of this compliance may be in the
form of legal opinions, certifications from
government officials, title policy endorsements
and/or representations by the related borrower in
the related mortgage loan documents. There is no
guarantee that these steps revealed all possible
violations. Certain violations may exist at any
particular mortgaged property, but the respective
mortgage loan sellers have represented that all
latent defects have been disclosed and are not
material. In many cases, the use, operation and/or
structure of a mortgaged property constitutes a
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permitted nonconforming use and/or structure that
may not be rebuilt to its current state in the
event of a material casualty event. The related
mortgage loan sellers expect that insurance
proceeds would be available for application to the
related mortgage loan if such a material casualty
event were to occur. If a mortgaged property could
not be rebuilt to its current state or its current
use were no longer permitted due to building
violations or changes in zoning or other
regulations, then the borrower might experience
cashflow delays and shortfalls that would reduce
or delay the amount of proceeds available for
distributions to certificateholders.
Changes in concentration As payments of principal (including voluntary
may affect risk of loss on principal prepayments, liquidation proceeds and
the mortgage loans. the repurchase prices for any mortgage loans
repurchased due to breaches of representations or
warranties or defaults) are received with respect
to the mortgage loans, the mortgage loans may
exhibit increased concentration with respect to
types of properties, property characteristics,
number of borrowers and affiliated borrowers and
geographic location. Because principal on the
Certificates entitled thereto is payable in
sequential order, the classes that have a lower
priority with respect to the payment of principal
are relatively more likely to be exposed to risks
associated with any changes in concentrations of
borrower, loan or property characteristics.
Compliance with the Under the Americans with Disabilities Act of 1990,
Americans with all public accommodations are required to meet
Disabilities Act may certain federal requirements related to access and
affect payments to use by disabled persons. To the extent the
certificateholders. mortgaged properties do not comply with this law,
the borrowers may be required to incur costs of
compliance. In addition, noncompliance could
result in the imposition of fines by the federal
government or an award of damages to private
litigants. Payments of these expenses and fines
would reduce the amount of proceeds available for
distributions to certificateholders.
Litigation may affect Legal proceedings may be pending and, from time to
payments to time, threatened against the borrowers and their
certificateholders. affiliates relating to the business of the
borrowers and their affiliates, or arising out of
the ordinary course of that business. There is no
guarantee that this litigation will not have a
material adverse effect on the distributions to
certificateholders.
Year 2000 problem may We are aware of issues associated with the
affect collections and programming code in existing computer systems as
distributions of receipts the year 2000 approaches. The "year 2000 problem"
on the mortgage loans. is pervasive and complex; virtually every computer
operation will be affected in some way by the
rollover of the two digit year value to 00. The
issue is whether computer systems will properly
recognize date-sensitive information when the year
changes to 2000. Systems that do not properly
recognize such information could generate
erroneous data or cause a system to fail.
We have been advised by each of the servicer and
the trustee that they are committed either to (i)
implement modifications to their respective
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existing systems to the extent required to cause
them to be year 2000 ready or (ii) acquire
computer systems that are year 2000 ready in each
case prior to January 1, 2000. However, we have
not made any independent investigation of the
computer systems of the servicer or the trustee.
If computer problems arise out of a failure of
such efforts to be completed on time, or if the
computer systems of the servicer or the trustee
are not fully year 2000 ready, the resulting
disruptions in the collection or distribution of
receipts on the mortgage loans could materially
and adversely affect your investment.
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<PAGE>
Description Of The Mortgage Pool
General
The Trust Fund will consist primarily of a segregated pool (the "Mortgage
Pool") [conventional,] balloon mortgage loans (the "Mortgage Loans") with an
aggregate Cut-off Date Balance (the "Initial Pool Balance") of
$________________- [, subject to a variance of plus or minus 5%]. Each Mortgage
Loan is evidenced by a promissory note (a "Mortgage Note") and secured by a
mortgage, deed of trust or other similar security instrument (a "Mortgage") that
creates a first mortgage lien on a [fee simple] estate in a [multifamily rental]
[commercial] property (a "Mortgaged Property"). All percentages of the Mortgage
Loans, or of any specified group of Mortgage Loans, referred to herein without
further description are approximate percentages by aggregate Cut-off Date
Balance. The "Cut-off Date Balance" of any Mortgage Loan is the unpaid principal
balance thereof as of [__________ __], 199[ ] (the "Cut-off Date"), after
application of all payments due on or before such date, whether or not received.
The Mortgage Loans are not insured or guaranteed by any governmental entity
or private mortgage insurer. The Depositor has not undertaken any evaluation of
the significance of the recourse provisions of any of a number of the Mortgage
Loans that provide for recourse against the related borrower or another person
in the event of a default. Accordingly, investors should consider all of the
Mortgage Loans to be non-recourse loans as to which recourse in the case of
default will be limited to the specific property and such other assets, if any,
as were pledged to secure a Mortgage Loan.
On or prior to [________ __], 199[ ] (the "Delivery Date"), the Depositor
will acquire the Mortgage Loans from the Mortgage Loan Seller pursuant to a
Purchase Agreement dated [the date hereof] between the Depositor and the
Mortgage Loan Seller (the "Purchase Agreement") and will thereupon assign its
interests in the Mortgage Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. See "--The Mortgage Loan Seller" herein and
"The Pooling and Servicing Agreements--Assignment of Mortgage Loans;
Repurchases" in the Prospectus. For purposes of the Prospectus, the Mortgage
Loan Seller constitutes a "Mortgage Asset Seller".
The Mortgage Loans were originated between 19__ and 19__. The Mortgage Loan
Seller originated _____ of the Mortgage Loans, which represent __% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof.
Certain Terms and Conditions of the Mortgage Loans
Due Dates. [_____ of the Mortgage Loans, which represent __% of the Initial
Pool Balance, provide for scheduled payments of principal and/or interest
"Monthly Payments" to be due on the first day of each month (the date in any
month on which a Monthly Payment is first due, the "Due Date"). The remaining
Mortgage Loans have Due Dates that occur on the _________ (__% of the Mortgage
Loans), _____________ (__% of the Mortgage Loans), ___________ (__% of the
Mortgage Loans), and (__% of the Mortgage Loans) day of each month. ]
Mortgage Rates; Calculation of Interest. [____________ of the Mortgage
Loans, which represent ___% of the Initial Pool Balance, are loans ("ARM Loans")
that bear interest at annual interest rates (each, a "Mortgage Rate") that are
subject to adjustment on periodically
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<PAGE>
occurring Due Dates (each such date of adjustment, an "Interest Rate Adjustment
Date") by adding a fixed number of basis points (the "Gross Margin") to the
applicable value of a base index (each, an "Index"). The ARM Loans are subject
in cases _____ to rounding conventions and lifetime minimum and/or maximum
Mortgage Rates and, in the case of ___________ Mortgage Loans, which
represent___% of the Initial Pool Balance, to periodic minimum and/or maximum
Mortgage Rates. The remaining Mortgage Loans are fixed rate mortgage loans (the
"Fixed Rate Loans"). None of the ARM Loans is convertible into a Fixed Rate
Loan.]
[[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on
the ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to an Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or as of a designated date preceding an
Interest Rate Adjustment Date. __________ of the ARM Loans, which represent __%
of the Initial Pool Balance, provide for Interest Rate Adjustment Dates that
occur monthly; ____ of the ARM Loans, which represent __% of the Initial Pool
Balance, provide for Interest Rate Adjustment Dates that occur semi-annually;
and the remaining ARM Loans provide for Interest Rate Adjustment Dates that
occur annually.]
[The Monthly Payments on each ARM Loan are subject to adjustment on
specified Due Dates (each, a "Payment Adjustment Date") to an amount that would
amortize fully the principal balance of the Mortgage Loan over its then
remaining amortization schedule and pay interest at the Mortgage Rate in effect
during the one month period preceding such Payment Adjustment Date. The ARM
Loans provide for Payment Adjustment Dates that occur on the Due Date following
each related Interest Rate Adjustment Date. None of the ARM Loans provide for
negative amortization.]
Amortization of Principal. [_________(__)] of the Mortgage Loans, which
represent [__]% of the Initial Pool Balance, provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of such Mortgage Loans. Thus, each such Mortgage Loan (a
"Balloon Loan") will have a substantial principal amount due and payable (each
such payment, together with the corresponding interest payment a "Balloon
Payment") due at its stated maturity date, unless prepaid prior thereto.
[No] Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Prepayment Premiums are payable
to the Master Servicer as additional servicing compensation, to the extent not
otherwise applied to offset Prepayment Interest Shortfalls, and may be waived by
the Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans--General" herein.
[Delinquent and Nonperforming Mortgage Loans]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
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<PAGE>
The Mortgage Loan Seller
General. [The Mortgage Loan Seller [, a wholly-owned subsidiary of
_______________,] is a organized in 19 under the laws of . As of December 31,
199 _, the Mortgage Loan Seller had a net worth of approximately $___________,
and currently holds and services for its own account a total residential and
commercial mortgage loan portfolio of approximately $____________, of which
approximately $____________ constitutes multifamily mortgage loans.]
The information set forth herein concerning the Mortgage Loan Seller and
the underwriting conducted by such Mortgage Loan Seller with respect to the
Mortgage Loans has been provided by the Mortgage Loan Seller, and neither the
Depositor nor the Underwriter makes any representation or warranty as to the
accuracy or completeness of such information.
Certain Underwriting Matters
[All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described herein.
[General description of underwriting policies used by Mortgage Loan Seller
or Sellers.]
Representations and Warranties; Repurchases
In the Purchase Agreement, the Mortgage Loan Seller has represented and
warranted with respect to each Mortgage Loan, as of [the Delivery Date], or as
of such other date specifically provided in the representation and warranty,
among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of 90
days following its receipt of such notice, then the Mortgage Loan Seller will be
obligated pursuant to the Purchase Agreement (the relevant rights under which
will be assigned, together with its interests in the Mortgage Loans, by the
Depositor to the Trustee) to repurchase the affected Mortgage Loan within such
90-day period at a price (the "Purchase Price") equal to the sum of (i) the
unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued interest on
such Mortgage Loan at the Mortgage Rate from the date to which interest was last
paid to the Due Date in the Due Period in which the purchase is to occur, and
(iii) certain servicing expenses that are reimbursable to the Master Servicer.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer, GMAC
Commercial Mortgage Corporation or any of their affiliates [(other than the
Mortgage Loan Seller)] will be obligated to repurchase any affected Mortgage
Loan in connection with a breach of the Mortgage Loan Seller's representations
and warranties if the Mortgage Loan Seller defaults on its obligation to do so.
However, the Depositor will not
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include any Mortgage Loan in the Mortgage Pool if anything has come to the
Depositor's attention prior to the Closing Date that would cause it to believe
that the representations and warranties made by the Mortgage Loan Seller
regarding such Mortgage Loan will not be correct in all material respects. See
"The Pooling and Servicing Agreements--Representations and Warranties;
Repurchases" in the Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time of issuance of the Certificates offered hereby are
issued, as adjusted for the scheduled principal payments due on or before the
Cut-off Date. Prior to the issuance of the Offered Certificates, a Mortgage Loan
may be removed from the Mortgage Pool if the Depositor deems such removal
necessary or appropriate or if it is prepaid. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the Offered
Certificates, unless including such Mortgage Loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Offered Certificates are issued, although the range of Mortgage Rates and
maturities and certain other characteristics of the Mortgage Loans in the
Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
from or added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
Servicing of the Mortgage Loans
The Master Servicer
GMAC Commercial Mortgage Corporation, a corporation duly organized and
existing under the laws of the State of California, will act as Master Servicer
with respect to the Mortgage Pool. As of the _______ __, 199_, the Master
Servicer had a total commercial and multifamily mortgage loan servicing
portfolio of approximately $________ billion. See "GMAC Commercial Mortgage
Corporation" in the Prospectus.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Servicing Fee. The "Servicing Fee"
will be payable monthly on a loan-by-loan basis from amounts received in respect
of interest on each Mortgage Loan, will accrue in accordance with the terms of
the related Mortgage Note at a rate equal to __% per annum (the "Servicing Fee
Rate") and will be computed on the basis of the same principal amount and for
the same period respecting which any related interest payment on the related
Mortgage Loan is computed. As additional servicing compensation, the Master
Servicer will be
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entitled to retain all Prepayment Premiums, assumption and modification fees,
late charges and penalty interest and, as and to the extent described in the
next paragraph, Prepayment Interest Excesses collected from mortgagors. In
addition, the Master Servicer is authorized but not required to invest or direct
the investment of funds held in the Certificate Account in Permitted
Investments, and the Master Servicer will be entitled to retain any interest or
other income earned on such funds.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period (as defined herein) on a date that is prior to its Due
Date in such Due Period, a Prepayment Interest Shortfall may result. If such a
principal prepayment occurs during any Due Period after the Due Date for such
Mortgage Loan in such Due Period, the amount of interest (net of related
Servicing Fees) that accrues on the amount of such principal prepayment may
exceed (such excess, a "Prepayment Interest Excess") the corresponding amount of
interest accruing on the Certificates. As to any Due Period, to the extent
Prepayment Interest Excesses collected for all Mortgage Loans are greater than
Prepayment Interest Shortfalls incurred, such excess will be paid to the Master
Servicer as additional servicing compensation.]
[As and to the extent described herein under "Description of the
Certificates--Advances", the Master Servicer will be entitled to receive
interest on Advances and reimbursable servicing expenses, such interest to be
paid, contemporaneously with the reimbursement of the related Advance or
servicing expense, out of any other collections on the Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses incurred
by it in connection with its servicing activities under the Pooling and
Servicing Agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the Pooling and Servicing Agreement. However, the
Master Servicer will be permitted to pay certain such expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. In connection therewith,
the Master Servicer will be responsible for all fees of any sub-servicers, other
than management fees earned in connection with the operation of an REO Property,
which management fees the Master Servicer will be authorized to pay out of
revenues received from such property (thereby reducing the portion of such
revenues that would otherwise be available for distribution to
Certificateholders). See "Description of the
Certificates--Distributions--Method, Timing and Amount" herein and "The Pooling
and Servicing Agreements--Certificate Account" and "--Servicing Compensation and
Payment of Expenses" in the Prospectus.
Modifications, Waivers and Amendments
The Master Servicer may, consistent with its normal servicing practices,
agree to modify, waive or amend any term of any Mortgage Loan, without the
consent of the Trustee or any Certificateholder, subject, however, to each of
the following limitations, conditions and restrictions:
(i) with limited exception, the Master Servicer may not agree to any
modification, waiver or amendment that will (i) affect the amount or timing of
any scheduled payments of principal or interest on the Mortgage Loan or (ii) in
its judgment, materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due
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thereon; unless, in any such case, in the Master Servicer's judgment, a material
default on the Mortgage Loan has occurred or a payment default is reasonably
foreseeable, and such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation.
(ii) [describe additional limitations to permitted modification standards]
The Master Servicer will notify the Trustee of any modification, waiver or
amendment of any term of any Mortgage Loan, and must deliver to the Trustee or
the related Custodian, for deposit in the related Mortgage File, an original
counterpart of the agreement related to such modification, waiver or amendment,
promptly (and in any event within [10] business days) following the execution
thereof. Copies of each agreement whereby any such modification, waiver or
amendment of any term of any Mortgage Loan is effected are to be available for
review during normal business hours at the offices of the [Trustee]. See
"Description of the Certificates--Reports to Certificateholders; Certain
Available Information" herein.
Inspections; Collection of Operating Information
The Master Servicer is required to (or may contract with a third party to)
perform physical inspections of each Mortgaged Property at least once every two
years (or, if the related Mortgage Loan has a then-current balance greater than
$5,000,000, at least once every year). In addition, the Master Servicer, subject
to statutory limitations or limitations set forth in the related loan documents,
is required to perform a physical inspection of each Mortgaged Property as soon
as is practicable after the related Mortgage Loan becomes a Specially Serviced
Mortgage Loan. The Master Servicer will be required to prepare or cause to be
prepared a written report of each such inspection performed thereby describing
the condition of the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to deliver
operating statements with respect to the related Mortgaged Property, the Master
Servicer is also required to make reasonable efforts to collect and review such
statements. However, there can be no assurance that any operating statements
required to be delivered will in fact be delivered, nor is the Master Servicer
likely to have any practical means of compelling such delivery in the case of an
otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to above
are to be available for review upon reasonable request by Certificateholders
during normal business hours at the offices of the Master Servicer. See
"Description of the Certificates--Reports to Certificateholders; Certain
Available Information" herein.
Description of the Certificates
General
The Series 199[_] - C[_] Certificates (the "Certificates") will be issued
pursuant to a Pooling and Servicing Agreement, to be dated as of the Cut-off
Date, among the Depositor, the Master Servicer and the Trustee (the "Pooling and
Servicing Agreement") and will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund") consisting
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of: (i) the Mortgage Loans and all payments under and proceeds of the Mortgage
Loans received after the Cut-off Date (exclusive of payments of principal and
interest due on or before the Cut-off Date); (ii) any Mortgaged Property
acquired on behalf of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise (upon acquisition, an "REO Property"); (iii) such funds
or assets as from time to time are deposited in the Certificate Account; (iv)
the rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; and (v) certain rights of the Depositor under the Purchase
Agreement relating to Mortgage Loan document delivery requirements and the
representations and warranties of the Mortgage Loan Seller regarding the
Mortgage Loans.
The Certificates will consist of the following four classes (each, a
"Class"): (i) the Class A Certificates and the Class R Certificates
(collectively, the "Senior Certificates"); (ii) the Class B Certificates; and
(iii) the Class C Certificates. The Class A Certificates will have an initial
stated principal balance (a "Certificate Balance") of $ ____________, which
represents __% of the Initial Pool Balance; the Class B Certificates will have
an initial Certificate Balance of $ _____________, which represents __% of the
Initial Pool Balance; the Class C Certificates will have an initial Certificate
Balance of $ ____________, which represents __% of the Initial Pool Balance; and
the Class R Certificates will have an initial Certificate Balance of $100. The
Certificate Balance of any Class of Certificates outstanding at any time
represents the maximum amount which the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. On each Distribution Date, the
Certificate Balance of each Class of Certificates will be reduced by any
distributions of principal actually made on, and any Collateral Support Deficit
actually allocated to, such Class of Certificates on such Distribution Date.
Only the Senior Certificates and the Class B Certificates (collectively the
"Offered Certificates") are offered hereby. The Class C Certificates have not
been registered under the Securities Act of 1933 and are not offered hereby.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of [$25,000] and
integral multiples of [$1] in excess thereof. The Class B Certificates will be
issued in fully registered, certificated form in denominations of [$100,000] and
integral multiples of [$1,000] in excess thereof, with one Class B Certificate
evidencing an additional amount equal to the remainder of the initial
Certificate Balance of such Class. The Class R Certificates will be issued in
registered, certificated form in minimum denominations of [20%] Percentage
Interest in such Class. The "Percentage Interest" evidenced by any Offered
Certificate is equal to the initial denomination thereof as of the Delivery
Date, divided by the initial Certificate Balance of the Class to which it
belongs.
The Class A Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Class A Certificate in fully
registered, certificated form (a "Definitive Class A Certificate") representing
its interest in such Class, except as set forth below under "--Book-Entry
Registration of the Class A Certificates--Definitive Class A Certificates".
Unless and until Definitive Class A Certificates are issued, all references to
actions by holders of the Class A Certificates will refer to actions taken by
DTC upon instructions received from Class A
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Certificate Owners through its Participants, and all references herein to
payments, notices, reports and statements to holders of the Class A Certificates
will refer to payments notices, reports and statements to DTC or Cede & Co., as
the registered holder of the Class A Certificates, for distribution to Class A
Certificate Owners through its Participants in accordance with DTC procedures.
See "Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the Prospectus.
Until Definitive Class A Certificates are issued, interests in such Class
will be transferred on the book-entry records of DTC and its Participants.
Subject to certain restrictions on the transfer of such Certificates to Plans
(see "ERISA Considerations" herein), the Class B and Class R Certificates may be
transferred or exchanged at the offices of located at , without the payment of
any service charges, other than any tax or other governmental charge payable in
connection therewith. will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Offered Certificates and of transfers and exchanges of
the Class B and, if issued, the Definitive Class A Certificates.
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A Certificates, the Class B Certificates and the
Class C Certificates (collectively the "REMIC Regular Certificates") will
constitute "regular interest:, in the Trust Fund. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus. Transfer of the Class R
Certificates will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described herein under
"Certain Federal Income Tax Consequences-Special Tax Considerations Applicable
to REMIC Residual Certificates" and in the Prospectus under "Certain Federal
Income Tax Consequences-REMICS-Tax and Restrictions on Transfers of REMIC
Residual Certificates to Certain Organizations".
Book-Entry Registration of the Class A Certificates
General. Class A Certificate Owners that are not Direct or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Direct and
Indirect Participants. In addition, Class A Certificate Owners will receive all
distributions of principal of and interest on the Class A Certificates from the
Trustee through DTC and its Direct and Indirect Participants. Accordingly, Class
A Certificate Owners may experience delays in their receipt of payments. Unless
and until Definitive Class A Certificates are issued, it is anticipated that the
only registered Certificateholder of the Class A Certificates will be Cede &
Co., as nominee of DTC. Class A Certificate Owners will not be recognized by the
Trustee or the Master Servicer as Certificateholders, as such term is used in
the Pooling and Servicing Agreement, and Class A Certificate Owners will be
permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC and its Direct and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Class A Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Class A Certificates. Direct
and Indirect Participants with which Class A Certificate Owners have accounts
with respect to the Class A Certificates similarly are required to make
book-entry
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transfers and receive and transmit such distributions on behalf of their
respective Class A Certificate Owners. Accordingly, although Class A Certificate
Owners will not possess physical certificates evidencing their interests in the
Class A Certificates, the Rules provide a mechanism by which Class A Certificate
Owners, through their Direct and Indirect Participants, will receive
distributions and will be able to transfer their interests in the Class A
Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class A Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
Definitive Class A Certificates. Definitive Class A Certificates will be
issued to Class A Certificate Owners or their nominees, respectively, rather
than to DTC or its nominee, only under the limited conditions set forth in the
Prospectus under "Description of the Certificates--Book-Entry Registration and
Definitive Certificates."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates--Book-Entry Registration and
Definitive Certificates," the Trustee is required to notify, through DTC, Direct
Participants who have ownership of Class A Certificates as indicated on the
records of DTC of the availability of Definitive Class A Certificates. Upon
surrender by DTC of the definitive certificates representing the Class A
Certificates and upon receipt of instructions from DTC for re-registration, the
Trustee will reissue the Class A Certificates as Definitive Class A Certificates
issued in the respective principal amounts owned by individual Class A
Certificate Owners, and thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Class A Certificates as
Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and Certificates maintained on the
book-entry records thereof, see "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the Prospectus.
Distributions
Method, Timing and Amount. Distributions on the Certificates will be made
by the [Trustee], to the extent of available funds, on the [25th] day of each
month or, if any such [25th] day is not a business day, then on the next
succeeding business day, commencing in ______________ 199_ (each, a
"Distribution Date"). All such distributions (other than the final distribution
on any Certificate) will be made to the persons in whose names the Certificates
are registered at the close of business on each Record Date, which will be the
last business day of the month preceding the month in which the related
Distribution Date occurs. Each such distribution will be made by wire transfer
in immediately available funds to the account specified by the Certificateholder
at a bank or other entity having appropriate facilities therefor, if such
Certificateholder will have provided the [Trustee] with wiring instructions [no
less than five business days prior to the related Record Date (which wiring
instructions may be in the form of a standing order applicable to all subsequent
distributions) and is the registered owner of Certificates with an aggregate
initial principal amount of at least $5,000,000], or otherwise by
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check mailed to such Certificateholder. The final distribution on any
Certificate will be made in like manner, but only upon presentation and
surrender of such Certificate at the location that will be specified in a notice
of the pendency of such final distribution. All distributions made with respect
to a Class of Certificates will be allocated pro rata among the outstanding
Certificates of such Class based on their respective Percentage Interests.
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage Loans and any REO
Properties that is on deposit in the Certificate Account as of the related
Determination Date, exclusive of:
(i) all Monthly Payments collected but due on a Due Date subsequent to
the related Due Period,
(ii) all principal prepayments (together with related payments of
interest thereon and related Prepayment Premiums), Liquidation Proceeds,
Insurance Proceeds and other unscheduled recoveries received subsequent to
the related Due Period, and
(iii) all amounts in the Certificate Account that are due or
reimbursable to any person other than the Certificateholders; and
(b) all Advances made by the Master Servicer with respect to such
Distribution Date. See "The Pooling and Servicing Agreements--Certificate
Account" in the Prospectus.
The "Due Period" for each Distribution Date will be the period that begins
on the [second] day of the month preceding the month in which such Distribution
Date occurs and ends on the [first] day of the month in which such Distribution
Date occurs. For purposes of the discussion in the Prospectus, the Due Period is
also the Prepayment Period. The "Determination Date" for each Distribution Date
is the [15th] day of the month in which such Distribution Date occurs or, if any
such [15th] day is not a business day, then the next preceding business day.
Priority. On each Distribution Date, for so long as the Certificate
Balances of the Offered Certificates have not been reduced to zero, the
[Trustee] will (except as otherwise described under "--Termination; Retirement
of Certificates" below) apply amounts on deposit in the Certificate Account, to
the extent of the Available Distribution Amount, in the following order of
priority:
(1) to distributions of interest to the holders of the Senior
Certificates in an amount equal to all Distributable Certificate Interest
in respect of the Senior Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(2) to distributions of principal to the holders of the Senior
Certificates in an amount equal to the sum of (a) the product of (i) the
Senior Certificates' Ownership Percentage (as calculated immediately prior
to such Distribution Date), multiplied by (ii) the Scheduled
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Principal Distribution Amount for such Distribution Date, plus (b) the
entire Unscheduled Principal Distribution Amount for such Distribution Date
(but not more than would be necessary to reduce the aggregate Certificate
Balance of the Senior Certificates to zero);
(3) to distributions to the holders of the Class A Certificates, until
all amounts of Collateral Support Deficit previously allocated to the Class
A Certificates, but not previously reimbursed, have been reimbursed in
full;
(4) to distributions of interest to the holders of the Class B
Certificates in an amount equal to all Distributable Certificate Interest
in respect of the Class B Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(5) to distributions of principal to the holders of the Class B
Certificates in an amount equal to the sum of (a) the product of (i) the
Class B Certificates' Ownership Percentage (as calculated immediately prior
to such Distribution Date), multiplied by (ii) the Scheduled Principal
Distribution Amount for such Distribution Date, plus (b) if the Certificate
Balances of the Senior Certificates have been reduced to zero, then to the
extent not distributed in reduction of such Certificate Balances on such
Distribution Date, the entire Unscheduled Principal Distribution Amount for
such Distribution Date (but not more than would be necessary to reduce the
Certificate Balance of the Class B Certificates to zero);
(6) to distributions to the holders of the Class B Certificates ,
until all amounts of Collateral Support Deficit previously allocated to the
Class B Certificates, but not previously reimbursed, have been reimbursed
in full;
(7) to distributions of interest to the holders of the Class C
Certificates in an amount equal to all Distributable Certificate Interest
in respect of the Class C Certificates for such Distribution Date and, to
the extent not previously distributed, for all prior Distribution Dates;
(8) to distributions of principal to the holders of the Class C
Certificates in an amount equal to the product of (a) the Class C
Certificates' Ownership Percentage (as calculated immediately prior to such
Distribution Date), multiplied by (b) the Scheduled Principal Distribution
Amount for such Distribution Date;
(9) to distributions to the holders of the Class C Certificates, until
all amounts of Collateral Support Deficit previously allocated to the Class
C Certificates, but not previously reimbursed, have been reimbursed in
full; and
(10) to distributions to the holders of the Class R Certificates in an
amount equal to the remaining balance, if any, of the Available
Distribution Amount.
[The distributions of principal to the holders of the Senior Certificates
as described in clause (2) above will be paid first to the holders of the Class
R Certificates until the Certificate Balance of such Certificates is reduced to
zero, and then to the holders of the Class A Certificates. Accordingly, it is
expected that the Certificate Balance of the Class R Certificates would be
reduced to zero on the initial Distribution Date and that no other distributions
of
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interest or principal would thereafter be made on the Class R Certificates
except pursuant to subparagraph (10) immediately above.]
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the Class of Certificates in
respect of which any such reimbursement is made.
Pass-Through Rates. The Pass-Through Rate applicable to each Class of
Certificates for the initial Distribution Date will equal __% per annum. [With
respect to any Distribution Date subsequent to the initial Distribution Date,
the variable pass-through rate (the "Pass-Through Rate") for each Class of
Certificates will equal the weighted average of the applicable Effective Net
Mortgage Rates for the Mortgage Loans, weighted on the basis of their respective
Stated Principal Balances immediately prior to such Distribution Date. For
purposes of calculating the Pass-Through Rate for any Class of Certificates and
any Distribution Date, the "applicable Effective Net Mortgage Rate" for each
Mortgage Loan is: (a) if such Mortgage Loan accrues interest on the basis of a
360-day year consisting of twelve 30-day months (a "360/360 basis", which is the
basis of accrual for interest on the Certificates), the Net Mortgage Rate in
effect for such Mortgage Loan as of the commencement of the related Due Period;
and (b) if such Mortgage Loan does not accrue interest on a 360/360 basis, the
annualized rate at which interest would have to accrue during the one month
period preceding the Due Date for such Mortgage Loan during the related Due
Period on a 360/360 basis in order to produce the aggregate amount of interest
(adjusted to the actual Net Mortgage Rate) accrued during such period.] The "Net
Mortgage Rate" for each Mortgage Loan is equal to the related Mortgage Rate in
effect from time to time less the Servicing Fee Rate.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of Certificates for each Distribution Date
represents that portion of the Accrued Certificate Interest in respect of such
Class of Certificates for such Distribution Date [that is net of such Class's
allocable share (calculated as described below) of the aggregate of any
Prepayment Interest Shortfalls resulting from voluntary principal prepayments
made on the Mortgage Loans during the related Due Period that are not offset by
Prepayment Interest Excesses collected during the related Due Period (the
aggregate of such Prepayment Interest Shortfalls that are not so offset or
covered, as to such Distribution Date, the "Net Aggregate Prepayment Interest
Shortfall").]
The "Accrued Certificate Interest" in respect of each Class of Certificates
for each Distribution Date is equal to one month's interest at the Pass-Through
Rate applicable to such Class of Certificates for such Distribution Date accrued
on the related Certificate Balance outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
[The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Certificates will equal the
product of (a) such Net Aggregate Prepayment Interest Shortfall, multiplied by
(b) a fraction, the numerator of which is equal to the Accrued Certificate
Interest in respect of such Class of Certificates for such
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Distribution Date, and the denominator of which is equal to the Accrued
Certificate Interest in respect of all the Classes of Certificates for such
Distribution Date.]
Scheduled Principal Distribution Amount and Unscheduled Principal
Distribution Amount. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments, including Balloon Payments, due during or, if and to the
extent not previously received or advanced and distributed to Certificateholders
on a preceding Distribution Date, prior to the related Due Period, in each case
to the extent paid by the related borrower or advanced by the Master Servicer
and included in the Available Distribution Amount for such Distribution Date.
The Scheduled Principal Distribution Amount from time to time will include all
late payments of principal made by a borrower, including late payments in
respect of a delinquent Balloon Payment, regardless of the timing of such late
payments, except to the extent such late payments are otherwise reimbursable to
the Master Servicer for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal received
on the Mortgage Loans during the related Due Period; and (b) any other
collections (exclusive of payments by borrowers) received on the Mortgage Loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance Proceeds, net income from REO Property or
otherwise, that were identified and applied by the Master Servicer as recoveries
of previously unadvanced principal of the related Mortgage Loan.
The respective amounts which constitute the Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount for any
Distribution Date are herein collectively referred to from time to time as the
"Distributable Principal".
The "Ownership Percentage" evidenced by any Class or Classes of
Certificates as of any date of determination will equal a fraction, expressed as
a percentage, the numerator of which is the then Certificate Balance(s) of such
Class(es) of Certificates, and the denominator of which is the then aggregate
Stated Principal Balance of the Mortgage Pool.
Certain Calculations with Respect to Individual Mortgage Loans. The "Stated
Principal Balance" of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders. The Stated Principal Balance of each Mortgage Loan will
initially equal the Cut-off Date Balance thereof and, on each Distribution Date,
will be reduced by the portion of the Distributable Principal for such date that
is attributable to such Mortgage Loan. The Stated Principal Balance of a
Mortgage Loan may also be reduced in connection with any forced reduction of the
actual unpaid principal balance thereof imposed by a court presiding over a
bankruptcy proceeding wherein the related borrower is the debtor. See "Certain
Legal Aspects of Mortgage Loans--Foreclosure--Bankruptcy Laws" in the
Prospectus. If any Mortgage Loan is paid in full or such Mortgage Loan (or any
Mortgaged Property acquired in respect thereof) is otherwise liquidated, then,
as of the first Distribution Date that follows the end of the Due Period in
which such payment in full or liquidation occurred, and notwithstanding that a
loss may have occurred in connection with any such liquidation, the Stated
Principal Balance of such Mortgage Loan shall be zero.
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For purposes of calculating distributions on, and allocations of Collateral
Support Deficit to, the Certificates, as well as for purposes of calculating the
amount of Servicing Fees payable each month, each REO Property will be treated
as if there exists with respect thereto an outstanding mortgage loan (an "REO
Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and "Mortgage
Pool" herein and in the Prospectus, when used in such context, will be deemed to
also be references to or to also include, as the case may be, any "REO Loans".
Each REO Loan will generally be deemed to have the same characteristics as its
actual predecessor Mortgage Loan, including the same adjustable or fixed
Mortgage Rate (and, accordingly, the same Net Mortgage Rate and Effective Net
Mortgage Rate) and the same unpaid principal balance and Stated Principal
Balance. Amounts due on such predecessor Mortgage Loan, including any portion
thereof payable or reimbursable to the Master Servicer, will continue to be
"due" in respect of the REO Loan; and amounts received in respect of the related
REO Property, net of payments to be made, or reimbursement to the Master
Servicer for payments previously advanced, in connection with the operation and
management of such property, generally will be applied by the Master Servicer as
if received on the predecessor Mortgage Loan. However, notwithstanding the terms
of the predecessor Mortgage Loan, the Monthly Payment "due" on an REO Loan will
in all cases, for so long as the related Mortgaged Property is part of the Trust
Fund, be deemed to equal one month's interest thereon at the applicable Mortgage
Rate.
Subordination; Allocation of Losses and Certain Expenses
The rights of holders of the Class B Certificates and the Class C
Certificates to receive distributions of amounts collected or advanced on the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Senior Certificates; and the rights of holders of the
Class C Certificates to receive distributions of amounts collected or advanced
on the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of holders of the Class B Certificates. This subordination is
intended to enhance the likelihood of timely receipt by the holders of the
Senior Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
ultimate receipt by such holders of principal in an amount equal to the entire
aggregate Certificate Balance of the Senior Certificates. Similarly, but to a
lesser degree, this subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class B Certificates of the full amount of
all Distributable Certificate Interest payable in respect of such Certificates
on each Distribution Date, and the ultimate receipt by such holders of principal
in an amount equal to the entire Certificate Balance of the Class B
Certificates. This subordination will be accomplished by the application of the
Available Distribution Amount on each Distribution Date in accordance with the
order of priority described under "--Distributions--Priority" above. No other
form of Credit Support will be available for the benefit of the holders of the
Offered Certificates.
Allocation to the Senior Certificates, for so long as they are outstanding,
of the entire Unscheduled Principal Distribution Amount for each Distribution
Date will generally accelerate the amortization of such Certificates relative to
the actual amortization of the Mortgage Loans. To the extent that the Senior
Certificates are amortized faster than the Mortgage Loans, the percentage
interest evidenced by the Senior Certificates in the Trust Fund will be
decreased (with a corresponding increase in the interest in the Trust Fund
evidenced by the Class B and Class C Certificates), thereby increasing, relative
to their respective Certificate Balances, the subordination afforded the Senior
Certificates by the Class B and Class C Certificates.
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Following retirement of the Class A Certificates, allocation to the Class B
Certificates, for so long as they are outstanding, of the entire Unscheduled
Principal Distribution Amount for each Distribution Date will provide a similar
benefit to such Class of Certificates as regards the relative amount of
subordination afforded thereto by the Class C Certificates.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on such date, the [Trustee] is to calculate the
amount, if any, by which (i) the aggregate Stated Principal Balance of the
Mortgage Pool expected to be outstanding immediately following such Distribution
Date is less than (ii) the then aggregate Certificate Balance of the REMIC
Regular Certificates (any such deficit, "Collateral Support Deficit"). The
[Trustee] will be required to allocate any such Collateral Support Deficit among
the respective Classes of Certificates as follows: first, to the Class C
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; second, to the Class B Certificates, until the
remaining Certificate Balance of such Class of Certificates is reduced to zero;
and last, to the Class A Certificates, until the remaining Certificate Balance
of such Class of Certificates has been reduced to zero. Any allocation of
Collateral Support Deficit to a Class of Certificates will be made by reducing
the Certificate Balance thereof by the amount so allocated. Any Collateral
Support Deficit allocated to a Class of REMIC Regular Certificates will be
allocated among the respective Certificates of such Class in proportion to the
Percentage Interests evidenced thereby. In general, Collateral Support Deficit
will result from the occurrence of: (i) losses and other shortfalls on or in
respect of the Mortgage Loans, including as a result of defaults and
delinquencies thereon and the payment to the Master Servicer of interest on
Advances and certain servicing expenses; and (ii) certain unanticipated,
non-Mortgage Loan specific expenses of the Trust Fund, including certain
reimbursements to the Trustee as described under "The Pooling and Servicing
Agreements - Certain Matters Regarding the Trustee" in the Prospectus, certain
reimbursements to the Master Servicer and the Depositor as described under "The
Pooling and Servicing Agreements - Certain Matters Regarding the Master Servicer
and the Depositor" in the Prospectus and certain federal, state and local taxes,
and certain tax-related expenses, payable out of the Trust Fund as described
under "Certain Federal Income Tax Consequences - REMICs - Prohibited
Transactions Tax and Other Taxes " in the Prospectus. Accordingly, the
allocation of Collateral Support Deficit as described above will constitute an
allocation of losses and other shortfalls experienced by the Trust Fund.
Advances
[On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, an "Advance") out of
its own funds or, subject to the replacement thereof as provided in the Pooling
and Servicing Agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of: (i) all Monthly Payments (net of
the related Servicing Fee), other than Balloon Payments, which were due on the
Mortgage Loans during the related Due Period and delinquent as of the related
Determination Date; [(ii) in the case of each Mortgage Loan delinquent in
respect of its Balloon Payment as of the related Determination Date, an amount
equal to 30 days' interest thereon at the related Mortgage Rate in effect as of
the commencement of the related Due Period (net of the related Servicing Fee),
but only to the extent that the related mortgagor has not made a payment
sufficient to cover such amount under
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any forbearance arrangement or otherwise that has been included in the Available
Distribution Amount for such Distribution Date; and (iii) in the case of each
REO Property, an amount equal to thirty days' imputed interest with respect
thereto at the related Mortgage Rate in effect as of the commencement of the
related Due Period (net of the related Servicing Fee), but only to the extent
that such amount is not covered by any net income from such REO Property
included in the Available Distribution Amount for such Distribution Date.] The
Master Servicer's obligations to make Advances in respect of any Mortgage Loan
or REO Property will continue through liquidation of such Mortgage Loan or
disposition of such REO Property, as the case may be.
The Master Servicer will be entitled to recover any Advance made out of its
own funds from any amounts collected in respect of the Mortgage Loan as to which
such Advance was made, whether in the form of late payments, Insurance Proceeds,
Liquidation Proceeds or otherwise ("Related Proceeds"). Notwithstanding the
foregoing, the Master Servicer will not be obligated to make any Advance that it
determines in its reasonable good faith judgment would, if made, not be
recoverable out of Related Proceeds (a "Nonrecoverable Advance"), and the Master
Servicer will be entitled to recover any Advance that it so determines to be a
Nonrecoverable Advance out of general funds on deposit in the Certificate
Account. Nonrecoverable Advances will represent a portion of the losses to be
borne by the Certificateholders. See "Description of the Certificates--Advances
in Respect of Delinquencies" and "The Pooling and Servicing
Agreements--Certificate Account" in the Prospectus.
In connection with its recovery of any Advance or reimbursable servicing
expense, the Master Servicer will be entitled to be paid, out of any amounts
then on deposit in the Certificate Account, interest at __% per annum (the
"Master Servicer Reimbursement Rate") accrued on the amount of such Advance or
expense from the date made to but not including the date of reimbursement.
To the extent not offset or covered by amounts otherwise payable on Class C
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class B Certificates; and to the extent not
offset or covered by amounts otherwise payable on the Class B and Class C
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Senior Certificates. To the extent that any
holder of an Offered Certificate must bear the cost of the Master Servicer's
Advances, the benefits of such Advances to such holder will be contingent on the
ability of such holder to reinvest the amounts received as a result of such
Advances at a rate of return equal to or greater than the Master Servicer
Reimbursement Rate.]
Reports to Certificateholders; Certain Available Information
On each Distribution Date, the [Trustee] will be required to forward by
mail to each holder of an Offered Certificate a statement (a "Distribution Date
Statement") providing various items of information relating to distributions
made on such date with respect to the relevant Class and the recent status of
the Mortgage Pool. For a more detailed discussion of the particular items of
information to be provided in each Distribution Date Statement, as well as a
discussion of certain annual information reports to be furnished by the
[Trustee] to persons who at any time
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during the prior calendar year were holders of the Offered Certificates, see
"Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
The Pooling and Servicing Agreement requires that the [Trustee] make
available at its offices primarily responsible for [administration of the Trust
Fund], during normal business hours, for review by any holder of an Offered
Certificate, originals or copies of, among other things, the following items:
(a) the Pooling and Servicing Agreement and any amendments thereto, (b) all
Distribution Date Statements delivered to holders of the relevant Class of
Offered Certificates since the Delivery Date, (c) all officer's certificates
delivered to the Trustee since the Delivery Date as described under "The Pooling
and Servicing Agreements--Evidence as to Compliance" in the Prospectus, (d) all
accountants' reports delivered to the Trustee since the Delivery Date as
described under "The Pooling and Servicing Agreements--Evidence as to
Compliance" in the Prospectus, [(e) the most recent property inspection report
prepared by or on behalf of the Master Servicer and delivered to the Trustee in
respect of each Mortgaged Property, (f) the most recent annual operating
statements, if any, collected by or on behalf of the Master Servicer and
delivered to the Trustee in respect of each Mortgaged Property,] and (g) any and
all modifications, waivers and amendments of the terms of a Mortgage Loan
entered into by the Master Servicer and delivered to the Trustee. Copies of any
and all of the foregoing items will be available from the [Trustee] upon
request; however, the [Trustee] will be permitted to require payment of a sum
sufficient to cover the reasonable costs and expenses of providing such copies.
Until such time as Definitive Class A Certificates are issued, the
foregoing information will be available to Class A Certificate Owners only to
the extent it is forwarded by or otherwise available through DTC and its
Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Class A Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Trustee, the Depositor and the Certificate Registrar are required to recognize
as Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar. The initial
registered holder of the Class A Certificates will be Cede & Co. as nominee for
DTC.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, the
voting rights for the series offered hereby (the "Voting Rights") shall be
allocated among the respective Classes of Certificateholders in proportion to
the Certificate Balances of their Certificates. Voting Rights allocated to a
Class of Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer or the Depositor. Written notice of termination of the Pooling
and Servicing Agreement will be given to each Certificateholder, and the final
distribution will
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be made only upon surrender and cancellation of the Certificates at the office
of the Certificate Registrar or other location specified in such notice of
termination.
Any such purchase by the Master Servicer or the Depositor of all the
Mortgage Loans and other assets in the Trust Fund is required to be made at a
price equal to (a) the sum of (i) the aggregate Purchase Price of all the
Mortgage Loans (exclusive of REO Loans) then included in the Trust Fund and (ii)
the aggregate fair market value of all REO Properties then included in the Trust
Fund (which fair market value for any REO Property may be less than the Purchase
Price for the corresponding REO Loan), as determined by an appraiser mutually
agreed upon by the Master Servicer and the Trustee, over (b) the aggregate of
amounts payable or reimbursable to the Master Servicer under the Pooling and
Servicing Agreement. Such purchase will effect early retirement of the then
outstanding Offered Certificates, but the right of the Master Servicer or the
Depositor to effect such termination is subject to the requirement that the then
aggregate Stated Principal Balance of the Mortgage Pool be less than [10%] of
the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer or the Depositor, as the case may be, for the Mortgage Loans and other
assets in the Trust Fund (if the Trust Fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "The Pooling and Servicing
Agreements--Certificate Account" in the Prospectus), will be applied generally
as described above under "--Distributions--Priority", except that the
distributions of principal described thereunder will, in the case of each Class
of Certificates, be made, subject to available funds, in an amount equal to the
related Certificate Balance then outstanding.
The Trustee
______________________, a _____________________, will act as Trustee on
behalf of the Certificateholders. [The Master Servicer will be responsible for
the fees and normal disbursements of the Trustee.] The offices of the Trustee
primarily responsible for the administration of the Trust Fund are located at
_____________________. See "The Pooling and Servicing Agreements--the Trustee",
"--Duties of the Trustee", "--Certain Matters Regarding the Trustee" and
"--Resignation and Removal of the Trustee" in the Prospectus.
Yield And Maturity Considerations
Yield Considerations
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the weighted average
of the applicable Effective Net Mortgage Rates. Accordingly, the yield on the
Offered Certificates will be sensitive to (x) adjustments to the Mortgage Rates
on the ARM Loans and (y) changes in the relative composition of the Mortgage
Pool as a result of scheduled amortization, voluntary prepayments
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and involuntary liquidations of the Mortgage Loans. See "Description of the
Mortgage Pool" herein and "--Yield Considerations--Rate and Timing of Principal
Payments" below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the Trust Fund).
Prepayments and, assuming the respective stated maturity dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates) while work-outs are negotiated or
foreclosures are completed. See "Servicing of the Mortgage Loans--Modifications,
Waivers and Amendments" herein and "The Pooling and Servicing
Agreements--Realization Upon Defaulted Mortgage Loans" and "Certain Legal
Aspects of Mortgage Loans--Foreclosure" in the Prospectus. Because the rate of
principal payments on the Mortgage Loans will depend on future events and a
variety of factors (as described below), no assurance can be given as to such
rate or the rate of principal prepayments in particular. The Depositor is not
aware of any relevant publicly available or authoritative statistics with
respect to the historical prepayment experience of a large group of mortgage
loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
on such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on such Certificate could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such Certificate could result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is made on an Offered Certificate
purchased at a discount or premium, the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments on such investor's Offered Certificates occurring at a rate
higher (or lower) than the rate anticipated by the investor during any
particular period would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: first, by the holders of the
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Class C Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; second, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; and last, by the holders of the Senior Certificates. As more
fully described herein under "Description of the
Certificates--Distributions--Distributable Certificate Interest", Net Aggregate
Prepayment Interest Shortfalls will generally be borne by the respective Classes
of Certificateholders on a pro rata basis.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental units in
such areas, the quality of management of the Mortgaged Properties, the servicing
of the Mortgage Loans, possible changes in tax laws and other opportunities for
investment. See "Risk Factors" and "Description of the Mortgage Pool" herein and
"Risk Factors" and "Yield and Maturity Considerations--Principal Prepayments" in
the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool--Certain
Payment Characteristics" and "--The Index" herein. As a result, the Mortgage
Rates on the ARM Loans at any time may not be comparable to prevailing market
interest rates. In addition, as prevailing market interest rates decline, and
without regard to whether the Mortgage Rates on the ARM Loans decline in a
manner consistent therewith, related borrowers may have an increased incentive
to refinance for purposes of either (i) converting to a fixed rate loan and
thereby "locking in" such rate, or (ii) taking advantage of a different index,
margin or rate cap or floor on another adjustable rate mortgage loan. The
Mortgage Loans may be prepaid at any time and, in _____ cases (approximately __%
of the Initial Pool Balance), may be prepaid in whole or in part without payment
of a Prepayment Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be
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prepaid or as to which a default will have occurred as of any date or as to the
overall rate of prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least ____
days and as many as days following the Due Dates for the Mortgage Loans during
the related Due Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions--Priority" herein, if the portion of the
Available Distribution Amount distributable in respect of interest on any Class
of Offered Certificates on any Distribution Date is less than the Distributable
Certificate Interest then payable for such Class, the shortfall will be
distributable to holders of such Class of Certificates on subsequent
Distribution Dates, to the extent of available funds. Any such shortfall will
not bear interest, however, and will therefore negatively affect the yield to
maturity of such Class of Certificates for so long as it is outstanding.
Weighted Average Life
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of such Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected, which may be in the form of scheduled amortization,
voluntary prepayments, Insurance Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the ["Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of the pool of mortgage loans. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loans is prepaid before maturity. The columns headed "___%", "___%", "___%" and
"___%" assume that prepayments on the Mortgage Loans are made at those levels of
CPR. There is no assurance, however, that prepayments of the Mortgage Loans will
conform to any level of CPR, and no representation is made that the Mortgage
Loans will prepay at the levels of CPR shown or at any other prepayment rate.]
The following tables indicate the percentage of the initial Certificate
Balance of each of the Class A Certificates and the Class B Certificates that
would be outstanding after each of the dates shown at various CPRs and the
corresponding weighted average life of each such Class of Certificates. The
tables have been prepared on the basis of the following assumptions, among
others: [(i) scheduled monthly payments of principal and interest on the
Mortgage Loans, in each case prior to any prepayment of the loan, will be timely
received (with no defaults) and will be distributed on the [25th] day of each
month commencing in ______ 199_; (ii) the Mortgage Rate in effect for each
Mortgage Loan as of the Cut-off Date will remain in effect (a) in the case
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of each Fixed Rate Loan, to maturity and, (b) in the case of each ARM Loan,
until its next Interest Rate Adjustment Date, when a new Mortgage Rate that is
to remain in effect to maturity will be calculated reflecting the value of the
related Index as of _____________, 199_, subject to such Mortgage Loan's
lifetime and/or periodic rate caps and floors, if any; (iii) all Mortgage Loans
accrue and pay interest on a 30/360 basis; (iv) the monthly principal and
interest payment due for each Mortgage Loan on the first Due Date following the
Cut-off Date will continue to be due (a) in the case of each Fixed Rate Loan, on
each Due Date until maturity and (b) in the case of each ARM Loan, until its
next Payment Adjustment Date, when a new payment that is to be due on each Due
Date until maturity will be calculated reflecting the appropriate Mortgage Rate
and remaining amortization term; (v) any principal prepayments on the Mortgage
Loans will be received on their respective Due Dates at the respective levels of
CPR set forth in the tables, and there will be no Net Aggregate Prepayment
Interest Shortfalls in connection therewith; and (vi) the Mortgage Loan Seller
will not be required to repurchase any Mortgage Loan, and neither the Master
Servicer nor the Depositor will exercise its option to purchase all the Mortgage
Loans and thereby cause an early termination of the Trust Fund. To the extent
that the Mortgage Loans have characteristics that differ from those assumed in
preparing the tables set forth below, the Class A Certificates or the Class B
Certificates may mature earlier or later than indicated by the tables. It is
highly unlikely that the Mortgage Loans will prepay at any constant rate until
maturity or that all the Mortgage Loans will prepay at the same rate. In
addition, variations in the actual prepayment experience and the balance of the
Mortgage Loans that prepay may increase or decrease the percentages of initial
Certificate Balances (and weighted average lives) shown in the following tables.
Such variations may occur even if the average prepayment experience of the
Mortgage Loans were to equal any of the specified CPR percentages.]
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
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Percent of the Initial Certificate Balance of the
Class A Certificates at the Respective CPRs
Set Forth Below:
<TABLE>
<CAPTION>
Date 0% % % % %
- ----------------- --------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Delivery Date 100.0 100.0 100.0 100.0 100.0
25, 1995
25, 1996
25, 1997
25, 1998
25, 1999
25, 2000
25, 2001
25, 2002
Weighted Average
Life (years)(A)
</TABLE>
- ----------
(A) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number of
years from the date of issuance of the Class A Certificates to the related
Distribution Date, (ii) summing the results and (iii) dividing the sum by the
aggregate amount of the reductions in the principal balance of such Class A
Certificate.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
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Percent of the Initial Certificate Balance of the
Class B Certificates at the Respective CPRs
Set Forth Below:
<TABLE>
<CAPTION>
Date 0% % % % %
- ----------------- --------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Delivery Date 100.0 100.0 100.0 100.0 100.0
25, 1995
25, 1996
25, 1997
25, 1998
25, 1999
25, 2000
25, 2001
25, 2002
25, 2003
Weighted Average
Life (years)(A)
</TABLE>
- ----------
(A) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number of
years from the date of issuance of the Class B Certificates to the related
Distribution Date, (ii) summing the results and (iii) dividing the sum by the
aggregate amount of the reductions in the principal balance of such Class B
Certificate.
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[The following disclosure is applicable to Stripped Interest Certificates, when
offered...
Yield Sensitivity of the Class X Certificates
The yield to maturity of the Class X Certificates will be especially
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of the Class X Certificates. There can be no assurance that the Mortgage Loans
will prepay at any particular rate. Prospective investors in the Class X
Certificates should fully consider the associated risks, including the risk that
such investors may not fully recover their initial investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class X Certificates to various constant rates of prepayment on
the Mortgage Loans by projecting the monthly aggregate payments of interest on
the Class X Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in the third paragraph under the heading "--Weighted Average Life"
above, including the assumptions regarding the characteristics and performance
of the Mortgage Loans which differ from the actual characteristics and
performance thereof and assuming the aggregate purchase price set forth below.
Any differences between such assumptions and the actual characteristics and
performance of the Mortgage Loans and of the Class X Certificates may result in
yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Class X Certificates
at the Following CPRs
<TABLE>
<CAPTION>
Assumed Purchase
Price 0% % % % % %
- ----------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ % % % % % %
</TABLE>
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class X Certificates, would cause
the discounted present value of such assumed stream of cash flows to equal the
assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price and is used in computing the corporate bond equivalent
yields shown. These yields do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Class X Certificates, and
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thus do not reflect the return on any investment in the Class X Certificates
when any reinvestment rates other than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Class X
Certificates is likely to differ from those shown in the tables, even if all of
the Mortgage Loans prepay at the indicated CPRs over any given time period or
over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class X Certificates will conform to
the yields described herein. Investors are urged to make their investment
decisions based on the determinations as to anticipated rates of prepayment
under a variety of scenarios. Investors in the Class X Certificates should fully
consider the risk that a rapid rate of prepayments on the Mortgage Loans could
result in the failure of such investors to fully recover their investments.]
Additional Yield Considerations Applicable Solely to the Class R Certificates
The Class R Certificateholders' after-tax rate of return on the Class R
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Class R Certificates. Holders of Class R
Certificates may have tax liabilities with respect to their Certificates during
the early years of the Trust Fund's term that substantially exceed any
distributions payable thereon during any such period. In addition, holders of
Class R Certificates may have tax liabilities with respect to their Certificates
the present value of which substantially exceeds the present value of
distributions payable thereon and of any tax benefits that may arise with
respect thereto. Accordingly, the after-tax rate of return on the Class R
Certificates may be negative or may otherwise be significantly adversely
affected. The timing and amount of taxable income attributable to the Class R
Certificates will depend on, among other things, the timing and amounts of
prepayments and losses experienced with respect to the Mortgage Pool.
The Class R Certificateholders should consult their tax advisors as to the
effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Class R Certificates on after-tax rates of
return on such Certificates. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Certain Federal Income Tax Consequences
Upon the issuance of the Offered Certificates, _________________, counsel
to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for Federal income tax purposes, the Trust Fund will qualify as a REMIC under
the Code. For Federal income tax purposes, the Class R Certificates will be the
sole class of "residual interests" in the REMIC, and the Class A, Class B and
Class C Certificates will be the "regular interests" in the REMIC and will be
treated as debt instruments of the REMIC. See "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
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The __________ Certificates [may] [will] [will not] be treated as having
been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of %]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount" in the Prospectus.
The ____________________ Certificates may be treated for Federal income tax
purposes as having been issued at a premium. Whether any holder of [either] such
Class of Certificates will be treated as holding a Certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
in the Prospectus.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the Code
generally addressing the treatment of debt instruments issued with original
issue discount. Purchasers of the Offered Certificates should be aware that the
OID Regulations and Section 1272(a)(6) of the Code do not adequately address
certain issues relevant to, or are not applicable to, prepayable securities such
as the Certificates. [In addition, there is considerable uncertainty concerning
the application of Section 1272(a)(6) f the Code and the OID Regulations to
REMIC Certificates such as the Class X Certificates. The IRS could assert that
income derived from a Class X Certificate should be calculated as if the Class X
Certificate were a Certificate purchased at a premium equal to the price paid by
the holder of the Class X Certificate. Under this approach, a holder would be
entitled to amortize such premium only if it has in effect an election under
Section 171 of the Code with respect to all taxable debt instruments held by
such holder, as described in the Prospectus under "Certain Federal Income Tax
Consequences - REMICs - Taxation of Owners of REMIC Regular Certificates -
Premium". Alternatively, the IRS could assert that the Class X Certificates
should be taxable under regulations governing debt instruments having one or
more contingent payments. Prospective purchasers of the Offered Certificates are
advised to consult their tax advisors concerning the tax treatment of the
Certificates.
Assuming the Class X Certificates are treated as having been issued with
original issue discount, it appears that a reasonable method of reporting
original issue discount with respect to the Class X Certificates generally would
be to report all income with respect to such Certificate as original issue
discount for each period, computing such original issue discount (i) by assuming
that the value of the applicable index will remain constant for purposes of
determining the original yield to maturity of, and projecting future
distributions on, such Certificates, thereby treating such Certificates as fixed
rate instruments to which the original issue discount computation rules
described in the Prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the applicable index in
any period from its assumed value as a current adjustment to original issue
discount with respect to such period. See
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"Certain Federal Income Tax Consequences--REMICs - Taxation of Owners of REMIC
Regular Certificates - Original Issue Discount" in the Prospectus.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a holder
of a Class X Certificate, the amount of original issue discount allocable to
such period would be zero and such Certificateholder will be permitted to offset
such negative amount only against future original issue discount (if any)
attributable to such Certificate. Although the matter is not free from doubt, a
holder of a Class X Certificate may be permitted to deduct a loss to the extent
that his or her respective remaining basis in such Certificate exceeds the
maximum amount of future payments to which such Certificateholder is entitled,
assuming no further prepayments of the Mortgage Loans. Any such loss might be
treated as a capital loss.]
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that of the issuer. Accordingly, it is possible that holders of Certificates may
be able to select a method for recognizing original issue discount that differs
from that used by the Trustee in preparing reports to Certificateholders and the
IRS. Prospective purchasers of Certificates are advised to consult their tax
advisors concerning the treatment of any original issue discount with respect to
purchased Certificates.
New Withholding Regulations
The Treasury Department has issued new regulations (the "New Regulations")
which make certain modifications to the withholding, backup withholding, and
information reporting rules described in the Prospectus. The New Regulations
attempt to unify certification requirements and to modify reliance standards.
The New Regulations will be generally effective for payments made after December
31, 1999. Prospective investors are urged to consult their tax advisors
regarding the new Regulations.
For further information regarding the Federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
Special Tax Considerations Applicable to REMIC Residual Certificates
The IRS has issued REMIC Regulations that significantly affect holders of
REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to the transfer of "noneconomic" residual interests to United States
persons. Pursuant to the Pooling and Servicing Agreement, the Class R
Certificates may not be transferred to non-United States persons. See "Certain
Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC Residual
Certificates" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable
S-56
<PAGE>
for any taxes due with respect to the income on such residual interests, if "a
significant purpose of the transfer was to impede the assessment or collection
of tax." Based on the REMIC Regulations, the Class R Certificates may constitute
noneconomic residual interests during some or all of their terms for purposes of
the REMIC Regulations and, accordingly, if a significant purpose of a transfer
is to impede the assessment or collection of tax, transfers of the Class R
Certificates may be disregarded and purported transferors may remain liable for
any taxes due with respect to the income on the Class R Certificates. All
transfers of the Class R Certificates will be subject to certain restrictions
under the terms of the Pooling and Servicing Agreement that are intended to
reduce the possibility of any such transfer being disregarded to the extent that
the Class R Certificates constitute noneconomic residual interests. See "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC Residual
Certificates--Noneconomic REMIC Residual Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under the
Pooling and Servicing Agreement, the holder of the largest Percentage Interest
in the Class R Certificates shall, by its acceptance of such Certificates, agree
to irrevocably appoint the Master Servicer as its agent to perform all of the
duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences of
investing in the Class R Certificates, see "Yield and Maturity
Considerations--Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
Method Of Distribution
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated, 199_ (the "Underwriting Agreement"), ______________ (the "Underwriter")
has agreed to
S-57
<PAGE>
purchase and the Depositor has agreed to sell to the Underwriter each class of
the Offered Certificates. It is expected that delivery of the Class A
Certificates will be made only in book-entry form through the Same Day Funds
Settlement System of DTC, and that the delivery of the Class B and Class R
Certificates will be made at the offices of the Underwriter, ________________,
on or about _____________, 199_ against payment therefor in immediately
available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of its Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately __% of the aggregate Certificate
Balance of the Offered Certificates plus accrued interest thereon from the
Cut-off Date. The Underwriter may effect such transactions by selling its
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act of
1933, as amended, or contribute to payments required to be made in respect
thereof.
The Underwriter may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Certificates in accordance with regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the Certificates so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriter to
reclaim a selling concession from a syndicate member when the Certificates
originally sold by such syndicate member are purchased in a syndicate covering
transaction. Such over-allotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Bank nor the
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<PAGE>
Underwriter represents that the Underwriter will engage in any such transactions
or that such transactions, once commenced, will not be discontinued without
notice at any time.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the Prospectus
under "Description of the Certificates--Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. Except
as described herein under "Description of the Certificates--Reports to
Certificateholders; Certain Available Information", there can be no assurance
that any additional information regarding the Offered Certificates will be
available through any other source. In addition, the Depositor is not aware of
any source through which price information about the Offered Certificates will
be generally available on an ongoing basis. The limited nature of such
information regarding the Offered Certificates may adversely affect the
liquidity of the Offered Certificates, even if a secondary market for the
Offered Certificates becomes available.
Legal Matters
Certain legal matters will be passed upon for the Depositor and the
Underwriter by [___________].
Rating
It is a condition to issuance that the Senior Certificates be rated not
lower than "__", and the Class B Certificates be rated not lower than "__", by.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans, or the possibility that as a result of prepayments investors in the Class
X Certificates may realize a lower than anticipated yield or may fail to recover
fully their initial investment.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by
___________________________.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
S-59
<PAGE>
Legal Investment
[As long as the Senior Certificates are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, the Senior Certificates will constitute "mortgage related
securities" within the meaning of SMMEA, and as such will be legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, life insurance
companies and pension funds) created pursuant to or existing under the laws of
the United States or of any State whose authorized investments are subject to
state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Under SMMEA, however, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA.]
[The Class B Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Class B
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Class B Certificates,
is subject to significant interpretive uncertainties.]
The Depositor makes no representation as to the proper characterization of
any class of Offered Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase the Offered Certificates
under applicable legal investment or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the Offered Certificates constitute legal investments for them or are subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA Considerations
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts (and, as applicable,
insurance company general accounts) in which such plans, accounts or
arrangements are invested, that is subject to ERISA and/or Section 4975 of the
Code (each, a "Plan") should review with its legal advisors whether the purchase
or holding of Offered Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975 of
the Code or whether there exists any statutory or administrative exemption
applicable thereto.
[The purchase or holding of the Class A Certificates by, on behalf of or
with assets of a Plan may qualify for exemptive relief under the Exemption, as
described under "ERISA Considerations - Prohibited Transaction Exemption" in the
Prospectus; however, the Exemption contains a number of conditions, including
the requirement that any such Plan must be an
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<PAGE>
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
In addition, neither the Exemption nor a similar exemption issued to the
Underwriter will apply to the Class B or Class R Certificates. As a result,] no
transfer of a [Class B or Class R] Certificate or any interest therein may be
made to a Plan or to any person who is directly or indirectly purchasing such
Certificate or interest therein on behalf of, as named fiduciary of, as trustee
of, or with assets of a Plan, unless the prospective transferee provides the
Depositor, the Trustee and the Master Servicer with an opinion of counsel
satisfactory to the Depositor, the Trustee and the Master Servicer that such
transfer is permissible under applicable law, will not constitute or result in
any non-exempt prohibited transaction under ERISA or Section 4975 of the Code
and will not subject the Depositor, the Trustee or the Master Servicer to any
obligation in addition to those undertaken in the Pooling and Servicing
Agreement. In lieu of such opinion of counsel, the prospective transferee of a
Class [B] Certificate may provide a certification of facts substantially to the
effect that the purchase of such Certificate by or on behalf of, or with assets
of, any Plan is permissible under applicable law, will not constitute or result
in any non-exempt prohibited transaction under ERISA or Section 4975 of the
Code, will not subject the Depositor, the Trustee or the Master Servicer to any
obligation in addition to those undertaken in the Pooling and Servicing
Agreement, and the following conditions are met: (a) the source of funds used to
purchase such Certificate is an "insurance company general account" (as such
term is defined in United States Department of Labor Prohibited Transaction
Class Exemption ("PTCE") 95-60 and (b) the conditions set forth in Sections I
and III of PTCE 95-60 have been satisfied as of the date of the acquisition of
such Certificates. See "ERISA Considerations-Representation From Investing
Plans" in the Prospectus.
Any Plan fiduciary or other person considering whether to purchase an
Offered Certificate on behalf of or with assets of a Plan should consult with
its counsel regarding the applicability of the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code to such investment and the availability of the
Exemption or any other prohibited transaction exemption in connection therewith.
See "ERISA Considerations" in the Prospectus.
S-61
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
360/360 basis .................................................... S-40
Accrued Certificate Interest ..................................... S-40
Advance .......................................................... S-43
ARM Loans ........................................................ S-29
Available Distribution Amount .................................... S-38
Balloon Loan ..................................................... S-30
Balloon Payment .................................................. S-30
Certificate Balance .............................................. S-35
Certificate Registrar ............................................ S-36
Certificates ..................................................... S-35
Class ............................................................ S-35
Collateral Support Deficit ....................................... S-43
Constant Prepayment Rate ......................................... S-49
CPR .............................................................. S-49
Cut-off Date ..................................................... S-29
Cut-off Date Balance ............................................. S-29
Definitive Class A Certificate ................................... S-36
Delivery Date .................................................... S-29
Determination Date ............................................... S-38
Distributable Certificate Interest ............................... S-40
Distributable Principal .......................................... S-41
Distribution Date ................................................ S-37
Distribution Date Statement ...................................... S-45
Due Date ......................................................... S-29
Due Period ....................................................... S-38
Fixed Rate Loans ................................................. S-30
Form 8-K ......................................................... S-32
Gross Margin ..................................................... S-30
Index ............................................................ S-30
Initial Pool Balance ............................................. S-29
Interest Rate Adjustment Date .................................... S-30
LTV Ratio ........................................................ S-74
Master Servicer Reimbursement Rate ............................... S-44
Monthly Payments ................................................. S-29
Mortgage ......................................................... S-29
Mortgage Loans ................................................... S-29
Mortgage Note .................................................... S-29
Mortgage Pool .................................................... S-29
Mortgage Rate .................................................... S-29
Mortgaged Property ............................................... S-29
Net Aggregate Prepayment Interest Shortfall ...................... S-40
Net Mortgage Rate ................................................ S-40
New Regulations .................................................. S-56
Nonrecoverable Advance ........................................... S-44
Offered Certificates ............................................. S-32
Ownership Percentage ............................................. S-41
Pass-Through Rate ................................................ S-40
Payment Adjustment Date .......................................... S-30
Percentage Interest .............................................. S-35
Plan ............................................................. S-60
Pooling and Servicing Agreement .................................. S-35
Prepayment Interest Excess ....................................... S-33
Prepayment Premiums .............................................. S-30
PTCE ............................................................. S-61
Purchase Agreement ............................................... S-29
Purchase Price ................................................... S-31
Related Proceeds ................................................. S-45
REMIC Regular Certificates ....................................... S-36
REO Loan ......................................................... S-42
REO Property ..................................................... S-35
Rules ............................................................ S-37
Scheduled Principal Distribution Amount .......................... S-41
Senior Certificates .............................................. S-35
Servicing Fee .................................................... S-32
Servicing Fee Rate ............................................... S-32
Stated Principal Balance ......................................... S-41
Trust Fund ....................................................... S-35
Underwriter ...................................................... S-57
Underwriting Agreement ........................................... S-57
Unscheduled Principal Distribution Amount ........................ S-41
Voting Rights .................................................... S-45
S-62
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus Supplement and
the Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Depositor or by the
Underwriter. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to buy, the securities offered
hereby to anyone in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this Prospectus Supplement or the
Prospectus.
TABLE OF CONTENTS
Prospectus Supplement
Transaction Overview
Summary
Risk Factors
Description of the Mortgage Pool
Servicing of the Mortgage Loans
Description of the Certificates
Yield and Maturity Considerations
Certain Federal Income Tax Consequences
Method of Distribution
Legal Matters
Rating
Legal Investment
ERISA Considerations
Index of Principal Definitions
Annex A
Annex B
Annex C
Annex D
Prospectus
Prospectus Supplement
Available Information
Incorporation of Certain Information by Reference
Summary of Prospectus
Risk Factors
Description of the Trust Funds
Yield and Maturity Considerations
The Depositor
GMAC Commercial Mortgage Corporation
Description of the Certificates
The Pooling and Servicing Agreements
Description of Credit Support
Certain Legal Aspects of Mortgage Loans
Certain Federal Income Tax Consequences
State and Other Tax Consequences
ERISA Considerations
Legal Investment
Use of Proceeds
Method of Distribution
Legal Matters
Financial Information
Where You Can Find Additional Information
Reports to Certificateholders
Incorporation of Certain Information by Reference
Rating Index of Principal Definitions
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
$___________________
Multifamily Mortgage Pass-Through
Certificates
Series 199_-_
----------
PROSPECTUS SUPPLEMENT
____________ __, 199
----------
[UNDERWRITER]
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Range of Mortgage Rates(%) Loans Date Balance Date Balance
-------------------------- ----- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average
Mortgage Rate (All Mortgage Loans):
% per annum
Weighted Average
Mortgage Rate (ARM Loans):
% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans):
% per annum
</TABLE>
S-64
<PAGE>
Gross Margins for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Number of Aggregate Cut-off Aggregate Cut-off
Range of Gross Margins(%) ARM Loans Date Balance Date Balance
------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average
Gross Margin: %
</TABLE>
<TABLE>
<CAPTION>
Frequency of Adjustments to Mortgage Rates and Monthly Payments for the ARM Loans
Monthly
Mortgage Rate Payment Number of Percent by
Adjustment Adjustment Mortgage Aggregate Cut-off Aggregate Cut-off
Frequency Frequency Loans Date Balance Date Balance
- ------------ --------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total
</TABLE>
S-65
<PAGE>
Maximum Lifetime Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Maximum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans):
% per annum (A)
</TABLE>
- ----------
(A) This calculation does not include the _________ ARM Loans without maximum
lifetime Mortgage
Rates.
Minimum Lifetime Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
S-66
<PAGE>
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans):
% per annum (A)
- ----------
(A) This calculation does not include the ___________ ARM Loans without maximum
lifetime Mortgage Rates.
Maximum Annual Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Maximum Number of Aggregate Cut-off Aggregate Cut-off
Annual Mortgage Rates(%) ARM Loans Date Balance Date Balance
------------------------ --------- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans):
% per annum (A)
</TABLE>
- ----------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
S-67
<PAGE>
Minimum Annual Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Annual Mortgage Rates(%) ARM Loans Date Balance Date Balance
------------------------ --------- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans):
% per annum (A)
</TABLE>
- ----------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
Cut-off Date Balances
<TABLE>
<CAPTION>
Number of Percent by
Cut-off Date Mortgage Aggregate Cut-off Aggregate Cut-off
Balance Range ($) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
</TABLE>
S-68
<PAGE>
Total
Average Cut-off Date
Balance (All Mortgage
Loans): $
Average Cut-off Date
Balance (ARM Loans):
$
Average Cut-off Date
Balance (Fixed Rate Loans):
$
Original Term to Stated Maturity (in Months)
<TABLE>
<CAPTION>
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Original
</TABLE>
S-69
<PAGE>
Term to Stated Maturity
(All Mortgage Loans):
___ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans):
____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans):
____ months
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range of Remaining Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans):
___ months
</TABLE>
S-70
<PAGE>
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans):
___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans):
___ months
Year of Origination
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
Year of Scheduled Maturity
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Year Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
</TABLE>
S-71
<PAGE>
Total
[The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio," "Underwritten Debt
Service Coverage Ratio" or "Underwritten DSCR" means, with respect to any
Mortgage Loan, or with respect to a Mortgage Loan evidenced by one Mortgage Note
but secured by multiple Mortgaged Properties, (a) the Underwritten Cash Flow for
the Mortgaged Property, divided by (b) the Annual Debt Service for such Mortgage
Loan. The "Annual Debt Service" means, for any Mortgage Loans 12 times the
monthly payment in effect as of the Cut-off Date or, for any Mortgage Loan that
pay interest only for a period of time, 12 times the Monthly Payment in effect
at the end of such period. The "Underwritten Cash Flow" with respect to any
Mortgaged Property means an estimate of the cash flow available for debt service
in a typical year of stable, normal operations. In general, it is the estimated
revenue derived from the use and operation of such Mortgaged Property less the
sum of (a) estimated operating expenses (such as utilities, administrative
expenses, repairs and maintenance, management and franchise fees and
advertising), (b) fixed expenses (such as insurance, real estate taxes and, if
applicable, ground lease payments) and (c) capital expenditures and reserves for
capital expenditures, including tenant improvement costs and leasing
commissions. Underwritten Cash Flow generally does not reflect interest expense
and non-cash items such as depreciation and amortization. The following table
was prepared using operating statements obtained from the respective mortgagors
or the related property managers. In each case, the information contained in
such operating statements was unaudited, and the Depositor has made no attempt
to verify its accuracy. In the case of ________ Mortgage Loans (___________ ARM
Loans and _________ Fixed Rate Loans), representing __% of the Initial Pool
Balance, operating statements could not be obtained, and accordingly, Debt
Service Coverage Ratios for those Mortgage Loans were not calculated. The last
day of the period (which may not correspond to the end of the calendar year most
recent to the Cut-off Date) covered by each operating statement from which a
Debt Service Coverage Ratio was calculated is set forth in Annex A with respect
to the related Mortgage Loan.]
S-72
<PAGE>
Debt Service Coverage Ratios(A)
<TABLE>
<CAPTION>
Range of Number of Percent by
Debt Service Mortgage Aggregate Cut-off Aggregate Cut-off
Coverage Ratios Loans Date Balance Date Balance
--------------- ----- ------------ ------------
<S> <C> <C> <C>
Not Calculated(B)
Total
Weighted Average
Debt Service Coverage
Ratio (All Mortgage
Loans): _____ x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans):
______ x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans):
_______ x(E)
</TABLE>
- ----------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the related
property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the _________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the _________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
S-73
<PAGE>
(E) This calculation does not include the _____________ Fixed Rate Loans as to
which Debt Service Coverage Ratios were not calculated.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date. An "LTV Ratio" for any Mortgage Loan,
as of any date of determination, is a fraction, expressed as a percentage, the
numerator of which is the original principal balance of such Mortgage Loan or
the Cut-off Date Balance of such Mortgage Loan, as applicable, and the
denominator of which is the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than even its LTV Ratio at origination, notwithstanding taking into
account amortization since origination.
LTV Ratios at Origination
<TABLE>
<CAPTION>
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
LTV Ratios(%) Loans Date Balance Date Balance
------------- ----- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average Original LTV
Ratio (All Mortgage Loans):
_____%
Weighted Average Original LTV
Ratio (ARM Loans): _____%
</TABLE>
S-74
<PAGE>
Weighted Average Original LTV
Ratio (Fixed Rate Loans):
_______%
LTV Ratios at Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range of LTV Ratios(%) Mortgage Aggregate Cut-off Aggregate Cut-off
as of Cut-off Date Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
Total
Weighted Average LTV Ratio as
of Cut-off Date (All Mortgage
Loans): ______%
Weighted Average LTV Ratio as
of Cut-off Date (ARM Loans):
______%
Weighted Average LTV Ratio as
of Cut-off Date (Fixed Rate
Loans): _______%
</TABLE>
S-75
<PAGE>
The Mortgage Loans are secured by Mortgaged Properties located in _______
different states. The following table sets forth the states in which the
Mortgaged Properties are located:
Geographic Distribution
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
State Loans Date Balance Date Balance
----- ----- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
No more than __% of the Initial Pool Balance is secured by Mortgaged
Properties located in the same zip code area.
Occupancy Rates
<TABLE>
<CAPTION>
Number of Percent by
Range of Mortgage Aggregate Cut-off Aggregate Cut-off
Occupancy Rates(A) Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
Total
</TABLE>
S-76
<PAGE>
Weighted Average Occupancy Rate
(All Mortgage Loans)(A):
%
Weighted Average Occupancy Rate
(ARM Loans)(A): %
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A):
%
- ----------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Prepayment Restrictions in Effect as of the Cut-off Date
<TABLE>
<CAPTION>
Weighted
% by Cum. Averages
- ------------ -------- --------- --------- -------- -------- --------- --------- ----- ------- --------
Prepayment Number Aggregate % of Mortgage Stated Remaining DSCR Implied Indicative
Restrictions of Loans Cut-off Aggregate Initial Rate Remaining Amort. DSCR Cut-off
Date Cut-off Pool Term Term Date
Balance Date Balance (Mo.) (Mo.) LTV
Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out
(A)
Yield
Maintenance
(B)
Declining
Percentage
Premium
___ %
Premium
___ %
Premium
No
Prepayment
Restrictions
- ------------
TOTALS
</TABLE>
S-77
<PAGE>
- ----------
(A) The weighted average term to the expiration of the lock-out periods is
______ years. ____ of the Mortgage Loans within their lock-out periods are
subject to declining percentage Prepayment Premiums after the expiration of
their lock-out periods; the remaining Mortgage Loans are subject to a yield
maintenance-type Prepayment Premium following such expiration.
(B) All Mortgage Loans subject to yield maintenance-type Prepayment Premiums
remain subject to payment of the Prepayment Premium until at least _____
months prior to maturity.
Certain additional information regarding the Mortgage Loans is contained in
the Prospectus Supplement under "Description of the Mortgage Pool--Certain
Underwriting Matters" and "Description of the Mortgage Pool--Representations and
Warranties; Repurchases" and in the Prospectus under "Description of the Trust
Funds--Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than 30
days delinquent in respect of any Monthly Payment.]
S-78
<PAGE>
Prospectus
Mortgage Pass-through Certificates
SUBJECT TO COMPLETION, DATED MARCH 11, 1999
GMAC Commercial Mortgage Securities, Inc.
- --------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page __ in this prospectus.
A certificate will represent an interest only in the trust fund created for that
series of certificates. A certificate will not represent an interest in or be an
obligation of GMAC Commercial Mortgage Securities, Inc., GMAC Commercial
Mortgage Corporation or any of their affiliates.
This prospectus may be used to offer and sell a series of certificates only if
accompanied by the prospectus supplement for that series.
- --------------------------------------------------------------------------------
The depositor, GMAC Commercial Mortgage Securities, Inc., may periodically issue
certificates representing interests in trusts that consist primarily of
multifamily or commercial mortgage loans and/or mortgage-backed securities. The
certificates will be issued in series, and each series of certificates will
represent interests in a different trust established by the depositor.
Each trust will consist of:
o mortgage assets described in detail in the accompanying prospectus
supplement, which will include:
o a pool of multifamily or commercial mortgage loans; or
o mortgage-backed securities that evidence interests in or are secured
by multifamily or commercial properties; or
o a combination of those mortgage loans and mortgage-backed securities;
o related property and interests; and
o other property as described in the accompanying prospectus supplement,
which may include one or more of the following: letters of credit,
insurance policies, guarantees, reserve funds or other types of credit
support, and interest rate exchange agreements and other financial assets.
The certificates in a series:
o will represent interests in a trust and will be paid only from the assets
of that trust; and
o may be divided into multiple classes of certificates and, if so, each class
may:
o receive a different fixed or variable rate of interest;
o be subordinated to other classes of certificates in that series;
o represent interests in only certain of the trust assets;
o receive principal at different times; and
o have different forms of credit enhancement.
Underwriting:
The certificates may be offered to the public through different methods as
described in "Method of Distribution" in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these certificates or determined that
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ___________ _, 1999
<PAGE>
Important notice about information presented in this
prospectus and the accompanying prospectus supplement
We provide information to you about the certificates in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to your series of
certificates; and (b) the accompanying prospectus supplement, which describes
the specific terms of your series of certificates, including:
o the timing of interest and principal payments;
o financial and other information about the mortgage loans;
o information about credit enhancement for each class;
o the ratings for each class; and
o the method for selling the certificates.
If the description of your certificates in this prospectus differs from the
description in the accompanying prospectus supplement, you should rely on the
information in the prospectus supplement.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. You can request information incorporated by reference from GMAC
Commercial Mortgage Securities, Inc. at (215) 328-4622 or 650 Dresher Road,
Horsham, Pennsylvania 19044-8015. See "Where You Can Find Additional
Information" and "Incorporation of Certain Information by Reference" in this
prospectus. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted. We do not claim the accuracy of the information in this
prospectus or the accompanying prospectus supplement as of any date other than
the dates stated on their respective covers.
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Principal Definitions"
beginning on page __.
----------
2
<PAGE>
Prospectus Summary
o This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
certificates, you should carefully read this entire document and the
accompanying prospectus supplement.
o This summary provides an overview of information to aid your understanding
and is qualified by the full information in this prospectus and the
accompanying prospectus supplement.
The Mortgage Asset Pools and Other Assets of the Trusts
The depositor, a wholly-owned subsidiary of GMAC Commercial Mortgage
Corporation, will from time to time deposit a pool of mortgage assets and
related property and interests into a trust.
The mortgage assets for each series of certificates will consist of one or more
of the following types of mortgage loans:
o mortgage loans which do not accrue interest or provide for accrual of
interest thereon at an interest rate that is fixed over its term or that
adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed mortgage rate, or from a fixed to an
adjustable mortgage rate;
o mortgage loans providing for level monthly payments of principal and
interest or for payments that adjust from time to time to accommodate
changes in the mortgage rate or to reflect the occurrence of certain
events;
o fully amortizing, partially amortizing or non-amortizing mortgage loans
with balloon payments due on their stated maturity dates and mortgage loans
providing for negative amortization;
o mortgage loans prohibiting prepayments over their terms or for certain
periods and/or mortgage loans requiring payment of premiums or yield
maintenance penalties in connection with certain prepayments;
o mortgage loans providing for payments of principal, interest or both, on
due dates that occur monthly, quarterly, semi-annually or at other
intervals;
o mortgage loans providing for release of the related mortgaged property if
certain conditions are satisfied; and
o any other type of mortgage loan described in your prospectus supplement.
The mortgage assets for each series of certificates also may include or consist
of mortgage-backed securities. These mortgage-backed securities will represent
an interest in, or will be secured by a pledge of, one or more mortgage loans
that conform to the descriptions of the mortgage loans in this prospectus. See
"Description of the Trust Funds--MBS" in this prospectus.
The mortgage loans will be secured by first or junior liens on multifamily
residential properties or commercial properties. The mortgage loans may be
secured by liens on real estate projects under construction. See "Description of
the Mortgage Pool" in your prospectus supplement for a description of the
mortgage asset Pool applicable to your series of certificates.
The Mortgage Loan Sellers
The depositor will purchase the mortgage loans for each series of certificates
from the entity or entities specified in your prospectus supplement. Unless
otherwise provided in your prospectus supplement, no mortgage loan will have
been originated by the depositor; however, some or all of the mortgage loans in
any Trust may have been originated by GMAC Commercial Mortgage Corporation or
another affiliate of the depositor. See "Description of the Trust
Funds--Mortgage Loans" in this prospectus.
3
<PAGE>
The Master Servicer, the Special Servicer and the Administration of the Trusts
If a trust includes mortgage loans, then your prospectus supplement will name
the servicer or the master servicer (which for convenience will be referred to
in this prospectus as the master servicer) for the corresponding series of
certificates. The master servicer for any series of certificates may be GMACCM
or another affiliate of the Depositor. The master servicer also may be the
special servicer for that series and, in that dual capacity, would be referred
to as the servicer. See "GMAC Commercial Mortgage Corporation" and "The Pooling
and Servicing Agreements--Certain Matters Regarding the Master Servicer and the
Depositor" in this prospectus.
If a trust includes mortgage loans, then your prospectus supplement will name
any special servicers for the corresponding series of certificates, or will
describe the circumstances under which a special servicer may be appointed. A
special servicer for any series of certificates may be the master servicer or an
affiliate of the depositor or the master servicer. See "The Pooling and
Servicing Agreements--Special Servicers" in this prospectus.
If a trust includes mortgage-backed securities, then your prospectus supplement
will name the entity responsible for administering those mortgage-backed
securities. If an entity other than the trustee or the master servicer is the
mortgage-backed securities administrator, that entity will be referred to as the
manager in this prospectus. The manager for any series of certificates may be
GMAC Commercial Mortgage Corporation or another affiliate of the depositor. See
your prospectus supplement for a description of the servicing and administration
of the mortgage loans and the trust related to your certificates.
The Certificates--Ownership of an Interest in a Trust Consisting of Mortgage
Assets
Each trust will then issue a series of certificates. The certificates will
represent an interest only in the trust that issued that particular series of
certificates. The certificates will not represent an interest in or an
obligation of the depositor, GMAC Commercial Mortgage Corporation or any of
their affiliates. Payments on a series of certificates will come only from
payments on the mortgage assets in the related trust (or credit support as
described herein).
A series of certificates may consist of a single class of certificates entitled
to all of the principal and interest up to a specified rate on the mortgage
assets in the related trust. Alternatively, a series of certificates may consist
of multiple classes. Each class may:
o accrue interest based on a fixed, variable or adjustable interest rate;
o represent the right to receive principal, with disproportionate, nominal or
no distributions of interest;
o represent the right to receive interest, with disproportionate, nominal or
no distributions of principal;
o represent the right to receive principal and/or interest only on a
specified subset of Mortgage Assets in the trust;
o represent the right to receive principal earlier or later than other
classes;
o represent the right to receive distributions of interest or principal that
commence only following the occurrence of certain events, such as the
retirement of one or more other classes of certificates of that series;
o represent the right to receive distributions of principal, from time to
time or for designated periods, at a rate that is faster (and, in some
cases, substantially slower) than the rate at which payments or other
collections of principal are received on the mortgage assets in the trust;
o represent the right to receive distributions of principal based on a
specified principal payment schedule or other methodology;
o represent the right to receive disproportionate allocations of certain
types of principal payments on the mortgage assets in the trust; and
o be subordinate to other classes in the series.
4
<PAGE>
If the series of certificates has multiple classes, the prospectus supplement
for that series will set forth for each class of certificates (i) the initial
principal balance, (ii) the initial interest rate, (iii) whether each class will
receive distributions from all or a portion of the mortgage loans and (iv) any
other limitations on the payments to be made to each class of certificates.
Distributions to the Certificateholders
Generally, principal and interest will be paid on a distribution date which may
occur monthly or on other scheduled dates over the life of the certificates,
Generally, the distribution date will be the 15th day of each month (or if the
15th day is not a business day, on the next business day).
Interest
Each certificate of a series will represent the right to receive payments of
interest as described in the accompanying prospectus supplement. If a series of
certificates consists of more than one class, each class may differ in, among
other things:
o priority in receiving interest payments;
o payment dates;
o interest rates; or
o methods for computing interest.
Each class of certificates may have a fixed or variable interest rate. Some
classes may not be entitled to receive any distributions of interest. Some
classes may not be entitled to distributions of interest until after the
occurrence of certain events, such as the retirement of one or more other
classes of certificates. The interest that is accrued with respect to these
certificates will either be added to their certificate balance or otherwise
deferred as described in your prospectus supplement. Distributions of interest
on some classes may be reduced to the extent of certain delinquencies, losses or
other contingencies described in this prospectus and in your prospectus
supplement. See "Risk Factors--Each Class of Certificates Will Have Different
Yield and Prepayment Considerations," "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest" and "Description
of the Certificates--Distributions of Interest on the Certificates" in this
prospectus.
Principal
Each certificate of a series generally will represent the right to receive
payments of principal as described in your prospectus supplement. If a series of
certificates consists of more than one class, each class may differ in, among
other things:
o its priority of principal payments;
o periods during which certificateholders receive principal payments;
o the amount of scheduled principal it is entitled to receive on each payment
date; or
o the amount of prepayments it is entitled to receive on each payment date.
Not all certificates will receive principal on each distribution date. Some
classes may not be entitled to receive any distributions of principal.
Credit Support and Cash Flow Agreements
One or more classes of certificates in a series may be protected in part by some
form of credit support.
Credit support may take the form of any one or more of the following:
o subordination of one or more classes of certificates to other classes of
certificates
o letter of credit
o insurance policy
o guarantee
o reserve fund
o another type of credit support specified in your prospectus supplement
If so specified in your prospectus supplement, a trust may include one or more
of the following cash flow agreements:
o guaranteed investment contracts providing for investment of moneys held in
the funds and accounts established for your series at a specified rate; or
o certain other agreements, such as interest rate exchange agreements,
interest rate cap or floor agreements, or other agreements designed to
5
<PAGE>
reduce the effects of interest rate fluctuations on the mortgage assets or
on one or more classes of certificates.
The accompanying prospectus supplement provides the following information:
o whether credit support covers any classes of certificates;
o the type, amount and extent of coverage;
o the identity of any entity providing the coverage; and
o the terms of any subordination.
Any credit enhancement will be limited and certificateholders will bear any
losses allocated after the credit enhancement coverage for a particular class is
depleted. See "Risk Factors--Credit Support Is Limited," "Description of the
Trusts--Credit Support" and "--Cash Flow Agreements" and "Description of Credit
Support" in this prospectus.
Advances
If a trust that includes mortgage loans receives less than the full scheduled
payment due on a particular mortgage loan, the master servicer, a special
servicer, the trustee, any provider of credit support and/or any other person
specified in your prospectus supplement may be obligated to advance its own
funds to cover the shortfall, only if it determines that the advance will be
recoverable from future payments or collections on that mortgage loan.
The entity making the advance can recover any advance it makes with respect to a
mortgage loan, either from recoveries on that mortgage loan or, if the advance
is with respect to any advance subsequently determined to be nonrecoverable, out
of funds otherwise distributable to the holders of your series of certificates.
The entity making the advances may be entitled to receive interest thereon for a
specified period during which certain or all of these advances are outstanding.
This interest will be payable from amounts in the related trust. See
"Description of the Certificates--Advances in Respect of Delinquencies" in this
prospectus. If a trust includes mortgage-backed securities, any comparable
advancing obligations will be described in your prospectus supplement.
Optional Termination
For each series of certificates, the master servicer, the depositor or, if
specified in your prospectus supplement or the related agreement, the holder of
the residual interest in a real estate mortgage investment conduit may have the
option to either:
o repurchase the remaining mortgage assets and thereby cause the early
retirement of the certificates; or
o purchase all or a portion of the certificates.
Optional termination may only occur under the conditions and in the manner
described under "Description of the Certificates--Termination; Retirement of
Certificates" in this prospectus and in your prospectus supplement.
Tax Status
For federal income tax purposes, the holders of a class of certificates will be
considered to own "regular interests" or "residual interests" in a real estate
mortgage investment conduit. Regular interests will be treated as representing
ownership of debt. The holders of regular interests will be required to include
in income all interest and original issue discount and will be required to use
the accrual method of accounting. Holders of "residual interests" will be
taxable on their share of the taxable income of the trust regardless of the cash
distributions to those certificates. See "Certain Federal Income Tax
Consequences" in this prospectus and in your prospectus supplement for
additional important information concerning the tax consequences of owning a
certificate.
ERISA Limitations
If you are a fiduciary of any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended, or any person which proposes to use
"plan assets" of any of these plans to acquire certificates, you should
carefully review with your legal counsel whether the purchase or holding of
certificates could give rise to a transaction impermissible under these laws.
See
6
<PAGE>
"ERISA Considerations" in this prospectus and your prospectus supplement.
Legal Investment
Certain classes of certificates that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating agency may
constitute "mortgage related securities" under the Secondary Mortgage Market
Enhancement Act of 1984, as amended, for so long as those classes sustain that
rating. Any classes of certificates that constitute "mortgage related
securities" under this act will be specified in the accompanying prospectus
supplement. See "Legal Investment" in this prospectus and in your prospectus
supplement.
Ratings
At issuance, each class of offered certificates will be rated not lower than
investment grade by one or more nationally recognized statistical rating
agencies. See "Rating" in this prospectus and in your prospectus supplement.
7
<PAGE>
Risk Factors
You should consider the following risk factors (in addition to the risk
factors in the prospectus supplement) in deciding whether to purchase any of the
certificates.
Your ability to resell A secondary market for the certificates of any
certificates may be limited. series may not develop. If a secondary market does
develop, it may not continue or it may not be
sufficiently liquid to allow you to resell any of
your certificates. The prospectus supplement for
each series of certificates will indicate whether
an underwriter intends to establish a secondary
market for that series, but no underwriter will be
obligated to do so. The certificates will not be
listed on any securities exchange.
The certificates are When you buy a certificate, you will not own an
obligations of the interest in the depositor, GMAC Commercial
trust only. Mortgage Corporation or any of their affiliates.
You will own an interest only in the trust
established for that series of certificates.
Payments on the mortgage assets included in the
trust (and any credit support) will be the only
source of payments to you. If those amounts are
insufficient to make required payments of interest
and/or principal to you, there is no other source
of payments.
Moreover, unless so specified in your prospectus
supplement, no governmental agency either
guarantees or insures payments on the certificates
of a particular series or any of the underlying
mortgage assets.
The depositor, the mortgage loan seller(s), the
master servicer and/or the special servicer will
have limited obligations. These will usually
include:
the depositor's or applicable mortgage loan
seller's obligation under certain circumstances to
repurchase the mortgage assets if there has been a
breach of representations and warranties;
o the master servicer's or special servicer's
obligation to advance payments on the
mortgage loans when the borrowers are
delinquent if the master servicer believes
the advances are recoverable; and
the master servicer's or special servicer's
various servicing and/or administrative
obligations.
Investment in commercial Because your certificates represent an interest in
and multifamily mortgage the mortgage assets, you should be aware that
loans is subject to mortgage loans made on the security of multifamily
certain risks. or commercial property may have a greater
likelihood of delinquency and foreclosure, and a
greater likelihood of loss in the event of
delinquency and foreclosure, than loans made on
the security of owner-occupied single-family
residential property. A description of certain
material considerations associated with
investments in mortgage loans is included in this
prospectus under "Certain Legal Aspects of
Mortgage Loans." See also "Description of the
Trust Funds--Mortgage Loans--Default and Loss
Considerations with Respect to the Mortgage Loans"
in this prospectus.
8
<PAGE>
The ability of a borrower to repay a loan secured
by an income-producing property typically depends
mainly on the successful operation of that
property, not on the existence of independent
income or assets of the borrower. The value of an
income-producing property is therefore directly
related to the net operating income produced by
that property. If the net operating income of the
property is reduced (for example, if rental or
occupancy rates decline or real estate tax rates
or other operating expenses increase), the
borrower's ability to repay the loan may be
impaired.
A number of the mortgage loans may be secured by
liens on owner-occupied mortgaged properties or on
mortgaged properties leased to a single tenant or
a small number of significant tenants. In those
cases, a decline in the financial condition of the
borrower or a significant tenant may have a
disproportionately greater effect on net operating
income than would be the case for mortgaged
properties with multiple tenants.
In addition, your investment in the mortgage
assets may be adversely affected by the following
factors that generally affect interests in real
property:
changes in general or local economic conditions
and/or specific industry segments;
o declines in real estate values;
o declines in rental or occupancy rates;
o increases in interest rates, real estate
tax rates and other operating expenses;
o changes in governmental rules, regulations
and fiscal policies, including
environmental legislation;
o natural disasters and civil disturbances
such as earthquakes, hurricanes, floods,
eruptions or riots; and
o other circumstances, conditions or events
beyond the control of a master servicer.
Any of these factors that adversely affect the
mortgage assets for a particular series may cause
the rates of delinquencies, foreclosures and
losses on those mortgage assets to be higher than
those now generally experienced in the commercial
and multifamily mortgage lending industry. To the
extent your certificates are not covered by credit
support, you will bear all of the risks resulting
from defaults by borrowers.
In addition, interests in certain types of
mortgage loans that have higher than average rates
of default may be included in the trust that
issues your certificates, such as:
9
<PAGE>
o Mortgage loans that do not fully amortize
over their terms to maturity. These loans
require a large payment (that is, a balloon
payment) at their stated maturity. These
loans involve a greater degree of risk
because the ability of a borrower to make a
balloon payment typically depends on its
ability to refinance the loan or sell the
related mortgaged property when the balloon
payment is due. The ability of a borrower
to accomplish either of these goals will be
affected by a number of factors, including
the following:
o the value of the related mortgaged
property;
o the level of available mortgage rates
at the time of sale or refinancing;
o the borrower's equity in the related
mortgaged property;
o the financial condition and operating
history of the borrower and the
related mortgaged property;
o tax laws;
o rent control laws (for certain
residential properties);
o Medicaid, Medicare and private payor
reimbursement rates (for hospitals and
nursing homes);
o prevailing general economic
conditions; and
o the general availability of credit for
loans secured by multifamily or
commercial real properties, as the
case may be.
Neither the depositor nor any of its affiliates
will be required to refinance any mortgage loan.
o Mortgage loans that are concentrated in
certain regions, states or zip code areas
of the United States. Different regions or
areas may experience weak economic
conditions and housing markets. This may
cause higher rates of loss and delinquency.
You also should be aware of considerations
relating to the type and use of a particular
mortgaged property. For instance, mortgaged
properties that operate as hospitals and nursing
homes are subject to significant governmental
regulation of the ownership, operation,
maintenance and financing of health care
institutions. Hospitality properties often are
operated under franchise, management or operating
agreements that may be terminable by the
franchisor or operator. In addition, local law
requirements govern the transferability of a
hotel's operating, liquor and other licenses upon
a transfer of the hotel, whether through purchase
or foreclosure.
10
<PAGE>
Some or all of the mortgage loans included in any
trust will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable. In
the event of borrower default on those mortgage
loans, the only recourse will be to the specified
real property and other assets, if any, that were
pledged to secure the mortgage loan. Even if a
mortgage loan provides for recourse to a borrower
and its assets generally, however, the trust may
not be able to ultimately collect the amount due
under that mortgage loan. See "Certain Legal
Aspects of Mortgage Loans--Foreclosure--
Anti-Deficiency Legislation" in this prospectus.
Each trust generally will consist of a smaller
number of higher balance loans than would a pool
of single-family loans of comparable aggregate
unpaid principal balance. Accordingly, the
concentration of default, foreclosure and loss
risks in individual mortgage loans in a particular
trust generally will be greater than for pools of
single-family loans.
In order to maximize recoveries on defaulted
mortgage loans, the master servicer or a special
servicer may, under certain limited circumstances,
extend the maturity date of and/or otherwise
modify mortgage loans that are in default or as to
which a payment default is reasonably foreseeable.
See "The Pooling and Servicing Agreements--
Realization upon Defaulted Mortgage Loans" in this
prospectus. The master servicer or a special
servicer generally will be required to determine
that an extension or modification is reasonably
likely to produce a greater recovery than
liquidation, taking into account the time value of
money. There is no guarantee, however, that an
extension or modification will in fact increase
the present value of receipts from, or proceeds
of, the affected mortgage loans.
See "Description of the Mortgage Pool" in the
accompanying prospectus supplement for a
description of these or other types of special
risk loans in the mortgage asset pool applicable
to your certificates.
Credit support is limited. The prospectus supplement for your series of
certificates may specify that credit support will
provide protection to cover certain losses on the
underlying mortgage assets. See "Credit Support"
in your Prospectus Supplement for a description of
any forms of credit support that apply to your
certificates.
Although credit support is intended to reduce the
likelihood of temporary shortfalls on the
certificates, you should be aware that:
o The amount of coverage usually is limited.
o The amount of coverage usually will be
reduced over time according to a schedule
or formula.
o The particular form of credit support may
not cover all potential losses on the
mortgage loans. For example, credit support
may or may not cover loss by reason of
fraud or negligence by a mortgage loan
originator or other parties.
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o The particular forms of credit support may
provide coverage only to certain
certificates and not other certificates of
the same series. If principal payments on
one or more classes are made in a specified
order of priority, any related credit
support may be exhausted before the
principal of the later paid classes has
been repaid in full. As a result, the
impact of losses and shortfalls experienced
with respect to the mortgage assets may
fall primarily upon those classes having a
later right of payment.
o If a form of credit support covers the
certificates of more than one series and
losses on the related mortgage assets
exceed the amount of credit support, the
holders of certificates of one (or more) of
these series may be disproportionately
benefited by the credit support to the
detriment of the holders of certificates of
one (or more) other series.
o If the applicable rating agencies believe
that the rating on the certificates will
not be adversely affected, certain types of
credit support may be reduced or
terminated.
o The amount of credit support supporting
your certificates, including the
subordination of one or more classes of
certificates, will be determined on the
basis of criteria established by each
rating agency rating the certificates.
Rating agencies establish these criteria
based on several factors, including an
assumed level of defaults, delinquencies
and losses on the underlying mortgage
assets. There is no guarantee that the loss
experience on the related mortgage assets
underlying your certificates will not
exceed the levels of losses assumed by the
applicable rating agencies when they
establish the amount of credit support for
your certificates. If this happens, you
will bear the losses on the mortgage assets
in excess of available credit support for
your class. See "Description of the
Certificates--Allocation of Losses and
Shortfalls" and "Description of Credit
Support" in this prospectus.
Each class of certificates The yield to maturity of your certificates will
will have different yield depend primarily on the price you paid for your
and prepayment certificates and the rate of principal payments on
considerations. the mortgage assets in the applicable trust. The
rate of principal payments includes scheduled
payments of interest and principal, prepayments,
liquidations due to defaults, and repurchases. If
the rate of prepayments on the mortgage assets
related to your certificates is higher or lower
than anticipated, the yield to maturity may be
adversely affected. The yield on some types of
certificates are more sensitive to variations in
prepayments than others. For example, certificates
that receive only payments of interest are
especially sensitive to variations in the rate of
prepayments. If the rate of prepayments is high,
or if a redemption or call feature of the
certificates or the underlying mortgage assets
occurs, the holders of these certificates may not
fully recover their initial investment. Certain
other types of certificates also may be relatively
more sensitive to the rate of prepayment on the
related mortgage assets than other types of
certificates. These include:
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o Classes that receive distributions of
interest or principal commencing only
following the occurrence of certain events;
o Certificates with a pass-through rate that
fluctuates inversely with an index; or
o Certain other classes in a series that
includes more than one class of
certificates.
The rate of principal payments on groups of
mortgage loans varies within and among pools and
from time to time is influenced by a variety of
economic, demographic, geographic, social, tax,
legal and other factors, including prevailing
mortgage market interest rates and the particular
terms of the mortgage loans (for example,
provisions that prohibit voluntary prepayments
during specified periods or impose penalties on
voluntary prepayments). There is no guarantee as
to the actual rate of prepayment on the mortgage
assets in any trust, or that the rate of
prepayment will conform to any model described in
this prospectus or in any prospectus supplement.
See "Yield and Maturity Considerations" in this
prospectus. See also "Risk Factors" and "Yield and
Maturity Considerations" in your prospectus
supplement for more information concerning the
prepayment risks applicable to your certificates.
Assignments of leases If a mortgaged property is subject to leases, the
and rents may affect related mortgage loan typically will be secured by
payments to an assignment of leases and rents. Under this
certificateholders. assignment, the borrower:
o assigns its right, title and interest as
landlord under the leases, and the income
from the leases, to the lender as further
security for the related mortgage loan; and
o retains a license to collect rents as long
as the borrower does not default. If the
borrower defaults, the license terminates
and the lender is entitled to collect
rents.
Some state laws may require the lender to take
possession of the mortgaged property and obtain a
judicial appointment of a receiver before the
lender is entitled to collect rents. The lender's
ability to collect rents also may be adversely
affected if bankruptcy or similar proceedings are
commenced by or against a borrower. See "Certain
Legal Aspects of Mortgage Loans--Leases and Rents"
in this prospectus.
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Environmental conditions Real property pledged as security for a mortgage
may affect risk of loss loan may be subject to certain environmental
on the mortgage loans. risks. Under the laws of certain states,
contamination of real property may give rise to a
lien on the property to assure the costs of
cleanup. In several states, that lien has priority
over an existing mortgage lien on the property. In
addition, under the laws of some states and under
the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as
amended, a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or
threatened releases of hazardous substances at a
property, if agents or employees of the lender
have become sufficiently involved in the
operations of the borrower regardless of whether
the environmental damage or threat was caused by
the borrower or a prior owner. A lender also risks
this liability on foreclosure of the mortgage.
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Description of the Trust Funds
General
Each series of certificates (the "Certificates") will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with respect
to any series, the "Trust Fund") to be formed by GMAC Commercial Mortgage
Securities, Inc. (the "Depositor"). The primary assets of each Trust Fund will
consist of Mortgage Loans (see "-Mortgage Loans" below), MBS (see "-MBS" below)
or a combination of Mortgage Loans and MBS. Each Mortgage Asset will be selected
by the Depositor for inclusion in a Trust Fund from among those purchased,
either directly or indirectly, from a prior holder thereof (a "Mortgage Asset
Seller"), which prior holder may or may not be the originator of such Mortgage
Loan or the issuer of such MBS and may be GMAC Commercial Mortgage Corporation
("GMACCM") or another affiliate of the Depositor. The Mortgage Assets will not
be guaranteed or insured by the Depositor, GMACCM or any of their affiliates or,
unless otherwise provided in the related supplement (a "Prospectus Supplement")
to this prospectus (the "Prospectus"), by any governmental agency or
instrumentality or by any other person. The discussion below under the heading
"-Mortgage Loans," unless otherwise noted, applies equally to mortgage loans
underlying any MBS included in a particular Trust Fund.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores and establishments, hotels or motels, nursing homes, hospitals or
other health care-related facilities, mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial plants, parking
lots, mixed use or various other types of income-producing properties or
unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). Unless
otherwise specified in the related Prospectus Supplement, each Mortgage will
create a first priority mortgage lien on a borrower's fee estate in a Mortgaged
Property. If a Mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related Prospectus Supplement,
the term of any such leasehold will exceed the term of the Mortgage Note by at
least ten years. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor; however, the Originator may be GMACCM
or, alternatively, may be or may have been another affiliate of the Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgaged Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions or the Mortgage Loan may be
nonrecourse.
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If so specified in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans made on the security of real
estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing as
of the date such Certificates are issued. In that case, the related Prospectus
Supplement will set forth, as to each such Mortgage Loan, available information
as to the period of such delinquency or non-performance, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, some or all of the Mortgage Loans
included in a particular Trust Fund may be non-recourse loans, which means that,
absent special facts, recourse in the case of default will be limited to the
Mortgaged Property and such other assets, if any, that were pledged to secure
repayment of the Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio," "Underwritten Debt Service
Coverage Ratio" or "Underwritten DSCR" means, with respect to any Mortgage Loan,
or with respect to a Mortgage Loan evidenced by one Mortgage Note, but secured
by multiple Mortgaged Properties, (a) the Underwritten Cash flow for the
Mortgaged Property, divided by (b) the Annual Debt Service for such Mortgage
Loan. "Underwritten Cash Flow" with respect to any Mortgaged Property, means an
estimate of cash flow available for debt service in a typical year of stable,
normal operations. In general, it is the estimated revenue derived from the use
and operation of such Mortgaged Property less the sum of (a) estimated operating
expenses (such as utilities, administrative expenses, repairs and maintenance,
management and franchise fees and advertising), (b) fixed expenses (such as
insurance, real estate taxes and, if applicable, ground lease payments) and (c)
capital expenditures and reserves for capital expenditures, including tenant
improvement costs and leasing commissions. Underwritten Cash Flow generally does
not reflect interest expense and non-cash items such as depreciation and
amortization. "Annual Debt Service" means for any Mortgage Loan 12 times the
monthly payment in effect as of the Cut-off Date or, for any Mortgage Loans that
pay interest only for a period of time, 12 times the monthly payment in effect
at the end of such period. The Underwritten Cash Flow of a Mortgaged Property
will generally fluctuate over time and may or may not be sufficient to cover
debt service on the related Mortgage Loan at any given time. As the primary
source of the operating revenues of a non-owner occupied, income-producing
property, rental income (and, with respect to a Mortgage Loan secured by a
Cooperative apartment building, maintenance payments from tenant-stockholders of
a Cooperative) may be affected by the condition of the applicable real estate
market and/or area economy. In addition, properties typically leased, occupied
or used on a short-term basis, such as certain health care-related facilities,
hotels and motels, and mini-warehouse and self-storage facilities, tend to be
affected more rapidly by changes in market or business conditions than do
properties typically leased for longer periods, such as warehouses, retail
stores, office buildings and industrial plants. Commercial Properties may be
owner-occupied or leased to a small number of tenants. Thus, the Underwritten
Cash Flow of such a Mortgaged Property may depend substantially on the financial
condition of the borrower or a tenant, and Mortgage Loans secured by liens on
such properties may pose a greater likelihood of default and loss than loans
secured by liens on Multifamily Properties or on multi-tenant Commercial
Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Underwritten Cash Flow to the borrower/landlord only to the extent
that the lessee is able to absorb operating expense increases while continuing
to make rent payments.
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Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the "Value" of a
Mortgaged Property will be its fair market value determined in an appraisal
obtained by the Originator at the origination of such loan. The lower the
Loan-to-Value Ratio, the greater the percentage of the borrower's equity in a
Mortgaged Property, and thus (a) the greater the incentive of the borrower to
perform under the terms of the related Mortgage Loan (in order to protect such
equity) and (b) the greater the cushion provided to the lender against loss on
liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method (the cost
of replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or upon
a selection from or interpolation of the values derived from such methods. Each
of these appraisal methods can present analytical difficulties. It is often
difficult to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate capitalization rate and
discount rate. Where more than one of these appraisal methods are used and
provide significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of the likelihood of default and loss, is
even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors-Investment in Commercial
and Multifamily Mortgage Loans Is Subject to Certain Risks" and "-Balloon
Payments; Borrower Default."
Payment Provisions of the Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, all of the Mortgage Loans will (i) have had
original terms to maturity of not more than 40 years and (ii) provide for
scheduled payments of principal, interest or both, to be made on specified dates
("Due Dates") that occur monthly, quarterly, semi-annually or annually. A
Mortgage Loan (i) may provide for no accrual of interest or for accrual of
interest thereon at a rate (the "Mortgage Rate") that is fixed over its term or
that adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or for
payments that adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may permit negative
amortization, (iii) may be fully amortizing or may be partially amortizing or
non-amortizing, with a balloon payment due on its stated maturity date, and (iv)
may prohibit over its term or for a certain period prepayments (the period of
such prohibition, a "Lock-Out Period" and its date of expiration, a "Lock-Out
Date") and/or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "Equity Participation"), as
described in the related Prospectus Supplement.
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Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable and specifically
known to the Depositor, will generally include the following: (i) the aggregate
outstanding principal balance and the largest, smallest and average outstanding
principal balance of the Mortgage Loans, (ii) the type or types of property that
provide security for repayment of the Mortgage Loans, (iii) the earliest and
latest origination date and maturity date of the Mortgage Loans, (iv) the
original and remaining terms to maturity of the Mortgage Loans, or the
respective ranges thereof, and the weighted average original and remaining terms
to maturity of the Mortgage Loans, (v) the Loan-to-Value Ratios of the Mortgage
Loans (either at origination or as of a more recent date), or the range thereof,
and the weighted average of such Loan-to-Value Ratios, (vi) the Mortgage Rates
borne by the Mortgage Loans, or range thereof, and the weighted average Mortgage
Rate borne by the Mortgage Loans, (vii) with respect to Mortgage Loans with
adjustable Mortgage Rates ("ARM Loans"), the index or indices upon which such
adjustments are based, the adjustment dates, the range of gross margins and the
weighted average gross margin, and any limits on Mortgage Rate adjustments at
the time of any adjustment and over the life of the ARM Loan, (viii) information
regarding the payment characteristics of the Mortgage Loans, including, without
limitation, balloon payment and other amortization provisions, Lock-out Periods
and Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage
Loans (either at origination or as of a more recent date), or the range thereof,
and the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Securities and Exchange Commission (the "Commission") within
fifteen days following such issuance.
MBS
MBS may include (i) private-label (that is, not guaranteed or insured by
the United States or any agency or instrumentality thereof) mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities or (ii) certificates insured or guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), the Governmental National Mortgage Association or the Federal
Agricultural Mortgage Corporation ("FAMC"), provided that, unless otherwise
specified in the related Prospectus Supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will have entered
into the MBS Agreement, generally with a trustee (the "MBS Trustee") or, in the
alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Reserve funds, subordination or other credit support (any such coverage
with respect to this Certificates of any Series, "Credit Support") similar to
that described for the Certificates under "Description of Credit Support" may
have been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any nationally recognized
statistical rating agency that may have assigned a rating to the MBS (each, a
"Rating Agency"), or by the initial purchasers of the MBS.
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The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate of the
MBS or the formula for determining such rates, (iv) the payment characteristics
of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vi) a description of the credit support, if any, (vii) the circumstances under
which the related underlying mortgage loans, or the MBS themselves, may be
purchased prior to their maturity, (viii) the terms on which mortgage loans may
be substituted for those originally underlying the MBS, (ix) the type of
mortgage loans underlying the MBS and, to the extent available to the Depositor
and appropriate under the circumstances, such other information in respect of
the underlying mortgage loans described under "-Mortgage Loans-Mortgage Loan
Information in Prospectus Supplements," and (x) the characteristics of any cash
flow agreements that relate to the MBS.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements-Certificate Account."
Credit Support
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more classes of
Certificates of such series in the form of subordination of one or more other
classes of Certificates of such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof. The amount and types of Credit
Support, the identification of the entity providing it (if applicable) and
related information with respect to each type of Credit Support, if any, will be
set forth in the Prospectus Supplement for a series of Certificates. See "Risk
Factors-Credit Support Is Limited" and "Description of Credit Support."
Cash Flow Agreements
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets on one or more classes of Certificates.
The principal terms of any such Cash Flow Agreement, including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be described
in the related Prospectus Supplement. The related Prospectus Supplement will
also identify the obligor under the Cash Flow Agreement.
Yield and Maturity Considerations
General
The yield on any Certificate offered hereby (each, an "Offered
Certificate") will depend on the price paid by the holder thereof (the
"Certificateholder"), the interest rate at which such Certificate accrues
interest (the "Pass-Through Rate") and the amount and timing of distributions on
the Certificate. See "Risk Factors-Each Class of Certificates Will Have
Different Yield and Prepayment Considerations." The following discussion
contemplates a Trust Fund that consists solely of Mortgage Loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of Certificates as will the characteristics and behavior
of comparable Mortgage Loans, the effect may differ due to the payment
characteristics of the MBS. If a Trust Fund includes MBS, the related Prospectus
Supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
Offered Certificates of the related series.
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Pass-Through Rate
The Certificates of any class within a series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of Offered Certificates of such series or, in
the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under any (i) guaranteed investment
contracts pursuant to which moneys held in the funds and accounts established
for the related series will be invested at a specified rate; or (ii) certain
other agreements, such as interest rate exchange agreements, interest rate cap
or floor agreements, or other agreements designed to reduce the effects of
interest rate fluctuation on the Mortgage Assets or on one or more classes of
Certificates (any such agreement, in the case of clause (i) or (ii), a "Cash
Flow Agreement").
Payment Delays
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the date (the "Distribution Date") on which such payments are
passed through to Certificateholders. That delay will effectively reduce the
yield that would otherwise be produced if payments on such Mortgage Loans were
distributed to Certificateholders on the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
Certificates and distributable thereon on any Distribution Date will generally
correspond to interest accrued on the Mortgage Loans to their respective Due
Dates during the related Due Period. Unless otherwise specified in the
Prospectus Supplement for a series of Certificates, a "Due Period" will be a
specified time period (generally running from the second day of one month to the
first day of the next month, inclusive) and all scheduled payments on the
Mortgage Loans in the related Trust Fund that are due during a given Due Period
will, to the extent received by a specified date (the "Determination Date") or
otherwise advanced by the related Master Servicer or other specified person, be
distributed to the holders of the Certificates of such series on the next
succeeding Distribution Date. Consequently, if a prepayment on any Mortgage Loan
is distributable to Certificateholders on a particular Distribution Date, but
such prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Certificate. The rate of principal payments on the Mortgage Loans in any
Trust Fund will in turn be affected by the amortization schedules thereof
(which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
related Trust Fund). Because the rate of
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principal prepayments on the Mortgage Loans in any Trust Fund will depend on
future events and a variety of factors (as described below), no assurance can be
given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the notional amount
(the "Notional Amount") thereof). An investor should consider, in the case of
any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans in the related
Trust Fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
Offered Certificate at a discount (or premium), and principal payments are made
in reduction of the principal balance or notional amount of such investor's
Offered Certificates at a rate slower (or faster) than the rate anticipated by
the investor during any particular period, the consequent adverse effects on
such investor's yield would not be fully offset by a subsequent like increase
(or decrease) in the rate of principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the initial
stated principal amounts (each, a "Certificate Balance") of one or more of the
other classes of Certificates of the same series. Accordingly, the yield on such
Stripped Interest Certificates will be inversely related to the rate at which
payments and other collections of principal are received on such Mortgage Assets
or distributions are made in reduction of the Certificate Balances of such
classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a group of multifamily or commercial mortgage loans. However, the extent of
prepayments of principal of the Mortgage Loans in any Trust Fund may be affected
by a number of factors, including, without limitation, the availability of
mortgage credit, the relative economic vitality of the area in which the
Mortgaged Properties are located, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. In addition, the rate of principal
payments on the Mortgage Loans in any Trust Fund may be affected by the
existence of Lock-out Periods and requirements that principal prepayments be
accompanied by Prepayment Premiums, and by the extent to which such provisions
may be practicably enforced. To the extent enforceable, such provisions could
constitute either an absolute prohibition (in the case of a Lock-out Period) or
a disincentive (in the case of a Prepayment Premium) to a borrower's voluntarily
prepaying its Mortgage Loan.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan.
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Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments, liquidations due
to default and purchases of Mortgage Loans out of the related Trust Fund), is
paid to such class. Prepayment rates on loans are commonly measured relative to
a prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model or the Standard Prepayment Assumption ("SPA") prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of loans, with different
prepayment assumptions often expressed as percentages of SPA. For example, a
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month, and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of loans. Moreover, the
CPR and SPA models were developed based upon historical prepayment experience
for single-family loans. Thus, it is unlikely that the prepayment experience of
the Mortgage Loans included in any Trust Fund will conform to any particular
level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series and the percentage of the
initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage Loans
are made at rates corresponding to various percentages of CPR or SPA, or at such
other rates specified in such Prospectus Supplement. Such tables and assumptions
will illustrate the sensitivity of the weighted average lives of the
Certificates to various assumed prepayment rates and will not be intended to
predict, or to provide information that will enable investors to predict, the
actual weighted average lives of the Certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage Loans
included in a particular Trust Fund may require that balloon payments be made at
maturity. Because the ability of a borrower to make a balloon payment typically
will depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a possibility that Mortgage Loans that require
balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
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Servicer or a Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
Negative Amortization. The weighted average life of a class of Certificates
can be affected by Mortgage Loans that permit negative amortization to occur. A
Mortgage Loan that provides for the payment of interest calculated at a rate
lower than the rate at which interest accrues thereon would, in the case of an
ARM Loan, be expected during a period of increasing interest rates to amortize
at a slower rate (and perhaps not at all) than if interest rates were declining
or were remaining constant. Such slower rate of Mortgage Loan amortization would
correspondingly be reflected in a slower rate of amortization for one or more
classes of Certificates of the related series. In addition, negative
amortization on one or more Mortgage Loans in any Trust Fund may result in
negative amortization on the Certificates of the related series. The related
Prospectus Supplement will describe, if applicable, the manner in which negative
amortization in respect of the Mortgage Loans in any Trust Fund is allocated
among the respective classes of Certificates of the related series. The portion
of any Mortgage Loan negative amortization allocated to a class of Certificates
may result in a deferral of some or all of the interest payable thereon, which
deferred interest may be added to the Certificate Balance thereof. Accordingly,
the weighted average lives of Mortgage Loans that permit negative amortization
(and that of the classes of Certificates to which any such negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization on such Mortgage Loans) may increase as a result of such feature.
Negative amortization also may occur in respect of an ARM Loan that (i)
limits the amount by which its scheduled payment may adjust in response to a
change in its Mortgage Rate, (ii) provides that its scheduled payment will
adjust less frequently than its Mortgage Rate or (iii) provides for constant
scheduled payments notwithstanding adjustments to its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled payment
on such a Mortgage Loan may exceed the amount necessary to amortize the loan
fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization of
such Mortgage Loan. Any such acceleration in amortization of its principal
balance will shorten the weighted average life of such Mortgage Loan and,
correspondingly, the weighted average lives of those classes of Certificates
entitled to a portion of the principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount thereof).
See "-Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to
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the limitations, specified in the related Prospectus Supplement. As described in
the related Prospectus Supplement, such allocations may be effected by a
reduction in the entitlements to interest and/or Certificate Balances of one or
more such classes of Certificates, and/or by establishing a priority of payments
among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more classes of Certificates of any series, including
one or more classes of Offered Certificates of such series, may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more classes of Certificates
(collectively, "Accrual Certificates") with respect to which distributions of
interest may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of Certificates, (ii) Excess Funds or
(iii) any other amounts described in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, "Excess Funds" will,
in general, represent that portion of the amounts distributable in respect of
the Certificates of any series on any Distribution Date that represent (i)
interest received or advanced on the Mortgage Assets in the related Trust Fund
that is in excess of the interest currently accrued on the Certificates of such
series, or (ii) Prepayment Premiums, payments from Equity Participations or any
other amounts received on the Mortgage Assets in the related Trust Fund that do
not constitute interest thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
Optional Early Termination. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer, the Depositor or, if specified in
the related Prospectus Supplement, the holder of the residual interest in a
REMIC may at its option either (i) effect early retirement of a series of
Certificates through the purchase of the assets in the related Trust Fund or
(ii) purchase, in whole but not in part, the Certificates specified in the
related Prospectus Supplement; in each case under the circumstances and in the
manner set forth herein under "Description of the Certificates-Termination;
Retirement of Certificates" and in the related Prospectus Supplement. In the
absence of other factors, any such early retirement of a class of Offered
Certificates would shorten the weighted average life thereof and, if such
Certificates were purchased at premium, reduce the yield thereon.
The Depositor
GMAC Commercial Mortgage Securities, Inc. is a wholly-owned subsidiary of
GMACCM which is an indirect wholly-owned subsidiary of GMAC Mortgage Group,
Inc., a Michigan Corporation. The Depositor was incorporated in the State of
Delaware on June 22, 1995. The Depositor was organized for the purpose of
serving as a private secondary mortgage market conduit. The Depositor maintains
its principal office at 650 Dresher Road, Horsham, Pennsylvania 19044. Its
telephone number is (215) 328-3164. The Depositor does not have, nor is it
expected in the future to have, any significant assets.
GMAC Commercial Mortgage Corporation
Unless otherwise specified in the related Prospectus Supplement, GMAC
Commercial Mortgage Corporation, an affiliate of the Company and a corporation
duly organized and existing under the laws of the State of California, will act
as the Master Servicer or Manager for a series of Certificates.
GMACCM buys mortgage loans primarily through its branch network and also
from mortgage loan originators or sellers nationwide and services mortgage loans
for its own account and for others. GMACCM's principal executive offices are
located at 650 Dresher Road, Horsham, Pennsylvania 19044. Its telephone number
is (215) 328-4622. GMACCM conducts operations from its headquarters in
Pennsylvania and from offices located in
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California, Colorado, the District of Columbia, Illinois, Michigan, Minnesota,
Missouri, Nebraska, New York, Ohio, Texas, Virginia, Washington and Wisconsin.
Description of the Certificates
General
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related pooling and servicing
agreement or other agreement specified in the related Prospectus Supplement (in
either case, a "Pooling and Servicing Agreement"). As described in the related
Prospectus Supplement, the Certificates of each series, including the Offered
Certificates of such series, may consist of one or more classes of Certificates
that, among other things: (i) provide for the accrual of interest on the
Certificate Balance or Notional Amount thereof at a fixed, variable or
adjustable rate; (ii) constitute Senior Certificates or Subordinate
Certificates; (iii) constitute Stripped Interest Certificates or Stripped
Principal Certificates; (iv) provide for distributions of interest thereon or
principal thereof that commence only after the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series; (v) provide for distributions of principal thereof to be made, from time
to time or for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower) than
the rate at which payments or other collections of principal are received on the
Mortgage Assets in the related Trust Fund; (vi) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology; or (vii) provide for
distributions based on collections on the Mortgage Assets in the related Trust
Fund attributable to Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of The Depository Trust Company ("DTC"). The Offered Certificates of
each series (if issued as Definitive Certificates) may be transferred or
exchanged, subject to any restrictions on transfer described in the related
Prospectus Supplement, at the location specified in the related Prospectus
Supplement, without the payment of any service charges, other than any tax or
other governmental charge payable in connection therewith. Interests in a class
of Book-Entry Certificates will be transferred on the book-entry records of DTC
and its participating organizations.
Distributions
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be more specifically described in the related
Prospectus Supplement Unless otherwise provided in the related Prospectus
Supplement, the Distribution Date for a series of Certificates will be the 25th
day of each month (or, if any such 25th day is not a business day, the next
succeeding business day), commencing in the month immediately following the
month in which such series of Certificates is issued.
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Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"). All distributions with respect to
each class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates in such class in proportion to the respective
Percentage Interests evidenced thereby unless otherwise specified in the related
Prospectus Supplement. Payments will be made either by wire transfer in
immediately available funds to the account of a Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
has provided the person required to make such payments with wiring instructions
no later than the related Record Date or such other date specified in the
related Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, such Certificateholder holds Certificates in the requisite amount or
denomination specified therein), or by check mailed to the address of such
Certificateholder as it appears on the Certificate Register; provided, however,
that the final distribution in retirement of any class of Certificates (whether
Definitive Certificates or Book-Entry Certificates) will be made only upon
presentation and surrender of such Certificates at the location specified in the
notice to Certificateholders of such final distribution. The undivided
percentage interest (the "Percentage Interest") represented by an Offered
Certificate of a particular class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Certificate by
the initial Certificate Balance or Notional Amount of such class.
Distributions of Interest on the Certificates
Each class of Certificates of each series (other than certain classes of
Certificates that are entitled to distributions of principal, with
disproportionate, nominal or no distributions of interest (collectively,
"Stripped Principal Certificates") and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates of each series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
any class of Stripped Principal Certificates or REMIC Residual Certificates that
is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such class and
such Distribution Date, subject to the sufficiency of the portion of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance thereof on each
Distribution Date or otherwise deferred as described in the related Prospectus
Supplement. With respect to each class of Certificates (other than certain
classes of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates), the "Accrued Certificate Interest" for each Distribution Date
will be equal to interest at the applicable Pass-Through Rate accrued for a
specified period (generally the most recently ended calendar month) on the
outstanding Certificate Balance of such class of Certificates immediately prior
to such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the Accrued Certificate Interest for each Distribution Date on a
class of Certificates that is entitled to distributions of interest, with
disproportionate, nominal or no distributions or principal (collectively,
"Stripped Interest Certificates") will be similarly calculated except that it
will accrue on a Notional Amount that is either (i) based on the principal
balances of some or all of the Mortgage Assets in the related Trust Fund or (ii)
equal to the Certificate Balances of one or more other classes of Certificates
of the same series. Reference to a Notional Amount with respect to a class of
Stripped Interest Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related Prospectus Supplement, the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the case
of Accrual Certificates, that may otherwise be added to the Certificate Balance
of) one or more classes of the Certificates of a series may be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations-Certain Shortfalls in Collections of Interest," exceed
the amount of any sums that are applied to offset the amount of such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the classes of Certificates of that series will be specified
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in the related Prospectus Supplement. The related Prospectus Supplement will
also describe the extent to which the amount of Accrued Certificate Interest
that is otherwise distributable on (or, in the case of Accrual Certificates,
that may otherwise be added to the Certificate Balance of) a class of Offered
Certificates may be reduced as a result of any other contingencies, including
delinquencies, losses and deferred interest on or in respect of the Mortgage
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of Certificates by reason of the
allocation to such class of a portion of any deferred interest on or in respect
of the Mortgage Assets in the related Trust Fund will result in a corresponding
increase in the Certificate Balance of such class. See "Risk Factors-Each Class
of Certificates Will Have Different Yield and Prepayment Considerations" and
"Yield and Maturity Considerations-Certain Shortfalls in Collections of
Interest."
Distributions of Principal of the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if so provided in the related
Prospectus Supplement, further by any losses incurred in respect of the related
Mortgage Assets allocated thereto from time to time. In turn, the outstanding
Certificate Balance of a class of Certificates may be increased as a result of
any deferred interest on or in respect of the related Mortgage Assets being
allocated thereto from time to time, and will be increased, in the case of a
class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of any
Accrued Certificate Interest in respect thereof (reduced as described above).
Unless otherwise provided in the related Prospectus Supplement, the initial
aggregate Certificate Balance of all classes of a series of Certificates will
not be greater than the aggregate outstanding principal balance of the related
Mortgage Assets as of a specified date (the "Cut-Off Date"), after application
of scheduled payments due on or before such date, whether or not received. The
initial Certificate Balance of each class of a series of Certificates will be
specified in the related Prospectus Supplement. As and to the extent described
in the related Prospectus Supplement, distributions of principal with respect to
a series of Certificates will be made on each Distribution Date to the holders
of the class or classes of Certificates of such series entitled thereto until
the Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of Certificates
may be made at a rate that is faster (and, in some cases, substantially faster)
than the rate at which payments or other collections of principal are received
on the Mortgage Assets in the related Trust Fund. Distributions of principal
with respect to one or more classes of Certificates may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates (each such class, a "Controlled Amortization
Class") may be made, subject to available funds, based on a specified principal
payment schedule. Distributions of principal with respect to one or more classes
of Certificates (each such class, a "Companion Class") may be contingent on the
specified principal payment schedule for a Controlled Amortization Class of the
same series and the rate at which payments and other collections of principal on
the Mortgage Assets in the related Trust Fund are received. Unless otherwise
specified in the related Prospectus Supplement, distributions of principal of
any class of Offered Certificates will be made on a pro rata basis among all of
the Certificates of such class.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates, or by
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support."
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Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, a Special Servicer, the
Trustee, the Fiscal Agent (if any), any provider of Credit Support and/or any
other specified person may be obligated to advance, or have the option of
advancing, on or before each Distribution Date, from its or their own funds or
from excess funds held in the related Certificate Account that are not part of
the Available Distribution Amount for the related series of Certificates for
such Distribution Date, an amount up to the aggregate of any payments of
principal (other than the principal portion of any balloon payments) and
interest that were due on or in respect of such Mortgage Loans during the
related Due Period and were delinquent on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) respecting which such advances were
made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including in
the case of a series that includes one or more classes of Subordinate
Certificates, collections on other Mortgage Assets in the related Trust Fund
that would otherwise be distributable to the holders of one or more classes of
such Subordinate Certificates. No advance will be required to be made by a
Master Servicer, Special Servicer, Fiscal Agent or Trustee if, in the judgment
of the Master Servicer, Special Servicer, Fiscal Agent or Trustee, as the case
may be, such advance would not be recoverable from Related Proceeds or another
specifically identified source (any such advance, a "Nonrecoverable Advance");
and, if previously made by a Master Servicer, Special Servicer, Fiscal Agent or
Trustee, a Nonrecoverable Advance will be reimbursable thereto from any amounts
in the related Certificate Account prior to any distributions being made to the
related series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Fiscal
Agent, Trustee or other entity from excess funds in a Certificate Account, such
Master Servicer, Special Servicer, Fiscal Agent, Trustee or other entity, as the
case may be, will be required to replace such funds in such Certificate Account
on any future Distribution Date to the extent that funds in such Certificate
Account on such Distribution Date are less than payments required to be made to
the related series of Certificateholders on such date. If so specified in the
related Prospectus Supplement, the obligation of a Master Servicer, Special
Servicer, Fiscal Agent, Trustee or other entity to make advances may be secured
by a cash advance reserve fund or a surety bond. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related Pooling and
Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the holders of
each class of the Offered Certificates of a series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of
Offered Certificates that was applied to reduce the Certificate Balance
thereof;
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(ii) the amount of such distribution to holders of such class of
Offered Certificates that was applied to pay Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such
class of Offered Certificates that was allocable to (A) Prepayment Premiums
and (B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are
entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if
payable directly out of the related Trust Fund, by any Special Servicer and
any Sub-Servicer) and, if the related Trust Fund includes MBS, the amount
of administrative compensation received by the REMIC Administrator;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans
that are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal prepayments
made with respect to such Mortgage Loans during the related Prepayment
Period (that is, the specified period, generally corresponding to the
related Due Period, during which prepayments and other unscheduled
collections on the Mortgage Loans in the related Trust Fund must be
received in order to be distributed on a particular Distribution Date);
(x) the Certificate Balance or Notional Amount, as the case may be, of
such class of Certificates at the close of business on such Distribution
Date, separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related Mortgage Assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related Mortgage Assets and any increase in the Certificate
Balance of a class of Accrual Certificates, if any, in the event that
Accrued Certificate Interest has been added to such balance;
(xi) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date and, if determinable, for the next
succeeding Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve fund on
such Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
(xiii) if the related Trust Fund includes one or more instruments of
Credit Support, such as a letter of credit, an insurance policy and/or a
surety bond, the amount of coverage under each such instrument as of the
close of business on such Distribution Date; and
(xiv) the amount of Credit Support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Certificates or as a percentage. The Prospectus
Supplement for each series of Certificates may describe additional information
to be included in reports to the holders of the Offered Certificates of such
series.
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Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee for a series of Certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Certificate of such series a statement
containing the information set forth in subclauses (i)-(iii) above, aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Internal Revenue Code of 1986 (the "Code")
as are from time to time in force. See, however, "-Book-Entry Registration and
Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer, Manager or Trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates (other than limited payment and notice obligations of the
applicable parties) will terminate upon the payment to Certificateholders of
that series of all amounts held in the Certificate Account or by the Master
Servicer and required to be paid to them pursuant to such Pooling and Servicing
Agreement following the earlier of (i) the final payment or other liquidation or
disposition (or any advance with respect thereto) of the last Mortgage Asset
subject thereto or of any property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan subject thereto and (ii) the purchase by the
Master Servicer, the Depositor or, if specified in the related Prospectus
Supplement, by the holder of the REMIC Residual Certificates (see "Certain
Federal Income Tax Consequences" below) from the Trust Fund for such series of
all remaining Mortgage Assets therein and property, if any, acquired in respect
of the Mortgage Loans therein. In addition to the foregoing, the Master Servicer
or the Depositor will have the option to purchase, in whole but not in part, the
Certificates specified in the related Prospectus Supplement in the manner set
forth in the related Prospectus Supplement. Upon the purchase of such
Certificates or at any time thereafter, at the option of the Master Servicer or
the Depositor, the Mortgage Assets may be sold, thereby effecting a retirement
of the Certificates and the termination of the Trust Fund, or the Certificates
so purchased may be held or resold by the Master Servicer or the Depositor. In
no event, however, will the trust created continue beyond the expiration of 21
years from the death of the survivor of certain persons named in such Pooling
and Servicing Agreement. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. If the Certificateholders are permitted
to terminate the trust under the applicable Pooling and Servicing Agreement, a
penalty may be imposed upon the Certificateholders based upon the fee that would
be foregone by the Master Servicer and/or any Special Servicer because of such
termination.
Any such purchase of Mortgage Assets and property acquired in respect of
Mortgage Loans evidenced by a series of Certificates shall be made at the option
of the Master Servicer, the Depositor or, if applicable, the holder of the REMIC
Residual Certificates at the price specified in the related Prospectus
Supplement. The exercise of such right will effect early retirement of the
Certificates of that series, but the right of the Master Servicer, the Depositor
or, if applicable, such holder to so purchase is subject to the aggregate
principal balance of the Mortgage Assets for that series as of the Distribution
Date on which the purchase proceeds are to be distributed to Certificateholders
being less than the percentage specified in the related Prospectus Supplement of
the aggregate principal balance of the Mortgage Assets at the Cut-off Date for
that series. The Prospectus Supplement for each series of Certificates will set
forth the amounts that the holders of such Certificates will be entitled to
receive upon such early retirement. Such early termination may adversely affect
the yield to holders of certain classes of such Certificates. If a REMIC
election has been made, the termination of the related Trust Fund will be
effected in a manner consistent with applicable federal income tax regulations
and its status as a REMIC.
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Book-Entry Registration and Definitive Certificates
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global Certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants," which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interest in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee or Master Servicer), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling and Servicing
Agreement) of Book-Entry Certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor is informed that DTC will take
action permitted to be taken by a Certificateholder under a Pooling
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and Servicing Agreement only at the direction of one or more Participants to
whose account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in Book-Entry Certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in Book-Entry Certificates, may be limited due to the
lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
Certificateholders under the related Pooling and Servicing Agreement.
The Pooling And Servicing Agreements
General
The Certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the Depositor, the Trustee, the Master Servicer and, in
some cases, a Special Servicer appointed as of the date of the Pooling and
Servicing Agreement. However, a Pooling and Servicing Agreement that relates to
a Trust Fund that includes MBS may include a Manager as a party, but may not
include a Master Servicer or other servicer as a party. All parties to each
Pooling and Servicing Agreement under which Certificates of a series are issued
will be identified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, an affiliate of the Depositor, or the Mortgage
Asset Seller or an affiliate thereof, may perform the functions of servicer or
master servicer (each, a "Master Servicer"), Special Servicer or Manager. Any
party to a Pooling and Servicing Agreement or any affiliate thereof may own
Certificates issued thereunder.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling and Servicing Agreement under which Certificates that evidence
interests in Mortgage Loans will be issued. The Prospectus Supplement for a
series of Certificates will describe any provision of the related Pooling and
Servicing Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Trust Fund includes MBS, will
summarize all of the material provisions of the related Pooling and Servicing
Agreement. The summaries herein do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Pooling and Servicing Agreement for each series of Certificates and the
description of such provisions in the related Prospectus Supplement. The
Depositor will provide a copy of the Pooling and Servicing Agreement (without
exhibits) that relates to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to it at its
principal executive offices specified herein under "The Depositor".
Assignment of Mortgage Loans; Repurchases
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The
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Trustee will, concurrently with such assignment, deliver the Certificates to or
at the direction of the Depositor in exchange for the Mortgage Loans and the
other assets to be included in the Trust Fund for such series. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the related
Pooling and Servicing Agreement. Such schedule generally will include detailed
information that pertains to each Mortgage Loan included in the related Trust
Fund, which information will typically include the address of the related
Mortgaged Property and type of such property; the Mortgage Rate and, if
applicable, the applicable index, gross margin, adjustment date and any rate cap
information; the original and remaining term to maturity; the original
amortization term; and the original and outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering Mortgages on Mortgaged Properties located in
the same county, if permitted by law. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers, or causes to be delivered,
to the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit certifying that the original thereof
has been lost or destroyed. In addition, if the Depositor cannot deliver, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment with
evidence of recording thereon concurrently with the execution and delivery of
the related Pooling and Servicing Agreement because of a delay caused by the
public recording office, the Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) a true and correct photocopy of such
Mortgage or assignment as submitted for recording. The Depositor will deliver,
or cause to be delivered, to the related Trustee (or such custodian) such
Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office. If the Depositor cannot
deliver, with respect to any Mortgage Loan, the Mortgage or any intervening
assignment with evidence of recording thereon concurrently with the execution
and delivery of the related Pooling and Servicing Agreement because such
Mortgage or assignment has been lost, the Depositor will deliver, or cause to be
delivered, to the related Trustee (or such custodian) a true and correct
photocopy of such Mortgage or assignment with evidence of recording thereon.
Unless otherwise specified in the related Prospectus Supplement, assignments of
Mortgage to the Trustee (or its nominee) will be recorded in the appropriate
public recording office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator of
such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Depositor, and one of such persons will be required to notify the relevant
Mortgage Asset Seller. In that case, and if the Mortgage Asset Seller cannot
deliver the document or cure the defect within a specified number of days after
receipt of such notice, then, except as otherwise specified below or in the
related Prospectus Supplement, the Mortgage Asset Seller will be obligated to
repurchase the related Mortgage Loan from the Trustee at a price generally equal
to the unpaid principal balance thereof, together with accrued but unpaid
interest through a date on or about the date of purchase, or at such other price
as will be specified in the related Prospectus Supplement (in any event, the
"Purchase Price"). If so provided in the Prospectus Supplement for a series of
Certificates, a Mortgage Asset Seller, in lieu of repurchasing a Mortgage Loan
as to which there is missing or defective loan documentation, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related
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Prospectus Supplement, this repurchase or substitution obligation will
constitute the sole remedy to holders of the Certificates of any series or to
the related Trustee on their behalf for missing or defective Mortgage Asset
documentation and neither the Depositor nor, unless it is the Mortgage Asset
Seller, the Master Servicer will be obligated to purchase or replace a Mortgage
Loan if a Mortgage Asset Seller defaults on its obligation to do so.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund, and to maintain possession of and, if applicable, to review,
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor or the
Master Servicer.
Representations and Warranties; Repurchases
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (ii) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or an
affiliate of the Depositor, the Master Servicer, a Special Servicer or another
person acceptable to the Depositor. The Warranting Party, if other than the
Mortgage Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer and/or Trustee will be required to notify promptly any Warranting Party
of any breach of any representation or warranty made by it in respect of a
Mortgage Loan that materially and adversely affects the interests of the
Certificateholders of the related series. If such Warranting Party cannot cure
such breach within a specified period following the date on which it was
notified of such breach, then, unless otherwise provided in the related
Prospectus Supplement, it will be obligated to repurchase such Mortgage Loan
from the Trustee at the applicable Purchase Price. If so provided in the
Prospectus Supplement for a series of Certificates, a Warranting Party, in lieu
of repurchasing a Mortgage Loan as to which a breach has occurred, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, this repurchase or substitution obligation
will constitute the sole remedy available to holders of the Certificates of any
series or to the related Trustee on their behalf for a breach of representation
and warranty by a Warranting Party and neither the Depositor nor the Master
Servicer, in either case unless it is the Warranting Party, will be obligated to
purchase or replace a Mortgage Loan if a Warranting Party defaults on its
obligation to do so.
Representations and warranties may be made in respect of a Mortgage Loan as
of a date prior to the date upon which the related series of Certificates is
issued, and thus may not address events that may occur following the date as of
which they were made. The date as of which the representations and warranties
regarding the Mortgage Loans in any Trust Fund were made will be specified in
the related Prospectus Supplement.
Collection and other Servicing Procedures
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer for any Mortgage Pool, directly or through Sub-Servicers, will be
obligated under the related Pooling and Servicing Agreement to service and
administer the Mortgage Loans in such Mortgage Pool for the benefit of the
related Certificateholders, in accordance with applicable law and with the terms
of such Pooling and Servicing Agreement, such Mortgage Loans and any instrument
of Credit Support included in the related Trust Fund. Subject to the foregoing,
the Master Servicer will have full power and authority to do any and all things
in connection with such servicing and administration that it may deem necessary
and desirable.
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As part of its servicing duties, a Master Servicer will be required to make
reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided (i) such procedures are consistent with the terms of the related
Pooling and Servicing Agreement, and (ii) do not impair recovery under any
instrument of Credit Support included in the related Trust Fund. Consistent with
the foregoing, the Master Servicer will be permitted, in its discretion, unless
otherwise specified in the related Prospectus Supplement, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
Mortgage Loan.
Under a Pooling and Servicing Agreement, a Master Servicer or Special
Servicer will be granted certain discretion to extend relief to Mortgagors whose
payments become delinquent. Unless otherwise specified in the related Prospectus
Supplement, if a material default occurs or a payment default is reasonably
foreseeable with respect to a Mortgage Loan, the Master Servicer or Special
Servicer will be permitted, subject to any specific limitations set forth in the
related Pooling and Servicing Agreement and described in the related Prospectus
Supplement, to modify, waive or amend any term of such Mortgage Loan, including
deferring payments, extending the stated maturity date or otherwise adjusting
the payment schedule, provided that such modification, waiver or amendment (i)
is reasonably likely to produce a greater recovery with respect to such Mortgage
Loan on a present value basis than would liquidation and (ii) will not adversely
affect the coverage under any applicable instrument of Credit Support.
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Master Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Master Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Certificateholders of the related series
may vary considerably depending on the particular Mortgage Loan, the Mortgaged
Property, the mortgagor, the presence of an acceptable party to assume the
Mortgage Loan and the laws of the jurisdiction in which the Mortgaged Property
is located. If a mortgagor files a bankruptcy petition, the Master Servicer may
not be permitted to accelerate the maturity of the Mortgage Loan or to foreclose
on the related Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans-Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its business judgment in the same manner as it would if
it were the owner of the related Mortgage Loan, that such approval will not
adversely affect the security for, or the timely and full collectability of, the
related Mortgage Loan; provided, however, that the Master Servicer will not
approve such a request if a REMIC election has been made and such request would
not (in the opinion of independent counsel) result in the imposition of a tax on
the Trust Fund or cause the Trust Fund (or any designated portion thereof) to
fail to qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Any fee collected by the Master Servicer for processing such
request will be retained by the Master Servicer as additional servicing
compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master
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Servicer also will be required to notify any superior lienholder in writing of
the existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to take, on behalf of the related Trust Fund,
whatever actions are necessary to protect the interests of the related
Certificateholders, and/or to preserve the security of the related Mortgage
Loan, subject to the application of the REMIC Provisions. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
required to advance the necessary funds to cure the default or reinstate the
Senior Lien, if such advance is in the best interests of the related
Certificateholders and the Master Servicer determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Trust Fund, directly or through Sub-Servicers,
will also be required to perform as to the Mortgage Loans in such Trust Fund
various other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts, if required under the related Pooling
and Servicing Agreement, for payment of taxes, insurance premiums, ground rents
and similar items, or otherwise monitoring the timely payment of those items;
attempting to collect delinquent payments; supervising foreclosures; negotiating
modifications; conducting property inspections on a periodic or other basis;
managing (or overseeing the management of) Mortgaged Properties acquired on
behalf of such Trust Fund through foreclosure, deed-in-lieu of foreclosure or
otherwise (each, an "REO Property"); and maintaining servicing records relating
to such Mortgage Loans. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be responsible for filing and settling
claims in respect of particular Mortgage Loans under any applicable instrument
of Credit Support. See "Description of Credit Support."
Sub-Servicers
A Master Servicer may delegate its servicing obligations in respect of the
Mortgage Loans serviced thereby to one or more third-party servicers (each, a
"Sub-Servicer"); provided that, unless otherwise specified in the related
Prospectus Supplement, such Master Servicer will remain obligated under the
related Pooling and Servicing Agreement. A Sub-Servicer for any series of
Certificates may be an affiliate of the Depositor or Master Servicer. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") will provide for servicing of the applicable Mortgage Loans
consistent with the related Pooling and Servicing Agreement. A Master Servicer
will be required to monitor the performance of Sub-Servicers retained by it and
will have the right to remove a Sub-Servicer retained by it at any time it
considers such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Pooling and Servicing Agreement is sufficient to pay such fees. Each
Sub-Servicer will be reimbursed by the Master Servicer that retained it for
certain expenditures which it makes, generally to the same extent the Master
Servicer would be reimbursed under a Pooling and Servicing Agreement. See
"-Certificate Account" and "-Servicing Compensation and Payment of Expenses."
Special Servicers
To the extent so specified in the related Prospectus Supplement, one or
more Special Servicers may be a party to the related Pooling and Servicing
Agreement or may be appointed by the Master Servicer or another specified party.
A Special Servicer for any series of Certificates may be an affiliate of the
Depositor or the Master Servicer and may hold, or be affiliated with the holder
of, Subordinate Certificates of such series. A Special Servicer may be entitled
to any of the rights, and subject to any of the obligations, described herein in
respect of a Master Servicer. In general, a Special Servicer's duties will
relate to defaulted Mortgage Loans, including instituting foreclosures and
negotiating work-outs. The related Prospectus Supplement will describe the
rights, obligations and compensation of any Special Servicer for a particular
series of Certificates. The Master Servicer will be liable for the performance
of a Special Servicer only if, and to the extent, set forth in the related
Prospectus Supplement. In certain cases the Master Servicer may be appointed the
Special Servicer.
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Certificate Account
General. The Master Servicer, the Trustee and/or a Special Servicer will,
as to each Trust Fund that includes Mortgage Loans, establish and maintain or
cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
non-interest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer (if any) as
additional compensation. A Certificate Account may be maintained with the
related Master Servicer, Special Servicer or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
owned by the related Master Servicer or Special Servicer (if any) or serviced by
either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the following
payments and collections received or made by the Master Servicer, the Trustee or
any Special Servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each Trust Fund that includes Mortgage Loans, within a certain period following
receipt (in the case of collections on or in respect of the Mortgage Loans) or
otherwise as provided in the related Pooling and Servicing Agreement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
including any default interest collected, in each case net of any portion
thereof retained by the Master Servicer or any Special Servicer as its
servicing compensation or as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan (other than proceeds applied to the restoration of
the property or released to the related borrower) (collectively, "Insurance
Proceeds"), all proceeds received in connection with the condemnation or
other governmental taking of all or any portion of a Mortgaged Property
(other than proceeds applied to the restoration of the property or released
to the related borrower) (collectively, "Condemnation Proceeds"), and all
other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans or property acquired in respect thereof, by
foreclosure or otherwise (such amounts, together with those amounts listed
in clause (vii) below, "Liquidation Proceeds"), together with the net
operating income (less reasonable reserves for future expenses) derived
from the operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
(v) any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Depositor, any Mortgage Asset Seller or
any other specified person as described under "-Assignment of Mortgage
Loans; Repurchases" and "-Representations and Warranties; Repurchases," all
proceeds of the
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purchase of any defaulted Mortgage Loan as described under "-Realization
Upon Defaulted Mortgage Loans," and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates-Termination;
Retirement of Certificates";
(viii) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or a Special Servicer and is
not otherwise retained by the Depositor or another specified person, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
Mortgage Loans;
(ix) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under "-Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xi) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling and Servicing Agreement and
described in the related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, a Master Servicer,
Trustee or Special Servicer may make withdrawals from the Certificate Account
for each Trust Fund that includes Mortgage Loans for any of the following
purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to pay the Master Servicer or a Special Servicer any servicing
fees not previously retained thereby, such payment to be made out of
payments and other collections of interest on the particular Mortgage Loans
as to which such fees were earned;
(iii) to reimburse the Master Servicer, a Special Servicer or any
other specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain unreimbursed
servicing expenses incurred by it, with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such reimbursement
to be made out of amounts that represent late payments collected on the
particular Mortgage Loans, Liquidation Proceeds, Condemnation Proceeds and
Insurance Proceeds collected on the particular Mortgage Loans and
properties, and net income collected on the particular properties, with
respect to which such advances were made or such expenses were incurred or
out of amounts drawn under any form of Credit Support with respect to such
Mortgage Loans and properties, or if in the judgment of the Master
Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Loans in
the same Trust Fund or, if and to the extent so provided by the related
Pooling and Servicing Agreement and described in the related Prospectus
Supplement, only from that portion of amounts collected on such other
Mortgage Loans that is otherwise distributable on one or more classes of
Subordinate Certificates of the related series;
(iv) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, a Special Servicer or any other
specified person interest accrued on the advances and servicing expenses
described in clause (iii) above incurred by it while such remain
outstanding and unreimbursed;
(v) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and materials
present on such Mortgaged Properties, as described under "-Realization Upon
Defaulted Mortgage Loans";
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(vi) to reimburse the Master Servicer, the Depositor, the Trustee, or
any of their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred thereby,
as and to the extent described under "-Certain Matters Regarding the Master
Servicer and the Depositor" and "-Certain Matters Regarding the Trustee";
(vii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Trustee and any provider of Credit
Support;
(viii) if and to the extent described in the related Prospectus
Supplement, to reimburse prior draws on any form of Credit Support;
(ix) to pay the Master Servicer, a Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
(x) to pay any servicing expenses not otherwise required to be
advanced by the Master Servicer, a Special Servicer or any other specified
person;
(xi) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or transactions, as and
to the extent described under "Certain Federal Income Tax
Consequences-REMICs-Prohibited Transactions Tax and Other Taxes";
(xii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
(xiii) to make any other withdrawals permitted by the related Pooling
and Servicing Agreement and described in the related Prospectus Supplement;
and
(xiv) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
Realization Upon Defaulted Mortgage Loans
If a default on a Mortgage Loan has occurred or, in the Master Servicer's
judgment, a payment default is imminent, the Master Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property, by operation of
law or otherwise. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer may not, however, acquire title to any Mortgaged
Property, have a receiver of rents appointed with respect to any Mortgaged
Property or take any other action with respect to any Mortgaged Property that
would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Master Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into
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account the time value of money, than not taking such actions. See "Certain
Legal Aspects of Mortgage Loans-Environmental Considerations."
A Pooling and Servicing Agreement may grant to the Master Servicer, a
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of Certificateholders to principal
and interest thereon, will be specified in the related Prospectus Supplement),
any Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer may offer to sell any defaulted Mortgage Loan if
and when the Master Servicer determines, consistent with its normal servicing
procedures, that such a sale would produce a greater recovery, taking into
account the time value of money, than would liquidation of the related Mortgaged
Property. In the absence of any such sale, the Master Servicer will generally be
required to proceed against the related Mortgaged Property, subject to the
discussion below.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Master Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within three full years after the
taxable year of acquisition, unless (i) the Internal Revenue Service (the "IRS")
grants an extension of time to sell such property or (ii) the Trustee receives
an opinion of independent counsel to the effect that the holding of the property
by the Trust Fund for longer than such period will not result in the imposition
of a tax on the Trust Fund or cause the Trust Fund (or any designated portion
thereof) to fail to qualify as a REMIC under the Code at any time that any
Certificate is outstanding. Subject to the foregoing and any other tax-related
limitations, the Master Servicer will generally be required to attempt to sell
any Mortgaged Property so acquired on the same terms and conditions it would if
it were the owner. Unless otherwise provided in the related Prospectus
Supplement, if title to any Mortgaged Property is acquired by a Trust Fund as to
which a REMIC election has been made, the Master Servicer will also be required
to ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from non-permitted assets as described in Code Section
860F(a)(2)(B), and that the Trust Fund does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property. If the Trust Fund acquires title to any Mortgaged
Property, the Master Servicer, on behalf of the Trust Fund, may retain an
independent contractor to manage and operate such property. The retention of an
independent contractor, however, will not relieve the Master Servicer of its
obligation to manage such Mortgaged Property as required under the related
Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Master Servicer in connection with such Mortgage Loan, then, to
the extent that such shortfall is not covered by any instrument or fund
constituting Credit Support, the Trust Fund will realize a loss in the amount of
such shortfall. The Master Servicer will be entitled to reimbursement out of the
Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts that
represent unpaid servicing compensation in respect of the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. In addition, if and to the extent set forth in the related
Prospectus Supplement, amounts otherwise distributable on the Certificates may
be further reduced by interest payable to the Master Servicer on such servicing
expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, the Master Servicer will not be required to expend its own
funds to effect such restoration unless (and to the extent not otherwise
provided in the related Prospectus Supplement) it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds, Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn on
any instrument or fund constituting Credit Support.
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Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer to use
reasonable efforts to cause each Mortgage Loan borrower to maintain a hazard
insurance policy that provides for such coverage as is required under the
related Mortgage or, if the Mortgage permits the holder thereof to dictate to
the borrower the insurance coverage to be maintained on the related Mortgaged
Property, such coverage as is consistent with the Master Servicer's normal
servicing procedures. Unless otherwise specified in the related Prospectus
Supplement, such coverage generally will be in an amount equal to the lesser of
the principal balance owing on such Mortgage Loan and the replacement cost of
the related Mortgaged Property. The ability of a Master Servicer to assure that
hazard insurance proceeds are appropriately applied may be dependent upon its
being named as an additional insured under any hazard insurance policy and under
any other insurance policy referred to below, or upon the extent to which
information concerning covered losses is furnished by borrowers. All amounts
collected by a Master Servicer under any such policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with the Master Servicer's normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Certificate Account. The Pooling
and Servicing Agreement may provide that the Master Servicer may satisfy its
obligation to cause each borrower to maintain such a hazard insurance policy by
maintaining a blanket policy insuring against hazard losses on all of the
Mortgage Loans in a Trust Fund. If such blanket policy contains a deductible
clause, the Master Servicer will be required, in the event of a casualty covered
by such blanket policy, to deposit in the related Certificate Account all
additional sums that would have been deposited therein under an individual
policy but were not because of such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will determine whether to exercise any right the Trustee may have under
any such provision in a manner consistent with the Master Servicer's normal
servicing procedures. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be entitled to retain as additional
servicing compensation any fee collected in connection with the permitted
transfer of a Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans-Due-on-Sale and Due-on-Encumbrance."
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Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund. Because
such compensation is generally based on a percentage of the principal balance of
each such Mortgage Loan outstanding from time to time, it will decrease in
accordance with the amortization of the Mortgage Loans. If and to the extent
described in the related Prospectus Supplement, a Master Servicer's compensation
may also include: (i) an additional specified portion of the interest payments
on each defaulted Mortgage Loan serviced by the Master Servicer; (ii) subject to
any specified limitations, a fixed percentage of some or all of the collections
and proceeds received with respect to any defaulted Mortgage Loan as to which it
negotiated a work-out or that it liquidated; and (iii) any other amounts
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer may retain, as additional
compensation, all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the Certificate Account. Any
Sub-Servicer will receive a portion of the Master Servicer's compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer may
be required, to the extent provided in the related Prospectus Supplement, to pay
from amounts that represent its servicing compensation certain expenses incurred
in connection with the administration of the related Trust Fund, including,
without limitation, payment of the fees and disbursements of independent
accountants, payment of fees and disbursements of the Trustee and any custodians
appointed thereby and payment of expenses incurred in connection with
distributions and reports to Certificateholders. Certain other expenses,
including certain expenses related to Mortgage Loan defaults and liquidations
and, to the extent so provided in the related Prospectus Supplement, interest on
such expenses at the rate specified therein, and the fees of any Special
Servicer, may be required to be borne by the Trust Fund.
Evidence as to Compliance
Each Pooling and Servicing Agreement will provide that on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, a firm of independent public
accountants will furnish a statement to the related Trustee to the effect that,
on the basis of an examination by such firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers
established by the Mortgage Bankers Association of America with respect to the
servicing of commercial and multifamily mortgage loans or the Audit Program for
Mortgages serviced for FHLMC, the servicing of mortgage loans under agreements
(including the related Pooling and Servicing Agreement) substantially similar to
each other was conducted in compliance with such agreements except for such
significant exceptions or errors in records that, in the opinion of the firm,
the Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Sub-Servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to those Subservicers which also have been the subject of such an
examination.
Each Pooling and Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, there is to be delivered to
the related Trustee an annual statement signed by one or more officers of the
Master Servicer to the effect that, to the best knowledge of each such officer,
the Master Servicer has fulfilled in all material respects its obligations under
the Pooling and Servicing Agreement throughout the preceding year or, if there
has been a material default in the fulfillment of any such obligation, such
statement shall specify each such known default and the nature and status
thereof. Such statement may be provided as a single form making the required
statements as to more than one Pooling and Servicing Agreement.
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Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Certificateholders upon written request to
the Trustee.
Certain Matters Regarding the Master Servicer and the Depositor
The entity servicing as Master Servicer under a Pooling and Servicing
Agreement may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates. Unless
otherwise specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement for a series of Certificates will provide that the Master
Servicer may not resign from its obligations and duties thereunder except upon a
determination that performance of such duties is no longer permissible under
applicable law or except in connection with a permitted transfer of servicing.
No such resignation will become effective until the Trustee or a successor
servicer has assumed the Master Servicer's obligations and duties under the
Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will also provide that, except as set forth
below, neither the Master Servicer, the Depositor, nor any director, officer,
employee or agent of the Master Servicer or the Depositor will be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Master Servicer, the Depositor, nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Pooling and
Servicing Agreement will further provide that the Master Servicer, the
Depositor, and any director, officer, employee or agent of the Master Servicer
or the Depositor is entitled to indemnification by the Trust Fund and will be
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the related
series of Certificates, other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except any such loss, liability or
expense otherwise reimbursable pursuant to the Pooling and Servicing Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Pooling and Servicing Agreement will provide that neither the Master Servicer
nor the Depositor will be under any obligation to appear in, prosecute or defend
any legal or administrative action that is not incidental to its respective
duties under the Pooling and Servicing Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Pooling and Servicing Agreement and
the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Depositor, as the
case may be, will be entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders.
Any person into which the Master Servicer may be merged or consolidated,
any person resulting from any merger or consolidation to which the Master
Servicer is a party or any person succeeding to the business of the Master
Servicer will be the successor of the Master Servicer under the Pooling and
Servicing Agreement, provided that, unless otherwise specified in the related
Prospectus Supplement, (i) such person is qualified to service mortgage loans on
behalf of FNMA or FHLMC and (ii) such merger, consolidation or succession does
not adversely affect the then-current ratings of the classes of Certificates of
the related series that have been rated. In addition, notwithstanding the
prohibition on its resignation, the Master Servicer may assign its rights under
a Pooling and Servicing Agreement to any person to whom the Master Servicer is
transferring a substantial portion of its mortgage servicing portfolio, provided
clauses (i) and (ii) above are satisfied. In the case of any such assignment,
the Master Servicer will be released from its obligations under such Pooling and
Servicing Agreement, other than liabilities and obligations incurred by it prior
to the time of such assignment.
Events of Default
Events of Default under the Pooling and Servicing Agreement in respect of a
series of Certificates, unless otherwise specified in the Prospectus Supplement,
will include, without limitation, (i) any failure by the Master
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Servicer to make a required deposit to the Certificate Account or, if the Master
Servicer is so required, to distribute to the holders of any class of
Certificates of such series any required payment which continues unremedied for
5 days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Certificates of such class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Pooling and Servicing
Agreement with respect to such series of Certificates which continues unremedied
for 30 days after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of any class of Certificates of such
series evidencing not less than 25% of the aggregate Percentage Interests
constituting such class; and (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding the
Master Servicer and certain actions by the Master Servicer indicating its
insolvency or inability to pay its obligations. Material variations to the
foregoing Events of Default (other than to add thereto or to make them more
restrictive) will be specified in the related Prospectus Supplement. A default
pursuant to the terms of any MBS included in any Trust Fund will not constitute
an Event of Default under the related Pooling and Servicing Agreement.
Rights Upon Event of Default
So long as an Event of Default remains unremedied, either the Depositor or
the Trustee may, and at the direction of the holders of Certificates evidencing
not less than 51% of the aggregate undivided interests (or, if so specified in
the related Prospectus Supplement, voting rights) in the related Trust Fund the
Trustee shall, by written notification to the Master Servicer and to the
Depositor or the Trustee, as applicable, terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing Agreement
covering such Trust Fund and in and to the related Mortgage Loans and the
proceeds thereof (other than any rights of the Master Servicer as
Certificateholder and other than any rights of the Master Servicer to payment
and/or reimbursement for previously earned servicing fees and outstanding
advances), whereupon the Trustee or, upon notice to the Depositor and with the
Depositor's consent, its designee will succeed to all responsibilities, duties
and liabilities of the Master Servicer under such Pooling and Servicing
Agreement (other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of, a
FNMA-or FHLMC-approved mortgage servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the Pooling
and Servicing Agreement (unless otherwise set forth in the Pooling and Servicing
Agreement). Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial Master Servicer under the Pooling and Servicing Agreement.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for 60 days after receipt of such
request and indemnity has neglected or refused to institute any such proceeding.
However, the Trustee will be under no obligation to exercise any of the trusts
or powers vested in it by the Pooling and Servicing Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
Each Pooling and Servicing Agreement may be amended by the parties thereto,
without the consent of any of the holders of Certificates covered by such
Pooling and Servicing Agreement, (i) to cure any ambiguity, (ii) to correct or
supplement any provision therein which may be inconsistent with any other
provision therein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (A) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an
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opinion of counsel, and (B) such change would not adversely affect the
then-current rating of any rated classes of Certificates, as evidenced by a
letter from each applicable Rating Agency, (iv) if a REMIC election has been
made with respect to the related Trust Fund, to modify, eliminate or add to any
of its provisions (A) to such extent as shall be necessary or desirable to
maintain the qualification of the Trust Fund as a REMIC or to avoid or minimize
the risk of imposition of any tax on the related Trust Fund, provided that the
Trustee has received an opinion of counsel to the effect that (1) such action is
necessary or desirable to maintain such qualification or to avoid or minimize
such risk, and (2) such action will not adversely affect in any material respect
the interests of any holder of Certificates covered by the Pooling and Servicing
Agreement, or (C) to restrict the transfer of the REMIC Residual Certificates,
provided that the Depositor has determined that the then-current ratings of the
classes of the Certificates that have been rated will not be adversely affected,
as evidenced by a letter from each applicable Rating Agency, and that any such
amendment will not give rise to any tax with respect to the transfer of the
REMIC Residual Certificates to a non-Permitted Transferee, (v) to make any other
provisions with respect to matters or questions arising under such Pooling and
Servicing Agreement or any other change, provided that such action will not
adversely affect in any material respect the interests of any Certificateholder,
or (vi) to amend specified provisions that are not material to holders of any
class of Certificates offered hereunder.
Unless otherwise specified in the Prospectus Supplement, the Pooling and
Servicing Agreement may also be amended by the parties thereto with the consent
of the holders of Certificates of each class affected thereby evidencing, in
each case, not less than 66% of the aggregate Percentage Interests constituting
such class for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Pooling and Servicing Agreement or
of modifying in any manner the rights of the holders of Certificates covered by
such Pooling and Servicing Agreement, except that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on a Certificate of any
class without the consent of the holder of such Certificate or (ii) reduce the
aforesaid percentage of Certificates of any class the holders of which are
required to consent to any such amendment without the consent of the holders of
all Certificates of such class covered by such Pooling and Servicing Agreement
then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such amendment or the exercise
of any power granted to the Master Servicer, the Depositor, the Trustee or any
other specified person in accordance with such amendment will not result in the
imposition of a tax on the related Trust Fund or cause such Trust Fund to fail
to qualify as a REMIC.
The Trustee
The trustee under each Pooling and Servicing Agreement (each, a "Trustee")
will be named in the related Prospectus Supplement. The commercial bank,
national banking association, banking corporation or trust company that serves
as Trustee may have typical banking relationships with the Depositor and its
affiliates.
Duties of the Trustee
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
the Certificates or any underlying Mortgage Asset or related document and will
not be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or Special
Servicer in respect of the Certificates or the underlying Mortgage Assets. If no
Event of Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
Trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
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Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of this duties thereunder either directly or by or through agents or
attorneys.
Resignation and Removal of the Trustee
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Depositor will be obligated to appoint
a successor Trustee. The Trustee may also be removed at any time by the holders
of Certificates evidencing not less than 51% of the aggregate undivided
interests (or, if so specified in the related Prospectus Supplement, voting
rights) in the related Trust Fund. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
Description of Credit Support
General
Credit Support may be provided with respect to one or more classes of the
Certificates of any series, or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Support may provide
credit enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of Credit Support covers the Offered Certificates of more than one series
and losses on the related Mortgage Assets exceed the amount of such Credit
Support, it is possible that the holders of Offered Certificates of one (or
more) such series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Certificates of one (or more) other such
series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced
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and under which such Credit Support may be terminated or replaced and (iv) the
material provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor, if any, under any instrument of Credit Support. See "Risk
Factors-Credit Support Is Limited."
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be subordinate (collectively, "Subordinate
Certificates") to one or more other classes of Certificates in entitlement to
certain distributions on the Certificates. To the extent specified in the
related Prospectus Supplement, the rights of the holders of Subordinate
Certificates to receive distributions from the Certificate Account on any
Distribution Date will be subordinated to the corresponding rights of the
holders of classes that are senior (collectively, "Senior Certificates") in
entitlement. If so provided in the related Prospectus Supplement, the
subordination of a class may apply only in the event of certain types of losses
or shortfalls. The related Prospectus Supplement will set forth information
concerning the method and amount of subordination provided by a class or classes
of Subordinate Certificates in a series and the circumstances under which such
subordination will be available.
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
Letter of Credit
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or other financial institution specified in such Prospectus Supplement (the
"Letter of Credit Bank"). Under a letter of credit, the Letter of Credit Bank
will be obligated to honor draws thereunder in an aggregate fixed dollar amount,
net of unreimbursed payments thereunder, generally equal to a percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Mortgage Assets on the related Cut-off Date or of the initial
aggregate Certificate Balance of one or more classes of Certificates. If so
specified in the related Prospectus Supplement, the letter of credit may permit
draws only in the event of certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder and may otherwise be reduced as
described in the related Prospectus Supplement. The obligations of the Letter of
Credit Bank under the letter of credit for each series of Certificates will
expire at the earlier of the date specified in the related Prospectus Supplement
or the termination of the Trust Fund.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Certificates of the related series, timely
distributions of interest or distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. The related Prospectus
Supplement will describe any limitations on the draws that may be made under any
such instrument.
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Reserve Funds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with Respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
Certain Legal Aspects of Mortgage Loans
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any MBS)
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds-Mortgage Loans." For purposes of the following discussion, "Mortgage Loan"
includes a mortgage loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages." A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
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Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
non-bankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "-Bankruptcy Laws."
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
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Foreclosure
General. Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the real property at public auction to satisfy the
indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions.
United States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These principles
are generally designed to relieve borrowers from the effects of mortgage
defaults perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a nonmonetary default, such as a failure to
adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged property. Finally, some courts have addressed the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a borrower receive notice in
addition to statutorily-prescribed minimum notice. For the most part, these
cases have upheld the reasonableness of the notice provisions or have found that
a public sale under a mortgage providing for a power of sale does not involve
sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Non-Judicial Foreclosure/Power of Sale. In states permitting non-judicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a non-judicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a non-judicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by
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paying the entire actual amount in arrears (without regard to the acceleration
of the indebtedness), plus the lender's expenses incurred in enforcing the
obligation. In other states, the borrower or the junior lienholder is not
provided a period to reinstate the loan, but has only the right to pay off the
entire debt to prevent the foreclosure sale. Generally, state law governs the
procedure for public sale, the parties entitled to notice, the method of giving
notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, are generally expected to be
non-recourse. See "Risk Factors-Investment in Commercial and Multifamily
Mortgage Loans Is Subject to Certain Risks".) Thereafter, subject to the
borrower's right in some states to remain in possession during a redemption
period, the lender will become the owner of the property and have both the
benefits and burdens of ownership, including the obligation to pay debt service
on any senior mortgages, to pay taxes, to obtain casualty insurance and to make
such repairs as are necessary to render the property suitable for sale. The
costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption." The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the
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borrower's other assets, a lender's ability to realize upon those assets may be
limited by state law. For example, in some states a lender cannot obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other statutes may
require the lender to exhaust the security afforded under a mortgage before
bringing a personal action against the borrower. In certain other states, the
lender has the option of bringing a personal action against the borrower on the
debt without first exhausting such security; however, in some of those states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy provision
exists will usually proceed first against the security. Finally, other statutory
provisions, designed to protect borrowers from exposure to large deficiency
judgments that might result from bidding at below-market values at the
foreclosure sale, limit any deficiency judgment to the excess of the outstanding
debt over the fair market value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
Cross-Collateralization. Certain of the Mortgage Loans may be secured by
more than one mortgage covering properties located in more than one state.
Because of various state laws governing foreclosure or the exercise of a power
of sale and because, in general, foreclosure actions are brought in state court
and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under a cross-collateralized
Mortgage Loan to foreclose on the related mortgages in a particular order rather
than simultaneously in order to ensure that the lien of the mortgages is not
impaired or released.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
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Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "-Leases and Rents," the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien."
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator," however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest." This is the so called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor exemption. The Act offers
substantial protection to lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. In
order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property
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of the borrower. The Act provides that "merely having the capacity to influence,
or unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Act also provides that a lender will continue to have the benefit of the
secured creditor exemption even if it forecloses on a mortgaged property,
purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure
provided that the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all of those statutes provide for a secured creditor exemption.
In addition, under federal law, there is potential liability relating to
hazardous wastes and underground storage tanks under the federal Resource
Conservation and Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. It should be noted, however, that liability for cleanup of
petroleum contamination may be governed by state law, which may not provide for
any specific protection for secured creditors.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will provide
that the Master Servicer, acting on behalf of the Trustee, may not acquire title
to a Mortgaged Property or take over its operation unless the Master Servicer,
based solely (as to environmental matters) on a report prepared by a person who
regularly conducts environmental audits, has made the determination that it is
appropriate to do so, as described under "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage Loans."
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
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Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
Subordinate Financing
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
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No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of a
Master Servicer or Special Servicer to foreclose on an affected Mortgage Loan
during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
Certain Federal Income Tax Consequences
General
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Offered
Certificates. The following summary is based on the Code as well as Treasury
regulations and administrative and judicial rulings and practice. Legislative,
judicial and administrative changes may occur, possibly with retroactive effect,
that could alter or modify the continued validity of the statements and
conclusions set forth herein. This summary does not purport to address all
federal income tax matters that may be relevant to particular holders. For
example, it generally is addressed only to original purchasers of the
Certificates that are United States investors, deals only with Certificates held
as capital assets within the meaning of Section 1221 of the Code, and does not
address tax consequences to holders that may be relevant to investors subject to
special rules, such as non-U.S. investors, banks, insurance companies,
tax-exempt organizations, electing large partnerships, dealers in securities or
currencies, mutual funds, REITs, S corporations, estates and trusts, investors
that hold the Certificates as part of a hedge, straddle, integrated or
conversion transaction, or holders whose "functional currency" is not the United
States dollar. Further, it does not address alternative minimum tax consequences
or the indirect effects on the holders of equity interests in an entity that is
a beneficial owner of the Certificates. Further, this discussion does not
address the state or local tax consequences of the purchase, ownership and
disposition of such Certificates. Investors should consult their tax advisers in
determining the federal, state, local, or other tax consequences to them of the
purchase, ownership and disposition of the Certificates offered hereunder. See
"State and Other Tax Consequences."
The following discussion addresses certificates ("REMIC Certificates")
representing interests in a Trust Fund, or a portion thereof, that the Master
Servicer or the Trustee will elect to have treated as a "real estate mortgage
investment conduit" (a "REMIC") under Sections 860A through 860G (the "REMIC
Provisions") of the Code. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election (or elections) will be made
for the related Trust Fund and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. If a REMIC
election will not be made for a Trust Fund, the federal income tax consequences
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of the purchase, ownership and disposition of the related Certificates will be
set forth in the related Prospectus Supplement. For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements, other than guaranteed
investment contracts, are included in a Trust Fund, the tax consequences
associated with such Cash Flow Agreements also will be disclosed in the related
Prospectus Supplement. See "Description of the Trust Funds-Cash Flow
Agreements."
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICs
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Depositor will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be inadvertently terminated.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes. Upon the
issuance of any such series of REMIC Certificates, counsel to the Depositor will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Certificates issued by the Tiered
REMICs, will be considered to evidence ownership of REMIC Regular Certificates
or REMIC Residual Certificates in the related REMIC within the meaning of the
REMIC Provisions.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, the Certificates of
each Series that constitute "regular interests" in a REMIC ("REMIC Regular
Certificates") will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
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Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount. Regulations
have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest."
"Qualified stated interest" is interest that is unconditionally payable at least
annually at a single fixed rate, or at a "qualified floating rate," an
"objective rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long first accrual
period", some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
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that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "-Taxation
of Owners of REMIC Regular Certificates-Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (a) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (b) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in the stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
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price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "-Taxation of Owners of REMIC
Regular Certificates-Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
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To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "-Taxation of Owners of REMIC Regular
Certificates-Market Discount" above. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that as the result of a realized loss
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates
General. The Certificates of each Series that constitute the "residual
interests" in a REMIC ("REMIC Residual Certificates") will be subject to tax
rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Mortgage Loans or as debt instruments issued by the
REMIC.
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A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "-Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal the
income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
amortization of any premium on the Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under "-Taxation
of Owners of REMIC Regular Certificates-Original Issue Discount." The issue
price of a REMIC Certificate received in exchange for an interest
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in the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the
Master Servicer or the Trustee may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "-Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount," except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Certificates of such class will be reduced by
an amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "-Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
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Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as non-taxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-Taxation of Owners of REMIC
Residual Certificates-General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the "adjusted issue price" of a REMIC Residual Certificate as of the beginning
of any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS. Although it
has not done so, the Treasury has authority to issue
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regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered not to have "significant value."
For REMIC Residual Certificateholders, excess inclusions (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-Foreign Investors
in REMIC Certificates" below. Furthermore, for purposes of the alternative
minimum tax, (i) excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction and (ii) alternative minimum
taxable income may not be less than the taxpayer's excess inclusions. The latter
rule has the effect of preventing non-refundable tax credits from reducing the
taxpayer's income tax to an amount lower than the tentative minimum tax on
excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax." If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-Foreign Investors in REMIC Certificates-REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
Mark-to-Market Rules. On December 23, 1996, the IRS released final
regulations (the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers.
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This mark-to-market requirement applies to all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment. The Mark-to-Market Regulations provide that, for purposes
of this mark-to-market requirement, a REMIC Residual Certificate is not treated
as a security and thus may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by REMIC Certificateholders that
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described under
"-Taxation of Owners of REMIC Residual Certificates-Basis Rules, Net Losses and
Distributions." Except as provided in the following four paragraphs, any such
gain or loss will be capital gain or loss, provided such REMIC Certificate is
held as a capital asset (generally, property held for investment) within the
meaning of Section 1221 of the Code. The Code as of the date of this Prospectus
provides for a top marginal tax rate of 39.6% for individuals and a maximum
marginal rate for long term capital gains of individuals of 28%. No such rate
differential exists for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate which rate is
computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount of ordinary
income actually includible in the seller's income prior to such sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased such REMIC Regular
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Certificate at a market discount will be taxable as ordinary income in an amount
not exceeding the portion of such discount that accrued during the period such
REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under "-Taxation of Owners of
REMIC Regular Certificates-Market Discount" and "-Premium."
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer, Special Servicer, Manager or Trustee in any case
out of its own funds, provided that such person has sufficient assets to do so,
and provided further that such tax arises out of a breach of such person's
obligations under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by a
Master Servicer, Special Servicer, Manager or Trustee will be charged against
the related Trust Fund resulting in a reduction in amounts payable to holders of
the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess inclusions
with respect to such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
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corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in each
Pooling and Servicing Agreement, and will be discussed in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Mortgage
Loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in such Certificate, such REMIC Residual Certificateholder should
(but may not) be treated as realizing a loss equal to the amount of such
difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the Trustee or the
Master Servicer, which generally will hold at least a nominal amount of REMIC
Residual Certificates, will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects.
As the tax matters person, the Trustee or the Master Servicer, as the case
may be, subject to certain notice requirements and various restrictions and
limitations, generally will have the authority to act on behalf of the REMIC and
the REMIC Residual Certificateholders in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC Residual Certificateholders generally
will be required to report such REMIC items consistently with their treatment on
the related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the
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Trustee or the Master Servicer, as the case may be, as tax matters person, and
the IRS concerning any such REMIC item. Adjustments made to the REMIC tax return
may require a REMIC Residual Certificateholder to make corresponding adjustments
on its return, and an audit of the REMIC's tax return, or the adjustments
resulting from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-Taxation of Owners of REMIC Regular
Certificates-Market Discount."
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
either the Trustee or the Master Servicer.
Backup Withholding with Respect to REMIC Certificates. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "United States Person" (as defined below) and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a REMIC Regular Certificate will
not, unless otherwise disclosed in the related Prospectus Supplement, be subject
to United States federal income or withholding tax in respect of a distribution
on a REMIC Regular Certificate, provided that the holder complies to the extent
necessary with certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of perjury,
certifying that such Certificateholder is not a United States Person and
providing the name and address of such Certificateholder). For these purposes,
"United States Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate
whose income is subject to United States income tax regardless of its source, or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. It is possible that the IRS may assert that the foregoing tax exemption
should not apply with respect to a REMIC Regular Certificate held by a REMIC
Residual Certificateholder that owns directly or indirectly a 10% or greater
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interest in the REMIC Residual Certificates. If the holder does not qualify for
exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a tax rate of
30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, counsel to the Depositor will deliver its opinion to
the effect that, assuming compliance with all provisions of the related Pooling
and Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. Accordingly, each holder
of a Grantor Trust Certificate generally will be treated as the owner of an
interest in the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and
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Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the Mortgage Loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related Prospectus Supplement
will include information regarding servicing fees paid to a Master Servicer, a
Special Servicer, any Sub-Servicer or their respective affiliates necessary to
determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below. Under the stripped bond rules, the
holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "-Sales of Grantor Trust Certificates" below) and the yield of such Grantor
Trust Fractional Interest Certificate to such holder. Such yield would be
computed as the rate (compounded based on the regular interval between payment
dates) that, if used to discount the holder's share of future payments on the
Mortgage Loans, would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In computing yield
under the stripped bond rules, a Certificateholder's share of future payments on
the Mortgage Loans will not include any payments made in respect of any
ownership interest in the Mortgage Loans retained by the Depositor, a Master
Servicer, a Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
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In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the Mortgage Loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such prepayment assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1(b), certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "-Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Do Not Apply" and
"-Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount" above. In general,
the issue price of a Mortgage Loan will be the amount received by the borrower
from the lender under the terms of the Mortgage Loan, less any "points" paid by
the borrower, and the stated redemption price of a Mortgage Loan will equal its
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principal amount, unless the Mortgage Loan provides for an initial "teaser," or
below-market interest rate. The determination as to whether original issue
discount will be considered to be de minimis will be calculated using the same
test as in the REMIC discussion. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the Trustee
or Master Servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor Trust
Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount," that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "-Taxation of Owners of REMIC Regular
Interests-Market Discount" above.
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Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described in "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above within the exception that it is less
likely that a prepayment assumption will be used for purposes of such rules with
respect to the Mortgage Loans.
Further, under the rules described in "-REMICs-Taxation of Owners of REMIC
Regular Certificates-Market Discount," any discount that is not original issue
discount and exceeds a de minimis amount may require the deferral of interest
expense deductions attributable to accrued market discount not yet includible in
income, unless an election has been made to report market discount currently as
it accrues.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Apply," no regulations
or published rulings
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under Section 1286 of the Code have been issued and some uncertainty exists as
to how it will be applied to securities such as the Grantor Trust Strip
Certificates. Accordingly, holders of Grantor Trust Strip Certificates should
consult their tax advisors concerning the method to be used in reporting income
or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the
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same rules as debt instruments providing for noncontingent payments. Treasury
regulations were promulgated on June 11, 1996 regarding contingent payment debt
instruments, but it appears that the Grantor Trust Strip Certificates, due to
their similarity to other mortgage-backed securities (such as REMIC regular
interests) that are expressly exempted from the application of such proposed
regulations, may be excepted from such proposed regulations. Like the OID
Regulations, such proposed regulations do not specifically address securities,
such as the Grantor Trust Strip Certificates, that are subject to the stripped
bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply the "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the "comparable yield" (as described below)
of the Grantor Trust Strip Certificate. The projected amount of each payment is
determined so that the payment schedule reflects the "comparable yield." The
projected amount of each payment must reasonably reflect the relative expected
values of the payments to be received by the holders of a Grantor Trust Strip
Certificate in the manner prescribed by the regulations. The "comparable yield"
referred to above is generally the yield at which the issuer would issue a fixed
rate debt instrument with terms and conditions similar to those of the Grantor
Trust Strip Certificates, including the level of subordination, term, timing of
payments and general market conditions. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates."
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
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Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described in "-REMICs-Backup
Withholding with Respect to REMIC Certificates" will also apply to Grantor Trust
Certificates.
Foreign Investors. In general, the discussion with respect to REMIC Regular
Certificates in "-REMICs-Foreign Investors in REMIC Certificates" applies to
Grantor Trust Certificates except that Grantor Trust Certificates will, unless
otherwise disclosed in the related Prospectus Supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
non-resident alien individual.
State and Other Tax Consequences
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the income tax laws of any state or other jurisdiction. Therefore,
potential investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA Considerations
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and, as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and/or Section 4975 of the Code ("Plans") and
on persons who are fiduciaries with respect to such Plans in connection with the
investment of Plan assets. Certain employee benefit plans, such as governmental
plans (as defined in ERISA Section 3(32)), and, if no
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election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("Parties in Interest") who have certain specified relationships to the
Plan, unless a statutory or administrative exemption is available. Unless an
exemption is available, a Plan's purchase or holding of a Certificate may
constitute or result in a prohibited transaction if any of the Depositor, the
Trustee, the Master Servicer, the Manager, the Special Servicer or a
Sub-Servicer is a Party in Interest with respect to that Plan. Certain Parties
in Interest that participate in a prohibited transaction may be subject to an
excise tax imposed pursuant to Section 4975 of the Code or a penalty imposed
pursuant to Section 502(i) of ERISA, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth in
Section 406 of ERISA and Section 4975 of the Code.
Plan Asset Regulations
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Loans, MBS and other assets included in a related Trust Fund to be
deemed assets of such Plan. A regulation of the United States Department of
Labor ("DOL") at 29 C.F.R. Section 2510.3-101 provides that when a Plan acquires
an equity interest in an entity, the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant," both
as defined therein. Equity participation in a Trust Fund will be significant on
any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Loans, MBS and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, the Special
Servicer, any Sub-Servicer, the Manager, the Trustee, the obligor under any
credit enhancement mechanism, or certain affiliates thereof may be deemed to be
a Plan "fiduciary" and thus subject to the fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code with respect to the investing Plan. In addition, if the Mortgage Loans,
MBS and other assets included in a Trust Fund constitute Plan assets, the
purchase of Certificates by, on behalf of or with assets of a Plan, as well as
the operation of the Trust Fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued an individual exemption (as amended, the
"Exemption"), to certain of the Depositor's affiliates, which generally exempts
from the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on such prohibited transactions pursuant to
Sections 4975(a) and (b) of the Code, certain transactions, among others,
relating to the servicing and operation of mortgage pools and the purchase, sale
and holding of mortgage pass-through certificates issued by a trust as to which
(i) the Depositor is the sponsor if any entity which has received from the DOL
an individual prohibited transaction exemption which is similar to the Exemption
is the sole underwriter, or manager or co-manager of the underwriting syndicate
or a seller or placement agent, or (ii) the Depositor or an affiliate is the
Underwriter (as hereinafter defined), provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations," the term "Underwriter" shall include (a) the Depositor and
certain of its affiliates, (b) any person directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control with the
Depositor and certain of its affiliates, (c) any member of the underwriting
syndicate or selling group
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of which a person described in (a) or (b) is a manager or co-manager with
respect to a class of Certificates, or (d) any entity which has received an
exemption from the DOL relating to Certificates which is similar to the
Exemption.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Offered Certificates
to be eligible for exemptive relief thereunder. First, the acquisition of
Offered Certificates by or with assets of a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the Exemption only applies to Offered
Certificates evidencing rights and interests that are not subordinated to the
rights and interests evidenced by the other Certificates of the same trust.
Third, the Offered Certificates at the time of acquisition by or with assets of
a Plan must be rated in one of the three highest generic rating categories by
Standard & Poor's Ratings Services, Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch IBCA, Inc. Fourth, the Trustee cannot be an
affiliate of any member of the "Restricted Group" which consists of any
Underwriter, the Depositor, the Master Servicer, any Special Servicer, any
Sub-Servicer, any obligor under any credit enhancement mechanism, any Manager
and any mortgagor with respect to the assets constituting the related Trust Fund
(all such assets, with respect to the Certificates of any series, the "Trust
Assets") constituting more than 5% of the aggregate unamortized principal
balance of the Trust Assets in the related Trust Fund as of the date of initial
issuance of the Certificates. Fifth, the sum of all payments made to and
retained by the Underwriters must represent not more than reasonable
compensation for underwriting the Certificates; the sum of all payments made to
and retained by the Depositor pursuant to the assignment of the Trust Assets to
the related Trust Fund must represent not more than the fair market value of
such obligations; and the sum of all payments made to and retained by the Master
Servicer, any Special Servicer, any Sub-Servicer and any Manager must represent
not more than reasonable compensation for such person's services under the
related Pooling and Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the Exemption states that
the investing Plan or Plan asset investor must be an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
The Exemption also requires that each Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
one of the rating agencies specified above for at least one year prior to the
acquisition of Certificates by or with assets of a Plan; and (iii) certificates
in such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any acquisition of Certificates by or with
assets of a Plan.
It is not clear whether certain Certificates that may be offered hereunder
would constitute "certificates" for purposes of the Exemption, including but not
limited to, (i) Certificates evidencing an interest in certificates insured or
guaranteed by FAMC, (ii) Certificates evidencing an interest in Mortgage Loans
secured by liens on real estate projects under construction, (iii) Certificates
evidencing an interest in a Trust Fund including equity participations, (iv)
Certificates evidencing an interest in a Trust Fund including Cash Flow
Agreements, or (v) subordinated Classes of Certificates (collectively,
"Non-Exempt Certificates"). In promulgating the Exemption, the DOL did not have
under consideration interests in pools of the exact nature described in this
paragraph and accordingly, unless otherwise provided in the related Prospectus
Supplement, Plans and persons investing assets of Plans should not purchase
Non-Exempt Certificates based solely upon the Exemption.
A fiduciary or other investor of Plan assets contemplating purchasing an
Offered Certificate must make its own determination that the general conditions
set forth above will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407 of
ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code by
reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection with the
direct or indirect sale, exchange, transfer, holding or the direct or indirect
acquisition or disposition in the secondary market of Offered Certificates by or
with assets of a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E) and 406(a)(2) of ERISA for the acquisition or holding
of an Offered Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to assets of
such Excluded Plan. For purposes of the Certificates, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
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If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code, in connection with
(1) the direct or indirect sale, exchange or transfer of Certificates in the
initial issuance of Certificates between the Depositor or an Underwriter and a
Plan when the person who has discretionary authority or renders investment
advice with respect to the investment of the relevant Plan assets in the
Certificates is (a) a mortgagor with respect to 5% or less of the fair market
value of the Trust Assets or (b) an affiliate of such a person, (2) the direct
or indirect acquisition or disposition in the secondary market of Certificates
by or with assets of a Plan and (3) the holding of Certificates by or with
assets of a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Section 4975(c) of the Code, for transactions in
connection with the servicing, management and operation of the pools of Mortgage
Assets. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the Certificates so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA, the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code), for transactions
in connection with the servicing, management and operation of the pools of
Mortgage Assets, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code, if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan by virtue of providing
services to the Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of the Plan's ownership of Certificates.
Before purchasing an Offered Certificate, a fiduciary or other investor of
Plan assets should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the specific and
general conditions set forth in the Exemption and the other requirements set
forth in the Exemption would be satisfied. In addition to making its own
determination as to the availability of the exemptive relief provided in the
Exemption, the fiduciary or other Plan investor should consider its general
fiduciary obligations under ERISA in determining whether to purchase any Offered
Certificates with assets of a Plan. Such fiduciary or other Plan investor should
consider the availability of other class exemptions granted by the DOL, which
provide relief from certain of the prohibited transaction provisions of ERISA
and the related excise tax provisions of Section 4975 of the Code, including
Sections I and III of Prohibited Transaction Class Exemption ("PTCE") 95-60,
regarding transactions by insurance company general accounts. The Prospectus
Supplement with respect to a series of Certificates may contain additional
information regarding the application of the Exemption, PTCE 95-60 or any other
DOL exemption, with respect to the Certificates offered thereby.
Any fiduciary or other Plan investor that proposes to purchase Offered
Certificates on behalf of or with assets of a Plan should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
such investment and the availability of the Exemption or any other prohibited
transaction exemption in connection therewith. There can be no assurance that
any of these exemptions will apply with respect to any particular Plan's or
other Plan asset investor's investment in the Certificates or, even if an
exemption were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such an investment.
Insurance Company General Accounts
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
was required to issue final regulations (the "401(c)
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Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies and annuity
contracts supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Section 401(c) of ERISA generally provides that, until
the date which is 18 months after the 401(c) Regulations become final, no person
shall be subject to liability under Part 4 of Title I of ERISA and Section 4975
of the Code on the basis of a claim that the assets of an insurance company
general account constitute Plan assets, unless (i) as otherwise provided by the
Secretary of labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies or annuity contracts issued to a Plan after December
31, 1998 or issued to Plans on or before December 31, 1998 for which the
insurance company does not comply with the 401(c) Regulations may be treated as
Plan assets. In addition, because Section 401(c) does not relate to insurance
company accounts, separate account assets are still treated as Plan assets of
any Plan invested in such separate account. Insurance companies contemplating
the investment of general account assets in the Certificates should consult with
their legal counsel with respect to the applicability of Sections I and III of
PTCE 95-60 and Section 401(c) of ERISA, including the general account's ability
to continue to hold the Certificates after the date which is 18 months after the
date the 401(c) Regulations become final.
Representation from Investing Plans
It is not clear whether the exemptive relief afforded by the Exemption will
be applicable to the purchase, sale or holding of any class of Non-Exempt
Certificates. To the extent that Offered Certificates are Non-Exempt
Certificates, transfers of such Certificates to a Plan, to a trustee or other
person acting on behalf of any Plan, or to any other person using Plan assets to
effect such acquisition will not be registered by the Trustee unless the
transferee provides the Depositor, the Trustee and the Master Servicer with an
opinion of counsel satisfactory to the Depositor, the Trustee and the Master
Servicer, which opinion will not be at the expense of the Depositor, the Trustee
or the Master Servicer, that the purchase of such Certificates by or on behalf
of, or with asset of, any Plan is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
and Servicing Agreement. In lieu of such opinion of counsel, the prospective
transferee of any Class of subordinated Certificates may provide a certification
of facts substantially to the effect that the purchase of such Certificates by
or on behalf of, or with asset of, any Plan is permissible under applicable law,
will not constitute or result in a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code, will not subject the Depositor, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
and Servicing Agreement, and the following conditions are met: (a) the source of
funds used to purchase such Certificates is an "insurance company general
account" (as such term is defined in PTCE 95-60 and (b) the conditions set forth
in Sections I and III of PTCE 95-60 have been satisfied as of the date of the
acquisition of such Certificates.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences-Taxation of Owners of
REMIC Residual Certificates-Excess Inclusions."
Such fiduciary or other Plan investor should consider the availability of
other class exemptions granted by the DOL, which provide relief from certain of
the prohibited transaction provisions of ERISA and the related excise tax
provisions of Section 4975 of the Code, including Sections I and III of PTCE
95-60, regarding transactions by insurance company general accounts. The
Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the application of the Exemption, PTCE 95-60 or
any other DOL exemption, with respect to the Certificates offered thereby.
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Legal Investment
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA").
Accordingly, investors whose investment authority is subject to legal
restrictions should consult their legal advisors to determine whether and to
what extent the Offered Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies and (ii) are
part of a series evidencing interests in a Trust Fund consisting of loans
secured by a single parcel of real estate upon which is located a dwelling or
mixed residential and commercial structure, such as certain Multifamily Loans,
and originated by types of Originators specified in SMMEA, will be "mortgage
related securities" for purposes of SMMEA. "Mortgage related securities" are
legal investments to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies and pension
funds created pursuant to or existing under the laws of the United States or of
any state, the authorized investments of which are subject to state regulation).
Under SMMEA, if a state enacted legislation prior to October 3, 1991 that
specifically limits the legal investment authority of any such entities with
respect to "mortgage related securities," Offered Certificates would constitute
legal investments for entities subject to such legislation only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
Upon the issuance of final implementing regulations under the Riegle
Community Development and Regulatory Improvement Act of 1994 and subject to any
limitations such regulations may impose, a modification of the definition of
"mortgage related securities" will become effective to expand the types of loans
to which such securities may relate to include loans secured by "one or more
parcels of real estate upon which is located one or more commercial structures."
In addition, the related legislative history states that this expanded
definition includes multifamily residential loans secured by more than one
parcel of real estate upon which is located more than one structure. Until
September 23, 2001 any state may enact legislation limiting the extent to which
"mortgage related securities" under this expanded definition would constitute
legal investments under that state's laws.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS. The Policy Statement
generally indicates that a mortgage derivative product will be deemed to be high
risk if it exhibits greater price volatility than a standard fixed rate
thirty-year mortgage security. According to the Policy Statement, prior to
purchase, a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and
if so that the proposed acquisition would reduce the institution's overall
interest rate risk. Reliance on analysis and documentation obtained from a
securities dealer or other outside party without internal analysis by the
institution would be unacceptable. There can be no assurance as to which classes
of Certificates, including Offered Certificates, will be treated as high-risk
under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps," which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Offered Certificates. In addition, the National
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Credit Union Administration has issued regulations governing federal credit
union investments which prohibit investment in certain specified types of
securities, which may include certain classes of Offered Certificates. Similar
policy statements have been issued by regulators having jurisdiction over other
types of depository institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Offered Certificates or to purchase any class of
Offered Certificates representing more than a specified percentage of the
investor's assets. The Depositor will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Offered Certificates under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all investors whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions.
Use of Proceeds
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or will
be used by the Depositor for general corporate purposes. The Depositor expects
to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
Method of Distribution
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such Certificates
or to an affiliate thereof.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The Depositor or the underwriters may sell
certain of the Certificates to affiliates of the Depositor. In any such case,
the related Prospectus Supplement will identify any such affiliate and the
method or methods by which such affiliate may resell such Certificates. The
managing underwriter or underwriters with respect to the offer and sale of
Offered Certificates of a particular series will be set forth on the
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cover of the Prospectus Supplement relating to such series and the members of
the underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
Legal Matters
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates of each series, including
certain federal income tax consequences, will be passed upon for the Depositor
by Mayer, Brown & Platt, New York, New York or Orrick, Herrington & Sutcliffe
LLP, New York, New York.
Financial Information
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
Where You Can Find Additional Information
The Depositor has filed a registration statement with the Commission
relating to the Certificates (the "Registration Statement"). This Prospectus is
part of the Registration Statement, but the Registration Statement includes
additional information.
We will file with the Commission all required annual, monthly and special
Commission reports, as well as other information about the Trust.
You may read and copy any reports, statements or other information we file
at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-Commission-0330. You can also request
copies of these documents, upon payment of a duplicating fee, by writing to the
Commission. The Commission also
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maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. The address of the Commission's Internet site is
www.sec.gov.
Reports to Certificateholders
Monthly statements will be sent to you by the Master Servicer, Manager or
Trustee, as applicable. These statements will keep you informed about the Trust
for your series of Certificates. See "Description of the Certificates--Reports
to Certificateholders." These monthly reports will present financial information
that no independent certified public accountant will have examined.
Incorporation of Certain Information by Reference
The Commission allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to documents which contain that information. Exhibits to such
documents may be omitted, unless such exhibits are specifically incorporated by
reference in such documents. Information incorporated in this Prospectus by
reference is considered to be part of this Prospectus. Certain information that
we will file with the Commission in the future will automatically update the
information in this Prospectus. In all cases, you should rely on the later
information over different information included in this Prospectus or the
Prospectus Supplement. We incorporate by reference any future annual, monthly
and special Commission reports filed by or on behalf of the Trust until we
terminate our offering of the Certificates. At your request, we will send you
copies of these documents and reports at no charge. Send your written request
to:
GMAC Commercial Mortgage
Securities, Inc.
650 Dresher Road
Horsham, Pennsylvania 19044
(215) 328-3480
Rating
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of stripped interest certificates in extreme cases
might fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page
----
401(c) Regulations ........................................................ 82
Accrual Certificates ...................................................... 24
Accrued Certificate Interest .............................................. 27
Act ....................................................................... 54
Annual Debt Service ....................................................... 16
ARM Loans ................................................................. 18
Book-Entry Certificates ................................................... 26
Cash Flow Agreement ....................................................... 20
CERCLA .................................................................... 54
Certificate Account ....................................................... 19
Certificate Balance ....................................................... 21
Certificate Owner ......................................................... 31
Certificateholder ......................................................... 20
Certificates .............................................................. 15
Closing Date .............................................................. 59
Code ...................................................................... 30
Commercial Properties ..................................................... 15
Commission ................................................................ 18
Committee Report .......................................................... 59
Companion Class ........................................................... 28
Condemnation Proceeds ..................................................... 38
Contributions Tax ......................................................... 68
Controlled Amortization Class ............................................. 28
Cooperatives .............................................................. 15
CPR ....................................................................... 22
Credit Support ............................................................ 19
Cut-Off Date .............................................................. 27
Debt Service Coverage Ratio ............................................... 16
Definitive Certificates ................................................... 26
Depositor ................................................................. 15
Determination Date ........................................................ 20
Direct Participants ....................................................... 31
Distribution Date ......................................................... 20
Distribution Date Statement ............................................... 29
DOL ....................................................................... 79
DTC ....................................................................... 26
Due Dates ................................................................. 17
Due Period ................................................................ 20
due-on-sale ............................................................... 56
Equity Participation ...................................................... 18
ERISA ..................................................................... 78
ERISA Considerations ...................................................... 79
Excess Funds .............................................................. 24
Excluded Plan ............................................................. 80
Exemption ................................................................. 79
FAMC ...................................................................... 18
FHLMC ..................................................................... 18
FNMA ...................................................................... 18
Garn Act .................................................................. 56
GMACCM .................................................................... 15
Grantor Trust Fractional Interest Certificate ............................. 71
Grantor Trust Strip Certificate ........................................... 71
Indirect Participants ..................................................... 31
Insurance Proceeds ........................................................ 38
IRS ....................................................................... 41
Issue Premium ............................................................. 64
Letter of Credit Bank ..................................................... 48
Liquidation Proceeds ...................................................... 38
Loan-to-Value Ratio ....................................................... 17
Lock-Out Date ............................................................. 18
Lock-Out Period ........................................................... 18
Mark-to-Market Regulations ................................................ 66
Master Servicer ........................................................... 33
MBS Agreement ............................................................. 18
MBS Issuer ................................................................ 18
MBS Servicer .............................................................. 18
MBS Trustee ............................................................... 18
Mortgage Asset Seller ..................................................... 15
Mortgage Loan ............................................................. 49
Mortgage Notes ............................................................ 15
Mortgage Rate ............................................................. 17
Mortgaged Properties ...................................................... 15
Mortgages ................................................................. 15
Multifamily Properties .................................................... 15
Net Leases ................................................................ 17
Non-Exempt Certificates ................................................... 80
Nonrecoverable Advance .................................................... 28
Notional Amount ........................................................... 21
Offered Certificate ....................................................... 20
OID Regulations ........................................................... 58
Originator ................................................................ 15
OTS ....................................................................... 83
Participants .............................................................. 31
Parties in Interest ....................................................... 79
Pass-Through Rate ......................................................... 20
Percentage Interest ....................................................... 26
Permitted Investments ..................................................... 38
Plans ..................................................................... 78
Policy Statement .......................................................... 83
Pooling and Servicing Agreement ........................................... 25
Prepayment Assumption ..................................................... 59
Prepayment Interest Shortfall ............................................. 20
Prepayment Premium ........................................................ 18
Prohibited Transactions Tax ............................................... 68
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Prospectus ................................................................ 15
Prospectus Supplement ..................................................... 15
PTCE ...................................................................... 81
Purchase Price ............................................................ 34
Qualified stated interest ................................................. 59
Rating Agency ............................................................. 19
RCRA ...................................................................... 55
Record Date ............................................................... 26
Registration Statement .................................................... 85
Related Proceeds .......................................................... 28
Relief Act ................................................................ 57
REMIC ..................................................................... 57
REMIC Certificates ........................................................ 57
REMIC Provisions .......................................................... 57
REMIC Regular Certificates ................................................ 58
REMIC Regulations ......................................................... 58
REMIC Residual Certificates ............................................... 62
REO Property .............................................................. 37
Restricted Group .......................................................... 80
Senior Certificates ....................................................... 47
Senior Liens .............................................................. 15
SMMEA ..................................................................... 83
SPA ....................................................................... 22
Stripped Interest Certificates ............................................ 27
Stripped Principal Certificates ........................................... 26
Subordinate Certificates .................................................. 47
Sub-Servicer .............................................................. 37
Sub-Servicing Agreement ................................................... 37
superlien ................................................................. 54
Tax Exempt Investor ....................................................... 82
Tiered REMICs ............................................................. 58
Title V ................................................................... 56
Trust Assets .............................................................. 80
Trust Fund ................................................................ 15
Trustee ................................................................... 46
UBTI ...................................................................... 82
UCC ....................................................................... 50
Underwriter ............................................................... 79
Underwritten Cash Flow .................................................... 16
Underwritten Debt Service Coverage Ratio .................................. 16
Underwritten DSCR ......................................................... 16
United States Person ...................................................... 70
Value ..................................................................... 17
Warranting Party .......................................................... 35
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TABLE OF CONTENTS
Page
Prospectus Summary ........................................................ 3
The Mortgage Asset Pools and Other Assets of the Trusts ................ 3
The Mortgage Loan Sellers .............................................. 3
The Master Servicer, the Special Servicer and the
Administration of the Trusts ....................................... 4
The Certificates-Ownership of an Interest in a
Trust Consisting of Mortgage Assets ................................. 4
Distributions to the Certificateholders ................................ 5
Credit Support and Cash Flow Agreements ................................ 5
Advances ............................................................... 6
Optional Termination ................................................... 6
Tax Status ............................................................. 6
ERISA Limitations ...................................................... 6
Legal Investment ....................................................... 7
Ratings ................................................................ 7
Risk Factors .............................................................. 8
Description of the Trust Funds ............................................ 15
General ................................................................ 15
Mortgage Loans ......................................................... 15
MBS .................................................................... 18
Certificate Accounts ................................................... 19
Credit Support ......................................................... 19
Cash Flow Agreements ................................................... 19
Yield and Maturity Considerations ......................................... 19
General ................................................................ 19
Pass-Through Rate ...................................................... 20
Payment Delays ......................................................... 20
Certain Shortfalls in Collections of Interest .......................... 20
Yield and Prepayment Considerations .................................... 20
Weighted Average Life and Maturity ..................................... 22
Other Factors Affecting Yield, Weighted Average Life and Maturity ...... 22
The Depositor ............................................................. 24
GMAC Commercial Mortgage Corporation ...................................... 24
Description of the Certificates ........................................... 25
General ................................................................ 25
Distributions .......................................................... 25
Distributions of Interest on the Certificates .......................... 26
Distributions of Principal of the Certificates ......................... 27
Allocation of Losses and Shortfalls .................................... 27
Advances in Respect of Delinquencies ................................... 28
Reports to Certificateholders .......................................... 28
Termination; Retirement of Certificates ................................ 30
Book-Entry Registration and Definitive Certificates .................... 31
The Pooling and Servicing Agreements ...................................... 32
General ................................................................ 32
Assignment of Mortgage Loans; Repurchases .............................. 32
Representations and Warranties; Repurchases ............................ 34
Collection and other Servicing Procedures .............................. 34
Sub-Servicers .......................................................... 36
Special Servicers ...................................................... 36
Certificate Account .................................................... 37
Realization Upon Defaulted Mortgage Loans .............................. 39
Hazard Insurance Policies .............................................. 41
Due-on-Sale and Due-on-Encumbrance Provisions .......................... 41
Servicing Compensation and Payment of Expenses ......................... 42
Evidence as to Compliance .............................................. 42
Certain Matters Regarding the Master Servicer and the Depositor ........ 43
Events of Default ...................................................... 43
Rights Upon Event of Default ........................................... 44
Amendment .............................................................. 44
The Trustee ............................................................ 45
Duties of the Trustee .................................................. 45
Certain Matters Regarding the Trustee .................................. 46
Resignation and Removal of the Trustee ................................. 46
Description of Credit Support ............................................. 46
General ................................................................ 46
Subordinate Certificates ............................................... 47
Insurance or Guarantees with Respect to Mortgage Loans ................. 47
Letter of Credit ....................................................... 47
Certificate Insurance and Surety Bonds ................................. 47
Reserve Funds .......................................................... 48
Credit Support with Respect to MBS ..................................... 48
Certain Legal Aspects of Mortgage Loans ................................... 48
General ................................................................ 48
Types of Mortgage Instruments .......................................... 49
Leases and Rents ....................................................... 49
Personalty ............................................................. 49
Foreclosure ............................................................ 50
Bankruptcy Laws ........................................................ 52
Environmental Considerations ........................................... 53
Due-on-Sale and Due-on-Encumbrance ..................................... 55
Subordinate Financing .................................................. 55
Default Interest and Limitations on Prepayments ........................ 55
Applicability of Usury Laws ............................................ 55
Soldiers' and Sailors' Civil Relief Act of 1940 ........................ 56
Certain Federal Income Tax Consequences ................................... 56
General ................................................................ 56
REMICs ................................................................. 57
Grantor Trust Funds .................................................... 70
State and Other Tax Consequences .......................................... 77
ERISA Considerations ...................................................... 77
General ................................................................ 77
Plan Asset Regulations ................................................. 78
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TABLE OF CONTENTS
(continued)
Page
Prohibited Transaction Exemption ....................................... 78
Insurance Company General Accounts ..................................... 80
Representation from Investing Plans .................................... 81
Tax Exempt Investors ................................................... 81
Legal Investment .......................................................... 82
Use of Proceeds ........................................................... 83
Method of Distribution .................................................... 83
Legal Matters ............................................................. 84
Financial Information ..................................................... 84
Where You Can Find Additional Information ................................. 84
Reports to Certificateholders ............................................. 85
Incorporation of Certain Information by Reference 85
Rating .................................................................... 85
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement ............ 278.00
Legal Fees and Expenses .......................... 4,000,000.00
Accounting Fees and Expenses ..................... 1,600,000.00
Trustee's Fees and Expenses
(including counsel fees) ......................... 800,000.00
Blue Sky Fees and Expenses ....................... 200,000.00
Printing and Engraving Fees ...................... 800,000.00
Rating Agency Fees ............................... 2,000,000.00
Miscellaneous .................................... 400,000.00
-------------
Total ............................................ $9,800,278.00
=============
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith,
negligence in the performance of duties or reckless disregard of obligations and
duties. The Pooling and Servicing Agreements will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Pooling and Servicing
Agreements and related Certificates other than such expenses related to
particular Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and
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in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent and
under the circumstances permitted by subsections (a) and (b) of Section 145 of
the General Corporation Law of the State of Delaware, the Registrant (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer, or
his testator or intestate is or was a director or officer of the Registrant,
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Certain controlling persons of the Registrant may also be entitled to
indemnification from General Motors Acceptance Corporation, an indirect parent
of the Registrant. Under Section 145, General Motors Acceptance Corporation may
or shall, subject to various exceptions and limitations, indemnify its directors
or officers and may purchase and maintain insurance as follows:
(a) The Certificate of Incorporation, as amended, of General Motors
Acceptance Corporation provides that no director shall be personally liable
to General Motors
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<PAGE>
Acceptance Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to General Motors Acceptance Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174, or any successor provision thereto, of the Delaware
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
(b) Under Article VI of its By-Laws, General Motors Acceptance
Corporation shall indemnify and advance expenses to every director and
officer (and to such person's heirs, executors, administrators or other
legal representatives) in the manner and to the full extent permitted by
applicable law as it presently exists, or may hereafter be amended, against
any and all amounts (including judgments, fines, payments in settlement,
attorneys' fees and other expenses) reasonably incurred by or on behalf of
such person in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal administrative or investigative
(a "proceeding"), in which such director or officer was or is made or is
threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was a director or officer of General Motors
Acceptance Corporation, or is or was serving at the request of General
Motors Acceptance Corporation as a director, officer, employee, fiduciary
or member of any other corporation, partnership, joint venture, trust,
organization or other enterprise. General Motors Acceptance Corporation
shall not be required to indemnify a person in connection with a proceeding
initiated by such person if the proceeding was not authorized by the Board
of Directors of General Motors Acceptance Corporation. General Motors
Acceptance Corporation shall pay the expenses of directors and officers
incurred in defending any proceeding in advance of its final disposition
("advancement of expenses"); provided, however, that the payment of
expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay full amounts advanced if it
should be ultimately determined that the director or officer is not
entitled to be indemnified under Article VI of the By-Laws or otherwise. If
a claim for indemnification or advancement of expenses by an officer or
director under Article VI of the By-Laws is not paid in full within ninety
days after a written claim therefor has been received by General Motors
Acceptance Corporation, the claimant may file suit to recover the unpaid
amount of such claim, and if successful in whole or in part, shall be
entitled to the requested indemnification or advancement of expenses under
applicable law. The rights conferred on any person by Article VI of the
By-Laws shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate
of Incorporation, By-Laws, agreement, vote of stockholders or disinterested
directors of General Motors Acceptance Corporation or otherwise. The
obligation, if any, of General Motors Acceptance Corporation to indemnify
any person who was or is serving at its request as a director, officer or
employee of another corporation, partnership, joint venture, trust,
organization or other enterprise shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership,
joint venture, trust, organization or other enterprise.
As a subsidiary of General Motors Corporation, General Motors Acceptance
Corporation is insured against liabilities which it may incur by reason of the
foregoing provisions of the Delaware General Corporation Law and directors and
officers of General Motors Acceptance Corporation are insured against some
liabilities which might arise out of their employment and not be subject to
indemnification under said General Corporation Law.
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Pursuant to resolutions adopted by the Board of Directors of General Motors
Corporation, that company to the fullest extent permissible under law will
indemnify, and has purchased insurance on behalf of, directors and officers of
the company, or any of them, who incur or are threatened with personal
liability, including expenses, under the Employee Retirement Income Security Act
of 1974 or any amendatory or comparable legislation or regulation thereunder.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits --
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation.*
3.2 -- By-Laws.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Mayer Brown & Platt with respect to legality.
5.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect
to legality.
8.1 -- Opinion of Mayer Brown & Platt with respect to certain tax
matters (included with Exhibit 5.1).
8.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect
certain tax matters.
23.1 -- Consent of Mayer Brown & Platt (included as part of Exhibit
5.1 and Exhibit 8.1).
23.2 -- Consent of Orrick, Herrington & Sutcliffe LLP (included as
part of Exhibit 5.2 and Exhibit 8.2).
24.1 -- Power of Attorney.
* Incorporated by reference from the Registration Statement on Form S-3
(File No. 33-94448).
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UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; PROVIDED HOWEVER, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
II-5
<PAGE>
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement B.5. of Form S-3 will be
met by the time of the sale of the securities registered hereunder and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Horsham, Commonwealth
of Pennsylvania, on the 11 day of March, 1999.
GMAC COMMERCIAL MORTGAGE
SECURITIES, INC.
By: /s/David E. Creamer
-------------------------------
David E. Creamer
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David S. Creamer Director and President March 11, 1999
- -------------------------------- (Chief Executive Officer)
David E. Creamer
Chief Financial Officer Controller
/s/ Wayne D. Hoch and Vice President
- -------------------------------- (Chief Financial Officer and
Wayne D. Hoch Chief Accounting Officer) March 11, 1999
/s/ Charles E. Dunleavy, Jr.
- --------------------------------
Charles E. Dunleavy, Jr. Director March 11, 1999
/s/ Dennis W. Sheehan, Jr.
- -------------------------------- Director March 11, 1999
Dennis W. Sheehan, Jr.
/s/ Charles J. Pringle Director March 11, 1999
- --------------------------------
Charles J. Pringle
/s/ Donald J. Puglisi Director March 11, 1999
- --------------------------------
Donald J. Puglisi
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
5.1 -- Opinion of Mayer Brown & Platt with respect to legality.
5.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with
respect to legality.
8.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with
respect to certain tax matters.
24.1 -- Power of Attorney.
II-8
EXHIBIT 5.1
[Mayer, Brown & Platt Letterhead]
March 11, 1999
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1025
Horsham, Pennsylvania 19044-8015
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement"), and the
Prospectus and the form of Prospectus Supplement forming a part thereof
(collectively, the "Prospectus"), to be filed by you with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), on March 11, 1999. The Registration Statement and the
Prospectus relate to the offer and sale of up to $1,000,000 aggregate principal
amount of Mortgage Pass-Through Certificates (Issuable in Series) (the
"Certificates") to be created and issued pursuant to one or more Pooling and
Servicing Agreements to be entered into between you, one or more trustees and
GMAC Commercial Mortgage Corporation or possibly another entity as the master
servicer (collectively, the "Agreement") as described in the Registration
Statement. A form of Pooling and Servicing Agreement is included as an Exhibit
to the Registration Statement. We have examined the Registration Statement, the
Prospectus and such other documents as we have deemed necessary or advisable for
purposes of rendering this opinion. Additionally, our advice has formed the
basis for the description of the selected Federal income tax consequences of the
purchase, ownership and disposition of the Certificates to an original purchaser
that appears under the heading "Certain Federal Income Tax Consequences" in the
Prospectus (the "Tax Description"). Except as otherwise indicated herein, all
terms defined in the Prospectus are used herein as so defined.
We have assumed for the purposes of the opinions set forth below that the
Certificates will be issued in series created as described in the Registration
Statement and that the Certificates will be sold by you for reasonably
equivalent consideration. We have also assumed that the Agreement and the
Certificates will be duly authorized by all necessary corporate action and that
the Certificates will be duly issued, executed, authenticated and delivered in
accordance with the provisions of the Agreement. In addition, we have assumed
that the parties to each Agreement will satisfy their respective obligations
thereunder. We express no opinion with respect to any series of Certificates for
which we do not act as counsel to you.
The opinion set forth in paragraph 2 of this letter is based upon the
applicable provisions of the Internal Revenue Code of 1986, as amended, Treasury
<PAGE>
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings and
Revenue Procedures, current administrative positions of the IRS and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under the caption "Certain Federal Income Tax
Consequences" in the Prospectus. No tax rulings will be sought from the IRS with
respect to any of the matters discussed herein.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. When a Pooling and Servicing Agreement for a series of Certificates has
been duly and validly authorized, executed and delivered by the Depositor, the
Master Servicer and the Trustee, and the Certificates of such series have been
duly executed, authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and validly issued,
fully paid and nonassessable, and the holders of such Certificates will be
entitled to the benefits of such Pooling and Servicing Agreement.
2. While the Tax Description does not purport to discuss all possible
Federal income tax ramifications of the purchase, ownership, and disposition of
the Certificates, particularly to purchasers subject to special rules under the
Internal Revenue Code of 1986, it constitutes, in all material respects, a fair
and accurate summary of such Federal income tax consequences under present
Federal income tax law. There can be no assurance, however, that the tax
conclusions presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, changes in IRS positions or judicial
decisions, any of which challenges or alterations may be applied retroactively
with respect to completed transactions. We note, however, that the form of
Prospectus Supplement filed herewith does not relate to a specific transaction.
Accordingly, the above-referenced description of the selected Federal income tax
consequences may, under certain circumstances, require modification when an
actual transaction is undertaken.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Legal Matters" in the Prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER, BROWN & PLATT
EXHIBIT 5.2
[Orrick, Herrington & Sutcliffe LLP letterhead]
March 11, 1999
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement"), as prepared for filing by GMAC Commercial
Mortgage Securities, Inc., a Delaware corporation (the "Registrant"), in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of Mortgage Pass-Through Certificates (the "Securities"). The
Securities are issuable in Series under separate Pooling and Servicing
Agreements by and among the Registrant and a Trustee named therein. The
Securities of each Series are to be sold as set forth in the Registration
Statement, any amendments thereto, and the Prospectus and Prospectus Supplement
relating to the Securities of such Series. All capitalized terms used herein
that are not otherwise defined have the meanings set forth in the Prospectus
contained in the Registration Statement.
We have examined such instruments, documents and records as we deemed
relevant and necessary as a basis of our opinion hereinafter expressed. In such
examination, we have assumed the following: (a) the authenticity of original
documents and the genuineness of all signatures; (b) the conformity to the
originals of all documents submitted to us as copies; (c) the truth, accuracy
and completeness of the information, representations and warranties contained in
the records, documents, instruments and certificates we have reviewed; and (d)
that, as to each party (other than the Registrant) to a Pooling and Servicing
Agreement, each Pooling and Servicing Agreement will be a legal, valid and
binding obligation enforceable in accordance with its respective terms.
Based on such examination, we are of the opinion that when the issuance of
each Series of the Securities has been duly authorized by appropriate corporate
action and the Securities of such Series have been duly executed, authenticated
and delivered in accordance with the related Pooling and Servicing Agreement and
sold in the manner described in the Registration Statement, any amendment
thereto and the Prospectus and Prospectus Supplement relating thereto, the
Securities will be legally issued, fully paid, non-assessable and binding
obligations of the Trust created by the applicable Pooling and Servicing
Agreement, and the
<PAGE>
holders of the Securities of such Series will be entitled to the benefits of the
Pooling and Servicing Agreement, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium, or other laws relating to or affecting the rights of
creditors generally and general principles of equity, including without
limitation concepts of materiality, reasonableness, good faith and fair dealing,
and the possible unavailability of specific performance or injunctive relief,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and the Prospectus contained therein. In giving such
consent, we do not consider that we are "experts," within the meaning of the
term as used in the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder, with respect to any part of the
Registration Statement, including this opinion letter as an exhibit or
otherwise.
Very truly yours,
/s/ ORRICK, HERRINGTON & SUTCLIFFE LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
2
EXHIBIT 8.2
[Orrick, Herrington & Sutcliffe LLP letterhead]
March 11, 1999
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
Ladies and Gentlemen:
We have advised GMAC Commercial Mortgage Securities, Inc. (the
"Registrant") with respect to certain federal income tax aspects of the issuance
of Mortgage Pass-Through Certificates (the "Securities"), issuable in Series.
Such advice conforms to the description of selected federal income tax
consequences to holders of the Securities that appears under the heading
"Certain Federal Income Tax Considerations" in the prospectus (the "Prospectus")
and the prospectus supplement (the "Supplement") forming a part of the
Registration Statement on Form S-3 (the "Registration Statement") as filed by
the Registrant with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act") on the date hereof, for
registration of the Securities under the Act. Such description does not purport
to discuss all possible income tax ramifications of the proposed issuance, but
with respect to those tax consequences which are discussed, in our opinion the
description is accurate in all material respects. All capitalized terms used
herein that are not otherwise defined have the meanings as set forth in the
Prospectus.
This opinion letter is based on the facts and circumstances set forth in
the Prospectus, the Supplement and in the other documents reviewed by us. Our
opinion as to the matters set forth herein could change with respect to a
particular Series of Securities as a result of changes in facts and
circumstances, changes in the terms of the documents reviewed by us, or changes
in the law subsequent to the date hereof. As the Registration Statement
contemplates Series of Securities with numerous different characteristics, the
particular characteristics of each Series of Securities must be considered in
determining the applicability of this opinion to a particular Series of
Securities.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and the Prospectus contained therein. In giving such
consent, we do not consider that we are "experts," within the meaning of the
term as used in the Act or the rules and regulations
<PAGE>
of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this opinion letter as an exhibit or
otherwise.
Very truly yours,
/s/ ORRICK, HERRINGTON & SUTCLIFFE LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
2
EXHIBIT 24.1
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David E. Creamer, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as director and/or officer of GMAC Commercial Mortgage Securities,
Inc. (the "Company")) to sign any or all amendments (including post-effective
amendments) to the Registration Statement on Form S-3, as filed by the Company
on or about March 11, 1999, and other documents in connection therewith, and to
file the same, with all exhibits thereto, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as might or could be done in person, hereby ratifying and confirming said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David E. Creamer Director and President March 11, 1999
- ------------------------------------ (Chief Executive Officer)
David E. Creamer
/s/ Wayne D. Hoch Chief Financial Officer Controller March 11, 1999
- ------------------------------------ and Vice President
Wayne D. Hoch (Chief Financial Officer and
Chief Accounting Officer)
/s/ Charles E. Dunleavy, Jr. Director March 11, 1999
- ------------------------------------
Charles E. Dunleavy, Jr.
/s/ Dennis W. Sheehan, Jr. Director March 11, 1999
- ---------------------------
Dennis W. Sheehan, Jr.
/s/ Charles J. Pringle Director March 11, 1999
- ------------------------------------
Charles J. Pringle
/s/ Donald J. Puglisi Director March 11, 1999
- ------------------------------------
Donald J. Puglisi
</TABLE>
