As filed with the Securities and Exchange Commission
on November 25, 1997
Registration No. 333-
- ---------------------------------------------------------------------------
Securities and Exchange Commission
Washington, D.C. 20549
---------------------
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
---------------------
GS Mortgage Securities Corporation II
(Seller)
(Exact name of registrant as specified in governing instruments)
85 Broad Street
New York, New York 10004
(212) 902-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Marvin J. Kabatznick
Delaware 85 Broad Street 22-3442024
------------------ New York, New York 10004 ---------------------
State or (212) 902-1000 I.R.S. Employer
other jurisdiction (Name, address, including Identification Number
of incorporation zip code, and telephone
number, including area code,
of agent for service)
---------------------
Copies to:
Andrea G. Podolsky, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
---------------------
Approximate date of commencement of proposed sale to the
public:
From time to time after this Registration Statement
becomes effective.
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 reinvestment
plans, 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 effective
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. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
<PAGE>
- ---------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
Proposed
Title of Proposed maximum
Securities Amount maximum aggregate Amount of
to be to be offering price offering registration
registered registered(1) per unit(2) price(2) fee(3)
- ------------ ------------- ------------- ------------- ------------
Mortgage and
Asset-Backed
Securities $1,000,000 100% $1,000,000 $304
(1) This Registration Statement also relates to certain
market-making transactions that may be made by Goldman,
Sachs & Co., an affiliate of the Registrant.
(2) Estimated solely for purposes of calculating the
registration fee on the basis of the proposed maximum
aggregate offering price.
(3) Of such amount, $[*] was paid upon the initial
filing of this Registration Statement. No
additional registration fee in connection with
$[*] aggregate principal amount of Mortgage
and Asset-Backed Securities shall be paid by the
Registrant as such fee was paid in connection
with Registration Statements No. 33-99774 and No. 333-27083.
- ----------
* To be completed by amendment.
- ---------------------------------------------------------------------------
Pursuant to Rule 429 under the Securities Act of 1933,
the Prospectus included in this Registration Statement is a
combined prospectus and also relates to the Mortgage and
Asset-Backed Securities registered pursuant to the Registrant's
Registration Statements No. 33-99774 and No. 333-27083 on Form
S-3. In the event any of such previously registered Mortgage and
Asset-Backed Securities are offered prior to the effective date
of this Registration Statement, they will not be included in any
prospectus hereunder.
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>
Explanatory Note
This Registration Statement contains a Prospectus relating
to the sale of $1,000,000 aggregate principal amount of Mortgage
and Asset-Backed Securities (the "Offered Certificates") of GS
Mortgage Securities Corporation II, together with separate
Prospectus pages relating to certain market-making transactions
that may occur thereafter. The complete Prospectus for the
initial sale of the Offered Certificates follows immediately
after this Explanatory Note. Following the complete Prospectus
are certain pages of a second Prospectus relating to such
market-making transactions, which include an alternate cover page
and an alternate "Plan of Distribution" section. All other pages
of the Prospectus are to be used in the second Prospectus
relating to such market-making transactions.
<PAGE>
CROSS REFERENCE SHEET FURNISHED
PURSUANT TO RULE 404(a)
Items and Location in Location in
Caption in Form S-3 Prospectus Prospectus Supplement
------------------- ---------- ---------------------
1. Forepart of Registration Forepart of Registration Outside Front Cover
Statement and Outside Statement; Outside Front Page
Front Cover Page of Cover Page
Prospectus
2. Inside Front and Outside Inside Front Cover Page Inside Front Cover
Back Cover Pages of Page; Outside Back
Prospectus Cover Page
3. Summary Information, Inside Front Cover Page; Summary of Terms; Risk
Risk Factors and Ratio Risk Factors Factors
of Earnings to Fixed
Charges
4. Use of Proceeds Use of Proceeds Summary of Terms; Use
of Proceeds
5. Determination of * *
Offering Price
6. Dilution * *
7. Selling Security * *
Holders
8. Plan of Distribution Plan of Distribution Plan of Distribution
9. Description of Outside Front Cover Page; Outside Front Cover
Securities to be Description of the Page; Description of
Registered Certificates; The the Certificates;
Mortgage Pools; Certain Yield, Prepayment and
Legal Aspects of the Maturity Consider-
Mortgage Loans; Federal ation; Ratings
Income Tax Consequences
10. Interests of Named * *
Experts and Counsel
11. Material Changes * *
12. Incorporation of Inside Front Cover Page *
Certain Information
by Reference
13. Disclosure of The Seller *
Commission Position
on Indemnification for
Securities Act
Liabilities
- ----------------------
* Answer negative or item inapplicable
<PAGE>
**********************************************************************
* Information contained herein is subject to completion or *
* amendment. A registration statement relating to these securities *
* has been filed with the Securities and Exchange Commission. These *
* securities may not be sold nor may offers to buy be accepted *
* prior to the time the registration statement becomes effective. *
* This prospectus shall not constitute an offer to sell or the *
* soliciation of an offer to buy nor shall there be any sale of *
* these securities in any State in which such offer, solicitation *
* or sale would be unlawful prior to registration or qualification *
* under the securities laws of any such State. *
**********************************************************************
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 25, 1997
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT* TO PROSPECTUS DATED ________ __, 199_
GS MORTGAGE SECURITIES CORPORATION II,
as Seller
-------------------,
as Master Servicer
---------------------,
as Special Servicer
Commercial Mortgage Pass-Through Certificates,
Series 199__-__
$ _______ Class __ Certificates [$ _______ Class IO Certificates
(Notional Amount)]
$ _________ Class __ Certificates $ _________ Class R Certificates
[$_________ Class PO Certificates] $ _________ Class LR Certificates
--------------------
The Commercial Mortgage Pass-Through Certificates, Series
199_-_ (collectively, the "Certificates"), will consist of
________ Classes: the Class ___, Class ___, Class ___, Class ___,
[Class IO,] [Class PO,] Class LR and Class R Certificates. Only
the Class ___, Class ___, [Class IO,] [Class PO,] Class R and
Class LR Certificates (the "Offered Certificates") are offered
hereby.
(Continued on next page)
THE CERTIFICATES REPRESENT BENEFICIAL OWNERSHIP INTERESTS SOLELY
IN THE ASSETS OF THE TRUST FUND AND DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE SELLER OR ANY OTHER PERSON. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
ANY INSURER.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The Offered Certificates will be purchased from the Seller
by Goldman, Sachs & Co. (the "Underwriters") on the date on which
the Certificates are initially issued, and will be offered by the
Underwriters from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.
Proceeds to the Seller from the sale of the Offered Certificates
will be approximately $________________ plus accrued interest on
the interest-bearing Classes of Offered Certificates from
__________ __, 199_. For further information with respect to the
plan of distribution and any discounts, commissions and profits
on resale that may be deemed underwriting discounts or
commissions, see "PLAN OF DISTRIBUTION" herein.
The Offered Certificates are offered by the Underwriters,
as specified herein subject to receipt and acceptance by the
Underwriters and subject to the Underwriters' right to reject any
order in whole or in part. It is expected that the Class R and
Class LR Certificates will be ready for delivery in definitive,
fully-registered form at the offices of the Underwriters, New
York, New York, on or about _______________ __, 199_. It is
expected that the Offered Certificates other than the Class R and
Class LR Certificates will be ready for delivery through the
facilities of The Depository Trust Company on or about
_______________ __, 199_.
Goldman, Sachs & Co.
---------------------------------
The date of this Prospectus Supplement is ____________ __,
199_.
*This form of Prospectus Supplement contemplates a two-tier REMIC
structure, but a single-tier REMIC or a non-REMIC financial asset
securitization investment trust ("FASIT") or a non-REMIC grantor
trust structure may be used instead for a particular series of
certificates. Moreover, a "Funding Note" structure may be used
for a particular series of certificates. Forms of credit
enhancement in addition to those reflected in this form of
Prospectus Supplement, including but not limited to reserve funds
or insurance, may be used in connection with a particular
transaction. Finally, although this form of Prospectus Supplement
contemplates servicing of certain mortgage loans by a Special
Servicer, a particular series of certificates may not include
servicing by a Special Servicer. Appropriate modifications will
be made to this form of Prospectus Supplement to reflect any of
the aforementioned supplementary or alternative features as well
as to reflect the specific characteristics of a particular
series of certificates.
<PAGE>
The Certificates will evidence beneficial ownership
interests in a trust fund (the "Trust Fund") established by the
Seller, the assets of which consist primarily of a pool of
[fixed-rate, step rate and rate reset mortgage loans, including
loans that pay interest only until maturity for a specified
period, balloon payment loans and fully amortizing loans] secured
by mortgages on commercial and multifamily real properties (the
"Mortgage Loans") and certain other properties held in trust for
the benefit of the Certificateholders. The Mortgage Loans were
originated by [________________________________] (the
"Originator"), and will be acquired by the Seller from [the
Originator] and transferred by the Seller to the Trust Fund
pursuant to a Pooling and Servicing Agreement in exchange for the
Certificates. The Mortgage Loans are more fully described under
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES" herein.
The Certificate Principal Amounts and Notional Amounts of
the Offered Certificates set forth above are subject to permitted
variances of plus or minus 5%. Interest at the rates set forth
herein, as applicable, and principal in the amounts set forth
herein, as applicable, will be distributed to the holders of the
Certificates on the [15]th day of each month (or, if such day is
not a business day, on the following business day), commencing in
__________ 19__ (each, a "Distribution Date").
[DESCRIPTION OF SUBORDINATION OF CLASSES, IF APPLICABLE.]
THE RISKS ASSOCIATED WITH THE OFFERED CERTIFICATES MAY MAKE
THEM UNSUITABLE FOR SOME INVESTORS. SEE "RISK FACTORS" ON PAGE
S-15 HEREIN.
THE YIELD OF EACH CLASS OF OFFERED CERTIFICATES WILL DEPEND
UPON, AMONG OTHER THINGS, ITS SENSITIVITY TO THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS AND THE ACTUAL
CHARACTERISTICS OF THE MORTGAGE LOANS. THE YIELD TO MATURITY ON
THE OFFERED CERTIFICATES ALSO WILL BE AFFECTED BY ANY EXTENSION
OF THE SCHEDULED MATURITY DATES OF THE MORTGAGE LOANS AS A RESULT
OF MODIFICATIONS OF THE MORTGAGE LOANS BY THE MASTER SERVICER OR
THE SPECIAL SERVICER. INVESTORS SHOULD CONSIDER THE ASSOCIATED
RISKS, INCLUDING:
- SLOW MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE THE YIELDS
OF [THE CLASS PO CERTIFICATES AND OTHER] CLASSES
PURCHASED AT A DISCOUNT TO THEIR PRINCIPAL AMOUNTS.
- FAST MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE THE
YIELDS OF [THE CLASS IO CERTIFICATES AND OTHER]
CLASSES PURCHASED AT A PREMIUM TO THEIR PRINCIPAL
AMOUNTS.
[- LOW LEVELS OF [APPLICABLE INDEX] CAN REDUCE THE YIELD
OF ANY FLOATING RATE CLASS.]
SEE "RISK FACTORS" AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS
AND "RISK FACTORS" AND "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" HEREIN FOR A DISCUSSION OF CERTAIN SIGNIFICANT
MATTERS AFFECTING INVESTMENTS IN THE OFFERED CERTIFICATES.
[DESCRIPTION OF ALLOCATION OF LOSSES AMONG CLASSES, IF
APPLICABLE.] [SEE "DESCRIPTION OF THE CERTIFICATES
- --DISTRIBUTIONS -- ALLOCATION AMONG CLASSES" HEREIN.]
THERE CURRENTLY IS NO MARKET FOR THE OFFERED CERTIFICATES.
THE UNDERWRITERS EXPECT TO MAKE A SECONDARY MARKET IN THE OFFERED
CERTIFICATES, BUT HAVE NO OBLIGATION TO DO SO. THERE CAN BE NO
ASSURANCE THAT SUCH A MARKET WILL DEVELOP, OR IF IT DOES DEVELOP,
THAT IT WILL PROVIDE HOLDERS OF THE OFFERED CERTIFICATES WITH
LIQUIDITY OF INVESTMENT OR CONTINUE FOR THE LIFE OF THE OFFERED
CERTIFICATES.
<PAGE>
As described herein, an election will be made to treat the
Trust Fund as consisting of two separate "real estate mortgage
investment conduits" (each, a "REMIC" or, in the alternative, the
"Lower-Tier REMIC" and the "Upper-Tier REMIC"). As more fully
described herein and in the Prospectus, the Class ___, Class ___,
Class ___ [, Class PO] and [Class IO] Certificates will
constitute the "regular interests" in the Upper-Tier REMIC and
the interests represented by the Class LR Certificates and Class
R Certificates will be designated as the "residual interest" in
the Lower-Tier REMIC and Upper-Tier REMIC, respectively. The
Class LR and Class R Certificates are referred to collectively
herein as the "Residual Certificates". See "FEDERAL INCOME TAX
CONSEQUENCES" herein and in the Prospectus.
The Final Scheduled Distribution Date for the Certificates
is ____________ __, 20__.
It is expected that the Class ___ Certificates will be
rated at least __ by _________________________ ("__________")
[and ___ by [________________ ("__________")] and that the Class
_ Certificates will be rated at least __ by __________ [and ___
by __________]. It is a condition to the issuance of the Offered
Certificates that the Class __ Certificates be rated __ by
__________ [and ___ by __________]. The ratings of __________ and
__________ will not address the likelihood of receipt of
Prepayment Premiums or the rate of prepayments.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT
CONSTITUTE PART OF A SEPARATE SERIES OF CERTIFICATES BEING
OFFERED BY THE SELLER FROM TIME TO TIME PURSUANT TO ITS
PROSPECTUS DATED _____________ __, 199_, WHICH ACCOMPANIES THIS
PROSPECTUS SUPPLEMENT AND OF WHICH THIS PROSPECTUS SUPPLEMENT
FORMS A PART. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION
REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
---------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------------------
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus.
Capitalized terms used in this Prospectus Supplement and not
defined herein have the meanings ascribed to them in the
Prospectus.
Title Of
Securities..... The Commercial Mortgage Pass-Through Certificates,
Series 199_-_ (the "Certificates") will evidence, in the
aggregate, beneficial ownership of 100% of the Trust Fund.
The Certificates will consist of ________ classes (each, a
"Class"): the Class ___, Class ___, Class ___, Class ___,
[Class PO,] [Class IO] and Class LR and Class R
Certificates.
Offered
Certificates.... $______________ Class ___ Certificates
$______________ Class ___ Certificates
[$______________ Class PO Certificates]
[$______________ Class IO Certificates [(Notional
Amount)]]
$______________ Class R Certificates
$______________ Class LR Certificates
The Certificate Principal Amounts [and Notional Amount]
set forth above are subject to permitted variances of plus
or minus 5%.
Seller........... GS MORTGAGE SECURITIES CORPORATION II. See "The Seller"
in the Prospectus.
Master Servicer.. ___________. See "SERVICING OF THE MORTGAGE LOANS -- The
Master Servicer" and "-- Servicing Compensation and
Payment of Expenses" herein and "SERVICING OF THE MORTGAGE
LOANS" in the Prospectus.
Special
Servicer........ ___________. See "SERVICING OF THE MORTGAGE LOANS -- The
Special Servicer" and "-- Servicing Compensation and
Payment of Expenses" herein and "SERVICING OF THE MORTGAGE
LOANS" in the Prospectus.
Trustee.......... ___________, a [national banking association.] See "THE
AGREEMENT - The Trustee" herein.
Originator....... ___________. See "THE ORIGINATOR" herein.
Agreement........ The Pooling and Servicing Agreement, dated as of
__________ [1], 199_, among the Seller, the Master
Servicer, the Special Servicer and the Trustee.
Cut-Off Date..... __________ [1], 199_.
Closing Date..... On or about __________ __, 199_.
The Trust Fund... The Certificates evidence beneficial ownership interests
in a trust fund (the "Trust Fund"), the primary assets of
which will consist of a pool (the "Mortgage Pool") of
[fixed-rate, step rate and rate reset mortgage loans,
including loans that pay interest only until maturity or
for a specified period, amortizing balloon payment loans
S-3
<PAGE>
and fully-amortizing loans], secured by commercial and
multifamily real properties (the "Mortgage Loans") with an
aggregate outstanding principal balance as of the Cut-Off
Date of approximately $__________. The Trust Fund also will
contain any property which secured a Mortgage Loan and is
acquired by foreclosure or deed in lieu of foreclosure, and
certain other related property, as more fully described
herein and in the Prospectus.
Distribution
Date............ The date on which distributions in respect of interest and
principal will be made on the Certificates will be the
[15]th day of each month or, if such day is not a Business
Day, the next succeeding Business Day. See "DESCRIPTION
OF THE CERTIFICATES -- Example of Distributions" herein
for an illustration of the timing and manner of
distributions.
Determination
Date............ The [fifth] day of each month, or if such day is not a
Business Day, the preceding Business Day. See "DESCRIPTION
OF THE CERTIFICATES -- Example of Distributions" herein for
an illustration of the timing and manner of distributions.
Prepayment
Period.......... With respect to any Distribution Date other than the first
Distribution Date, the period commencing on the day
immediately following the second preceding Determination
Date and ending on the Determination Date in the month in
which such Distribution Date occurs. In the case of
the first Distribution Date, the Prepayment Period will be
__________ __, 19__ through __________ __, 19__. See
"DESCRIPTION OF THE CERTIFICATES -- Example of
Distributions" herein for an illustration of the timing
and manner of distributions.
Due Period....... With respect to any Distribution Date other than the first
Distribution Date, the period commencing on the [second]
day of the calendar month preceding such Distribution
Date and ending on the [first] day of the calendar month in
which such Distribution Date occurs. In the case of the
first Distribution Date, the Due Period will be
_________ [2], 19__ through ___________ [1], 19__. See
"DESCRIPTION OF THE CERTIFICATES -- Example of
Distributions" herein for an illustration of the timing
and manner of distributions.
Available
Distribution
Amount.......... On each Distribution Date, distributions in respect of
interest and/or principal will be made to the holders of
each Class of Certificates in an aggregate amount equal
to, and to the extent of, the Available Distribution
Amount for such Distribution Date, in the order of
priority described below. The Available Distribution
Amount (as more specifically defined in "DESCRIPTION OF
THE CERTIFICATES -- Distributions -- Available
Distribution Amount" herein) consists generally of
(i) payments (including payments of principal and
interest) received in respect of the Mortgage Loans and
deposited by the Master Servicer in the Lower-Tier
Collection Account during the Due Period or Prepayment
S-4
<PAGE>
Period (as applicable) for such Distribution Date
(including proceeds realized by the Special Servicer from
the operation and/or sale of any REO Property in excess of
the expenses of the operation and/or sale thereof), net of
(a) expenses permitted to be paid by the Master Servicer
from the Lower-Tier Collection Account, including
reimbursement of Advances made by the Master Servicer
(together with all accrued and unpaid interest thereon)
from cash received in respect of the related Mortgage Loan
or property, to the extent permitted, and any applicable
servicing fees, and (b) any Amounts Held For Future
Distribution and (ii) proceeds of P&I Advances and Late
Remittance Advances made by the Master Servicer to cover
shortfalls in Monthly Payments of principal and interest
due (or, in the case of delinquent Balloon Payments,
deemed due) which are not made on a timely basis by the
related Borrowers or which are not otherwise remitted on
a timely basis by the Special Servicer or a subservicer to
the Master Servicer.
Distributions
of Interest .... Each Class of Certificates [(other than the Class PO
Certificates)] will accrue interest for each Interest
Accrual Period on the Certificate Principal Amount [or
Notional Amount] of such Class (after giving effect to any
distributions in reduction of Certificate Principal
Amount, [reductions in Notional Amount,] [and additions of
Certificate Negative Amortization] made on any previous
Distribution Date as if such reductions and additions
occurred at the beginning of the applicable Interest
Accrual Period) at the applicable Pass-Through Rate
therefor.
On each Distribution Date, to the extent the Available
Distribution Amount on such Distribution Date distributed
in accordance with the priorities described below is
sufficient therefor, distributions in respect of interest
will be made to holders of each Class of Certificates
[(other than the Class PO Certificates)] in an amount
equal to the Class Interest Distribution Amount for such
Class on such Distribution Date. The Class Interest
Distribution Amount for any Class on any Distribution Date
represents the amount payable in respect of interest on
such date to such Class. As more fully described below,
such amount may be less than one month's accrued interest
in respect of such Class. The Class Interest Distribution
Amount on any Distribution Date for each of the Class ___,
Class ___, [Class IO,] Class LR and Class R Certificates
generally will be equal to the amount of interest accrued
for the applicable Interest Accrual Period on the
aggregate Certificate Principal Amount of such
Class (after giving effect to any distributions in
reduction of Certificate Principal Amount [or Notional
Amount], any Certificate Writeoffs (as defined herein)
[and any additions to Certificate Principal Amount in
respect of Certificate Negative Amortization] made on the
previous Distribution Date as if such reductions or
additions, as applicable, occurred at the beginning of the
applicable Interest Accrual Period).
As used herein, the "Interest Accrual Period" for any
Distribution Date means the calendar month immediately
preceding the calendar month in which such Distribution
Date occurs.
S-5
<PAGE>
[Description of any special provisions for calculating
Class Interest Distribution Amounts.]
The Class Interest Distribution Amount to which any Class
of Certificates is otherwise entitled on any Distribution
Date will be reduced by:
[(i) the amount, if any, of Certificate Negative
Amortization allocable to such Class on
such Distribution Date [(in the case of
each Class other than the Class PO
Certificates)] and]
(ii) to the extent any Excess Prepayment Interest
Shortfall is not fully offset by Prepayment Premiums, the
amount, if any, of such Excess Prepayment Interest
Shortfall allocable to such Class [(in the case of each
Class other than the Class PO Certificates)].
The allocation of any [Certificate Negative Amortization
and] any Excess Prepayment Interest Shortfall to the
particular Classes of Certificates referred to above will
be made in proportion to the Class Interest Distribution
Amount that otherwise would be payable to such Classes.
[The amount of any Certificate Negative Amortization
allocated to a Class of Certificates will be added to the
Certificate Principal Amount thereof.] [Under the
Agreement, neither the Master Servicer nor the Special
Servicer has any obligation to cover the amount of any
Excess Prepayment Interest Shortfall by reducing the
servicing fee payable to it or otherwise providing for
reimbursement to the Trust Fund therefor.]
[The Class PO Certificates (the "Class PO Certificates")
will receive no distributions in respect of interest.]
See "DESCRIPTION OF THE CERTIFICATES -- Distributions"
herein.
Pass-Through
Rates for
the Offered
Certificates.... Class ___: a [fixed] [variable] Pass-Through Rate [of
____% per annum] [determined as described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions" herein].
Class ___: a [fixed] [variable] Pass-Through Rate [of
____% per annum] [determined as described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions" herein].
[Class IO: a [fixed] [variable] Pass-Through Rate [of
____% per annum] [determined as described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions" herein].]
Class R: a [fixed] [variable] Pass-Through Rate [of
____% per annum] [determined as described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions" herein].
Class LR: a [fixed] [variable] Pass-Through Rate of
____% per annum] [determined as described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions" herein].
S-6
<PAGE>
Distributions of
Principal....... On each Distribution Date, to the extent the Available
Distribution Amount on such Distribution Date distributed
in accordance with the priorities described below is
sufficient therefor, distributions in respect of principal
will be made (i) on the Class ___, Class ___ and
[Class PO] Certificates, in an aggregate amount equal to
the Optimal Mortgage Loan Principal for such Distribution
Date. Such distributions in respect of principal will be
made on each Distribution Date in the order of priority
described below, and, to the extent made in respect of
any Class, will reduce the aggregate Certificate Principal
Amount of such Class.
In general, the Optimal Mortgage Loan Principal (as more
specifically defined under "DESCRIPTION OF THE
CERTIFICATES -- Distributions -- Distributions in Respect
of Certificate Principal Amount" herein ) for any
Distribution Date will equal the sum (without duplication)
of (i) the principal component of all Monthly Payments due
(or, in the case of delinquent Balloon Payments, deemed
due) during the related Due Period, regardless of whether
such Monthly Payments are received, (ii) the principal
component of all Balloon Payments and Principal
Prepayments (including all recoveries and Insurance
Proceeds from any REO Mortgage Loans and related REO
Properties and the proceeds from the sale of any Defaulted
Mortgage Loan) actually received by the Master Servicer
during the related Prepayment Period and (iii) the Optimal
Mortgage Loan Principal Shortfall, if any, for such
Distribution Date.
The Certificate Principal Amounts of the Certificates and
any outstanding Class Unpaid Interest Shortfalls will be
subject to writeoff on any Distribution Date without
distribution (a "Certificate Writeoff") in the amount by
which (i) the sum of (a) the aggregate outstanding
Certificate Principal Amount of the Certificates on such
Distribution Date (without regard to any writeoff on such
Distribution Date, but after giving effect to any
distributions in reduction of Certificate Principal Amount
on such Distribution Date [and any additions to
Certificate Principal Amount on account of any Certificate
Negative Amortization] plus (b) the aggregate amount of
Advances together with accrued interest thereon plus (c)
the aggregate outstanding Class Unpaid Interest Shortfall
for such Distribution Date exceeds (ii) ___ of the
aggregate outstanding unpaid principal balance of all of
the Mortgage Loans (including REO Mortgage Loans) plus
accrued and unpaid interest thereon as of the preceding
Determination Date. [Description of application of
Certificate Writeoff.]
See "DESCRIPTION OF THE CERTIFICATES -- Distributions --
Distributions in Respect of Certificate Principal Amount"
and "-- Distributions of Interest" herein.
Priorities of
Distribution.... On each Distribution Date, the Available Distribution
Amount will be distributed, in general, in the following
order of priority:
[Description of the allocation of principal among
Classes.]
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<PAGE>
In the event that funds are not available to pay amounts
due with respect to each Class identified in any given
priority described above, shortfalls generally will be
allocated within such priority pro rata based on the
amount then distributable to each such Class under such
priority.
See "DESCRIPTION OF THE CERTIFICATES -- Distributions --
Allocation Among Classes" herein.
Class LR
and Class R
Certificates.... The Class LR and Class R Certificates (together, the
"Residual Certificates") will be entitled to receive
distributions in respect of interest and principal on each
Distribution Date in accordance with the priorities
described above to the extent the Available Distribution
Amount for such Distribution Date is sufficient therefor.
As described above, the Class R Certificates will be
entitled to receive distributions on any Distribution Date
after the Certificate Principal Amount [or Notional
Amount, as applicable,] of each Class of Certificates has
been reduced to zero, but then only to the extent of
remaining assets in the Upper-Tier REMIC, if any. It is
not anticipated, however, that any material distributions
will be made on the Class R Certificates other than
distributions in respect of interest and distributions in
reduction of the Certificate Principal Amount thereof.
The Class LR Certificates also will be entitled to receive
distributions on any Distribution Date after the
Certificate Principal Amount [or Notional Amount, as
applicable,] of each Class of Certificates has been
reduced to zero, but then only to the extent of remaining
assets in the Lower-Tier REMIC, if any. It is not
anticipated, however, that any material distributions will
be made on the Class LR Certificates other than
distributions in respect of interest and distributions in
reduction of the Certificate Principal Amount thereof.
See "DESCRIPTION OF THE CERTIFICATES -- Distributions --
Class R Certificates" and "-- Class LR Certificates"
herein.
Mortgage Loans... The Mortgage Pool will consist of approximately ___
Mortgage Loans with an aggregate Scheduled Principal
Balance as of the Cut-Off Date (the "Initial Pool
Balance") of approximately $__________ that were
originated by the Originator. The Mortgage Loans were
originated during the years 19__ through 19__. The
Mortgage Loans are secured by first liens on fee simple or
leasehold interests in [office, industrial, retail, hotel
and certain other types of] commercial properties and
multifamily residential properties located in __ states
[and the District of Columbia]. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES"
herein.
THE MORTGAGE LOANS ARE NOT INSURED OR GUARANTEED, IN WHOLE
OR IN PART, BY ANY GOVERNMENTAL ENTITY OR INSTRUMENTALITY
OR ANY PRIVATE MORTGAGE OR OTHER INSURER OR GUARANTOR.
Approximately ___% and ___% of the Mortgage Loans by
Initial Pool Balance are secured by liens on Mortgaged
Properties located in ____________ and ____________,
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<PAGE>
respectively. The remaining Mortgaged Properties are
located in __ other states [and the District of Columbia]
and, in the case of each such jurisdiction, such Mortgaged
Properties secure Mortgage Loans that do not constitute as
of the Cut-Off Date more than ____% of the Initial Pool
Balance.
The Mortgage Loans accrue interest in one of [three]
different ways. [Approximately ___% of the Mortgage Loans
by Initial Pool Balance bear interest at a fixed per annum
rate that remains constant for the remaining life of the
Mortgage Loan. Approximately ___% of the Mortgage Loans by
Initial Pool Balance (the "Step Rate Loans") bear interest
at a fixed rate subject to increase (a "step up") or
decrease (a "step down") to a new fixed rate on specified
dates. Approximately ___% of the Loans by Initial Pool
Balance (the "Rate Reset Loans"), bear interest at a fixed
rate that is subject to a one-time reset based upon a
specified index as of specified dates falling on or
before the date of reset.]
The per annum rate at which interest accrues on each
Mortgage Loan is referred to herein as the "Mortgage
Interest Rate". The "Net Mortgage Interest Rate" of a
Mortgage Loan is the Mortgage Interest Rate for such loan
minus the [highest] Servicing Fee Rate. See "SERVICING OF
THE MORTGAGE LOANS -- Servicing Compensation and Payment
of Expenses" herein.
All of the Mortgage Loans provide for monthly payments of
interest. [Approximately ____% of the Mortgage Loans by
Initial Pool Balance provide for monthly payments of
interest at a rate (a "Payment Rate") less than the
respective Mortgage Interest Rate for some portion of the
loan term. The terms of such a Mortgage Loan (a
"Negatively Amortizing Loan") provide that its principal
balance is increased periodically by an amount reflecting
the difference between the Payment Rate and the Mortgage
Interest Rate or that such difference is treated as
accrued interest which in turn bears interest.]
As of the Cut-Off Date, approximately ___% of the Mortgage
Loans by Initial Pool Balance are Mortgage Loans that
provide for payments of principal and interest based on an
amortization schedule that extends beyond the maturity
date of the Mortgage Loan ("Amortizing Balloon Loans").
Approximately ___% of the Mortgage Loans by Initial Pool
Balance are Mortgage Loans that provide for payments of
interest only over the remaining term of the Mortgage Loan
and the payment of the entire principal amount of the
Mortgage Loan at maturity ("Interest-Only Loans").
Approximately ___% of the Mortgage Loans by Initial Pool
Balance are Mortgage Loans that provide for payments of
interest only over a specified portion of the remaining
term and thereafter payments of principal and interest
based on an amortization schedule that extends beyond the
maturity date of the Mortgage Loan ("Interest-
Only/Amortizing Balloon Loans"). As indicated above,
approximately ____% of the Mortgage Loans by Initial Pool
Balance are Negatively Amortizing Loans. The remaining
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<PAGE>
Mortgage Loans, which represent approximately ____% of the
Initial Pool Balance, are loans that are fully amortizing
over their remaining term to maturity ("Fully Amortizing
Loans"). All of the Mortgage Loans except Fully
Amortizing Loans have substantial principal balances
("Balloon Payments") due at their respective stated
maturities.
As of the Cut-Off Date, approximately ___% of the Mortgage
Loans by Initial Pool Balance constitute Modified Loans,
which are Mortgage Loans that were modified subsequent to
their original funding dates to reflect changes in payment
terms and/or extensions of maturity (including
modifications as a result of actual or anticipated
delinquencies or the Borrower's inability to make balloon
payments at maturity) or were made to increase or refinance
prior loans made by the Seller. See "RISK FACTORS --
Balloon Payments at Maturity and Extension of Maturity;
Modified Loans" herein. Since the later of __________ __,
19__ and their respective dates of modification, none of
the scheduled payments of principal and/or interest on
such Mortgage Loans have been, as of the last day of any
calendar quarter, past due for a period of more than __
days (without regard to notice and grace periods).
Additional characteristics of the Mortgage Loans as of the
Cut-Off Date are described under "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES"
herein.
Representations
and
Warranties...... The Originator has made certain representations and
warranties with respect to the Mortgage Loans, including
limited representations and warranties regarding
environmental matters affecting the Mortgaged Properties,
and such representations and warranties will be assigned
to the Trustee (see Annex B to this Prospectus Supplement,
"THE AGREEMENT -- Representations and Warranties" and
"RISK FACTORS -- Environmental Law Considerations"
herein).
Master Servicing
Fee............. As compensation for servicing the Mortgage Loans, the
Master Servicer will be entitled to receive each month a
servicing fee (the "Servicing Fee") with respect to each
Mortgage Loan equal to one-twelfth of the applicable
Servicing Fee Rate multiplied by the Scheduled Principal
Balance of such Mortgage Loan. The "Servicing Fee Rate"
will be ____% per annum with respect to each Mortgage Loan
other than a Specially Serviced Mortgage Loan and ____%
per annum with respect to each Specially Serviced Mortgage
Loan. The Master Servicer will be responsible for paying,
out of the Servicing Fee, certain ongoing expenses
associated with the Mortgage Loans and incurred by it in
connection with its responsibilities under the Agreement,
including the annual fees and expenses of the Trustee and
the Basic Fee (as defined below) of the Special Servicer.
Special Servicing
Fee............. The Special Servicer will be entitled to receive each
month a servicing fee (the "Basic Fee") equal to one-
twelfth of ____% per annum of the Scheduled Principal
Balance of each Mortgage Loan, payable by the Master
S-10
<PAGE>
Servicer, as compensation for acting as special servicer of
the Mortgage Loans. In addition, the Special Servicer will
be entitled to receive, with respect to any Due Period, a
supplemental fee (the "Supplemental Special Servicing
Fee") equal to the excess, if any, of (i) one-twelfth of
____% per annum of the Scheduled Principal Balance of each
Specially Serviced Mortgage Loan over (ii) the Basic Fee
payable for such Due Period, such Supplemental Special
Servicing Fee to be an obligation of the Trust Fund and
payable from the Lower-Tier Collection Account or the
applicable REO Account. The Special Servicer also will be
entitled to a fee (the "Workout Fee") equal to ____% of
the net collections and net proceeds received with respect
to each Mortgage Loan as to which it is acting or at any
time acted as Special Servicer. Notwithstanding the
foregoing, the Workout Fee with respect to any net
Liquidation Proceeds received in connection with a sale of
REO Property or upon a Final Recovery Determination for any
Mortgage Loan will equal the product of (a) ____% times
(b) a fraction the numerator of which is equal to the net
Liquidation Proceeds received (after payment of all other
fees and expenses in respect thereto) and the denominator
of which is equal to the unpaid principal balance of the
related Mortgage Loan and accrued and unpaid interest
thereon times (c) the net Liquidation Proceeds. The Workout
Fee also will be an obligation of the Trust Fund.
Master Servicer
Advances ....... The Master Servicer will be obligated, on the terms set
forth in the Agreement, to make cash advances ("P&I
Advances") with respect to Delinquent Monthly Payments of
principal and interest due (or Assumed Scheduled Payments
deemed due) in respect of any Mortgage Loan (including any
Specially Serviced Mortgage Loan), but only to the extent
that, in the reasonable judgment of the Master Servicer,
such P&I Advances (together with interest thereon) are
ultimately recoverable from subsequent payments on, or
collections in respect of, such Mortgage Loan or the
related Mortgaged Property.
The Master Servicer also will be obligated to make cash
advances ("Property Protection Advances") with respect to
any Mortgaged Property that secures a Mortgage Loan to the
extent necessary to pay for delinquent taxes, insurance
premiums and other escrowed items, foreclosure costs and
other Property Protection Expenses unless, (i) in the
reasonable judgment of the Master Servicer, such Property
Protection Advance (together with interest thereon) would
not be recoverable from subsequent payments on, or
collections in respect of, such Mortgage Loan or the
related Mortgaged Property or REO Property or (ii) in the
case of a proposed Property Protection Advance for
Property Protection Expenses other than taxes and
insurance premiums, in the reasonable judgment of the
Special Servicer, the aggregate recovery from such
Mortgage Loan, or the related Mortgaged Property or REO
Property (net of such advance and interest thereon) would
not exceed, on a present value basis, the aggregate
recovery therefrom if the Property Protection Advance were
not made by the Master Servicer.
S-11
<PAGE>
In addition, the Master Servicer will be required to make
a cash advance (a "Reimbursable Late Remittance Advance")
for any scheduled Monthly Payments or Assumed Scheduled
Payments that are actually paid by the related Borrower
but not timely remitted to the Master Servicer by the
Special Servicer or any subservicer for the Special
Servicer.
All P&I Advances, Property Protection Advances and
Reimbursable Late Remittance Advances will bear interest
on the unreimbursed amount thereof for each day in a
calendar month that any such Advance is outstanding at
[the prime rate published in the "Money Rates" section of
The Wall Street Journal on such day or, if such day is not
a business day, on the preceding business day (or the
average of such rates if more than one rate is published
on such day).]
Any P&I Advance, Property Protection Advance or
Reimbursable Late Remittance Advance (together with all
accrued and unpaid interest thereon) in respect of any
Mortgage Loan will be reimbursed, [from all cash received
by the Master Servicer in respect of such Mortgage Loan
(and the related Mortgaged Property or REO Property)
unless the Master Servicer determines that all or part of
the P&I Advances, Property Protection Advances and
Reimbursable Late Remittance Advances then outstanding
(together with interest thereon) will not be ultimately
recoverable from amounts remaining in the Trust Fund.
To the extent the Master Servicer makes such a
determination, such amounts will be reimbursed from the
Available Distribution Amount on each Distribution Date
thereafter prior to the making of any distribution in
respect of any Class of Certificates.] See "SERVICING OF
THE MORTGAGE LOANS -- Advances" and "DESCRIPTION OF
THE CERTIFICATES --Distributions -- Allocation Among
Classes" herein.
Specially
Serviced
Mortgage Loans.. The Master Servicer will transfer servicing
responsibilities with respect to Mortgage Loans meeting
certain specified criteria to the Special Servicer. If
any such Mortgage Loan thereafter becomes a performing
Mortgage Loan for at least 90 days, the Special Servicer
will return servicing of such Mortgage Loan to the Master
Servicer. See "SERVICING OF THE MORTGAGE LOANS --
Specially Serviced Mortgage Loans" herein.
[Operating
Advisor Approval
of Special
Servicer
Actions........ Certain actions taken by the Special Servicer with respect
to any Mortgage Loan (including specified modifications
and waivers and foreclosure or sale of the Mortgage Loan
or any REO Property) must be approved by the person
appointed as the representative of the Holders of the
Class of Certificates that is the Controlling Class at
that time (the "Operating Advisor"). The "Controlling
Class" of Certificates initially will be the Class ___
Certificates and may thereafter become the Class ___
Certificates and the Class ___ Certificates, in that
S-12
<PAGE>
order, if significant losses are incurred in respect of
the Mortgage Loans. See "SERVICING OF THE MORTGAGE
LOANS -- Representative of the Controlling Class" herein.]
Record Date...... In the case of all Certificates, the Record Date for each
Distribution Date will be the close of business on the
last day of the calendar month preceding the month in
which such Distribution Date occurs.
Denominations of
Certificates.... The Class ___ and Class ___ Certificates will be issued in
registered form in minimum denominations of $________
initial Certificate Principal Amount and in integral
multiples of $________ in excess thereof; the Class LR and
Class R Certificates will be issued in registered form in
minimum denominations of $________ initial Certificate
Principal Amount[; [the Class PO Certificates will be
issued in registered form in minimum denominations of
$________ initial Certificate Principal Amount] [and the
Class IO Certificates will be issued in registered form in
minimum denominations of $________ initial Notional Amount
and in integral multiples of $__ in excess thereof].
Optional
Termination..... The assets of the Trust Fund may be purchased by the
Master Servicer, the Special Servicer (if it is then
servicing all Mortgage Loans remaining in the Trust Fund)
or the owners of the Class LR or Class R Certificates when
the aggregate Certificate Principal Amount of the
Certificates is less than ___ of the initial aggregate
Certificate Principal Amount thereof. Any such sale will
effect a termination of the Trust Fund and an early
retirement of the Certificates. See "THE AGREEMENT --
Optional Termination" herein.
Final Scheduled
Distribution
Date............ ________ __, 20__. Scheduled Monthly Payments and Balloon
Payments (if paid when due) on the Mortgage Loans will be
sufficient to distribute interest on each Class of
Certificates entitled thereto on each Distribution Date
equal to their respective Class Interest Distribution
Amounts and to reduce the outstanding Certificate
Principal Amounts of the Class ___, Class ___, Class ___,
Class ___, [Class PO,] Class R, and Class LR Certificates
to zero not later than the Final Scheduled Distribution
Date (which is the date ____ months after the maturity
date of the Mortgage Loan in the Mortgage Pool as of the
Cut-Off Date that is the latest to mature of all the
Mortgage Loans), determined on the basis of the
assumptions described herein. Because the rate of
distributions in reduction of the Certificate Principal
Amounts [or Notional Amounts] of the Certificates will
depend on the rate of payment (including prepayments) of
the principal of the Mortgage Loans and on the timing of
receipt of Liquidation Proceeds and Insurance Proceeds
with respect to the Mortgage Loans and the priority of
payment among the Classes of Certificates, the actual
final Distribution Date for any Class of Certificates may
be earlier, and could be substantially earlier, than the
Final Scheduled Distribution Date. In addition, if
payments in respect of delinquent Mortgage Loans or
Liquidation Proceeds and Insurance Proceeds with respect
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<PAGE>
to Mortgage Loans that are liquidated are not received on
or prior to the last day of the related Due Period or
Prepayment Period, as applicable, the actual final
Distribution Date for any Class of Certificates may be
later, and could be substantially later, than the Final
Scheduled Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES -- Final Scheduled Distribution Date" and
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS -- Weighted
Average Lives of the Offered Certificates" herein.
[Credit
Enhancement..... [Add description of any form of Credit Enhancement]]
Ratings.......... It is expected that the Class ___ Certificates will be
rated at least "____" by ___________________
("__________") [and "____" by __________________
("__________") and, together with __________,] (the
"Rating Agenc[y][ies]") and that the Class ___
Certificates will be rated at least "____" by __________
[and "____" by __________]. It is a condition to the
issuance of the Offered Certificates that the Class _
Certificates be rated at least "____" by __________ [and
"____" by __________]. 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. In addition, a security rating
does not address the frequency of prepayments of Mortgage
Loans, or the corresponding effect on yield to investors,
nor does a security rating address the receipt of
prepayment premiums. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" herein.
The Seller will request a rating of the Offered
Certificates by [one or both of] the Rating Agenc[y][ies].
There can be no assurance as to whether any rating agency
not requested to rate the Offered Certificates will
nonetheless issue a rating and, if so, what such rating
would be. A rating assigned to the Offered Certificates by
a rating agency that has not been requested by the Seller
to do so may be lower than the rating assigned by a Rating
Agency pursuant to the Seller's request.
Federal
Income Tax
Consequences.... The Certificates other than the Class LR and Class R
Certificates (the "Regular Certificates") will be treated
as regular interests in a REMIC and generally will be
treated as debt instruments issued by the REMIC for
federal income tax purposes. Certain Classes of the
Regular Certificates may be issued with original issue
discount. The payment assumption that will be used to
report the rate of accrual of any original issue discount
on the Regular Certificates to holders for federal income
tax purposes (and whether such original issue discount is
de minimis), will be a CPR of ____% and will reflect an
assumption that the maturity dates of the Mortgage Loans
will be extended for _____ years (the "Payment
Assumption"). No representation is made that the Mortgage
Loans will prepay at such rate or at any other rate or
that any Mortgage Loan will be extended for that period or
any other period. The holders of the Residual
Certificates will be subject to special federal income tax
S-14
<PAGE>
rules that may significantly reduce the after-tax yield of
such Certificates. See "FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
Transfer
Restrictions
on Residual
Certificates.... The Residual Certificates may not be transferred, sold,
pledged or otherwise assigned unless, prior to such
transfer, the proposed transferee delivers to the Trustee
an affidavit certifying, among other things, that such
transferee is not a "disqualified organization," within
the meaning of the Code. If, notwithstanding such
restrictions, a Residual Certificate is transferred to a
"disqualified organization," a substantial tax may be
imposed on the transferor. In the case of a transfer to
or from a non-U.S. person, certain additional conditions
must be satisfied prior to the transfer of a Residual
Certificate. In addition to the foregoing, transfer of
Residual Certificates may be disregarded with the result
that the transferor will continue to be treated as the
owner of the Residual Certificate. See "FEDERAL INCOME
TAX CONSEQUENCES" herein and in the Prospectus.
Legal
Investment...... The appropriate characterization of the Offered
Certificates under various legal investment restrictions,
and thus the ability of investors subject to these
restrictions to purchase the Offered Certificates, may be
subject to significant interpretative uncertainties. The
Offered Certificates, other than the Class [ ], Class [
][, and Class [ ]] Certificates, will [not] constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Institutions whose investment activities
are subject to review by federal, state or other
regulatory authorities should consult with their
counsel or the applicable authorities to determine whether
and to what extent the Offered Certificates constitute
legal and qualified investments for them. See "LEGAL
INVESTMENT" in the Prospectus.
ERISA
Considerations.. [THE CHARACTERISTICS OF THE OFFERED CERTIFICATES WILL NOT
MEET THE REQUIREMENTS OF ANY EXEMPTION FROM THE
APPLICATION OF THE PROHIBITED TRANSACTION PROVISIONS OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"). ACCORDINGLY, THE OFFERED CERTIFICATES
MAY NOT BE ACQUIRED BY ANY EMPLOYEE BENEFIT PLAN WITHIN
THE MEANING OF SECTION 3(3) OF ERISA OR SECTION 4975 OF
THE CODE.] See "ERISA CONSIDERATIONS" herein and in the
Prospectus.
RISK FACTORS
In addition to the factors described under the heading "RISK
FACTORS" in the Prospectus, prospective investors in the Offered
Certificates should consider the following:
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<PAGE>
Geographic Concentration.
Significant portions of the Mortgaged Properties are
located in the States of ________ and ________. Repayments by
borrowers and the market value of the Mortgaged Properties could
be affected by economic conditions generally or in regions where
the borrowers and the Mortgaged Properties are located,
conditions in the real estate market where the Mortgaged
Properties are located, changes in governmental rules and fiscal
policies, acts of nature, including earthquakes (which may result
in uninsured losses), and other factors which are beyond the
control of the borrowers. In addition, the economies of the
States of ________ and ________ may be adversely affected to a
greater degree than that of other areas of the country by
developments affecting industries concentrated in such states.
Moreover, in recent periods, several regions of the United States
in which one or more of the Mortgaged Properties are located have
experienced significant downturns in the market value of real
estate. As a result, the extent to which the Master Servicer or
Special Servicer, if any, will be able to collect or realize on
the Mortgage Loans and, therefore, the amount of distributions
passed through to Certificateholders, will depend significantly
upon the performance of the economy in each of these states.
Balloon Payment at Maturity and Extension of Maturity; Modified Loans.
Because approximately ____% of the Mortgage Loans by
Initial Pool Balance are Balloon Loans, a Balloon Payment will be
due at each of their respective maturity dates. The ability of a
Borrower to pay such amount will normally depend on its ability
to obtain refinancing on the Mortgage Loan or sell the Mortgaged
Property, which will depend on a number of factors prevailing at
the time such refinancing or sale is required, including, without
limitation, the strength of the commercial and multifamily
residential real estate markets, tax laws, the financial
situation and operating history of the underlying property,
prevailing interest rates and general economic conditions. The
Originator and the Seller are under no obligation to refinance
any Mortgage Loan. Delay or default in payment of Balloon
Payments will adversely affect distributions to
Certificateholders.
As of the Cut-Off Date, approximately ____% of the Mortgage
Loans by Initial Pool Balance constitute Modified Loans.
"Modified Loans" include any Mortgage Loan that was revised
subsequent to its original funding date to reflect changes in its
payment terms and/or to extend its maturity or that was made to
increase or refinance a prior loan made by the Originator. Since
the later of ________ __, 19__ and their respective dates of
modification (ranging from ________ __, 19__ to ________ __,
19__), none of the scheduled payments of principal and/or
interest on the Modified Loans have been, as of the last day of
any calendar quarter, past due for a period of more than [__]
days (without regard to notice and grace periods). For a
description of certain characteristics of the Modified Loans,
including their estimated debt service coverage ratios, see
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES -- Modified Loans" and "-- Mortgage Loan Data".
Limited Obligations.
The Certificates will represent beneficial ownership
interests solely in the assets of the Trust Fund and will not
represent an interest in or obligation of the Seller, the
Originator, the Trustee, the Master Servicer, the Special
Servicer or any other person. The Agreement provides that the
Holders of the Certificates will have no rights or remedies
against the Seller for any losses or other claims in connection
with the Certificates or the Mortgage Loans. Distributions on any
Class of Certificates will depend solely on the amount and timing
of payments and other collections in respect of the Mortgage
Loans. There can be no assurance that these amounts, together
with other payments and collections in respect of the Mortgage
Loans, will be sufficient to make full and timely distributions
on the Offered Certificates. All of the Mortgage Loans are
"non-recourse" loans, as to which the Trustee may look only to
the related Mortgaged Properties for satisfaction of amounts
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<PAGE>
due under the related Mortgage Loan. Neither the Offered Certificates
nor the Mortgage Loans are insured or guaranteed, in whole or in
part, by the United States or any Federal or state governmental
entity or by any private mortgage or other insurer.
[Representative of Controlling Class.
Under the Agreement, the Special Servicer will have
considerable flexibility to extend and modify Mortgage Loans
which are in default or as to which a payment default is
reasonably foreseeable, including Balloon Payments. More
specifically, subject to the approval of the Class of
Certificates then having voting control with respect to certain
actions proposed to be taken by the Special Servicer (the
"Controlling Class") and to certain other conditions set forth in
the Agreement, the Special Servicer will have the power, among
other things, to forgive permanently the payment of principal or
interest, or both, to lower or modify the Mortgage Interest Rate
or Payment Rate or to modify the schedule of payments of
principal. The representative (the "Operating Advisor") appointed
by the Controlling Class (which initially will be the holders of
the Class __ Certificates) will have the right to approve certain
actions proposed to be taken by the Special Servicer (for
example, whether to pursue foreclosure on a defaulted Mortgage
Loan or a loan modification and extension). The Controlling Class
may have interests in conflict with those of the Holders of the
other Classes of Certificates. As a result, it is possible that
the Operating Advisor appointed by the Controlling Class may
direct the Special Servicer to take actions that conflict with
the interests of the Holders of certain other Classes of
Certificates. For example, it may be in the interest of the
Controlling Class to continue workout discussions with a Borrower
in order to delay the recognition of a loss in a situation in
which it would be in the best interests of other Classes to
pursue remedies against such Borrower. However, in no event may
any direction of the Operating Advisor require the Special
Servicer to act other than in accordance with the terms of the
Agreement and the Mortgage Loans and the standards of care,
skill, prudence and diligence generally applicable to Special
Servicer actions. See "Servicing of the Mortgage Loans --
Representative of the Controlling Class."]
[Yield Considerations with respect to the Class IO Certificates
and the Class PO Certificates.
Yields on the Class IO and Class PO Certificates will be
extremely sensitive to the prepayment and liquidation experience
on the Mortgage Loans, and prospective investors in such
Certificates should fully consider the associated risks,
including the risk that such investors, in circumstances of
higher than anticipated rate of principal prepayment or
liquidation, could fail to fully recoup their initial investment.
The yield to investors in the Class PO Certificates, which is
entitled to payments of principal only, and only with respect to
certain Mortgage Loans, could be adversely affected by a low rate
of principal prepayments on such Mortgage Loans and by any
extensions of the maturity date of a Mortgage Loan in connection
with a modification of such Mortgage Loan. The yield to investors
in the Class IO Certificates, which is entitled to payments of
interest only, could be adversely affected by a high rate of
principal prepayments on the Mortgage Loans. No representation is
made as to the anticipated rate of prepayments on the Mortgage
Loans or as to the anticipated yield to maturity of any
Certificate. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"
herein.]
[Allocation of Losses.
[Add description of allocation of losses among classes, if
applicable.]]
S-17
<PAGE>
Variability in Average Life of Offered Certificates.
The payment experience on the Mortgage Loans will affect
the actual payment experience on and the weighted average lives
of the Offered Certificates and, accordingly, may affect the
yield on the Offered Certificates. Prepayments on the Mortgage
Loans will be influenced by the prepayment provisions of the
related Notes and also may be affected by a variety of economic,
geographic and other factors, including the difference between
the interest rates on the Mortgage Loans (giving consideration to
the cost of refinancing) and prevailing mortgage rates and the
availability of refinancing for commercial mortgage loans. In
general, if prevailing interest rates fall significantly below
the interest rates on the Mortgage Loans, the rate of prepayment
on the Mortgage Loans would be expected to increase. Conversely,
if prevailing interest rates rise significantly above the
Mortgage Interest Rates on the Mortgage Loans, the rate of
prepayment would be expected to decrease.
Certain of the Mortgage Loans provide for a Prepayment
Premium in connection with the prepayment thereof, and certain of
the Mortgage Loans prohibit prepayments of principal in whole or
in part during a specified period. See the table entitled "Types
of Prepayment Premiums" set forth in "DESCRIPTION OF THE MORTGAGE
POOL AND THE UNDERLYING MORTGAGED PROPERTIES" herein, which sets
forth the Prepayment Premiums, if any, for the Mortgage Loans.
Such Prepayment Premiums and lockout periods can, but do not
necessarily, provide a material deterrent to prepayments. In
addition, in certain jurisdictions, the enforceability of
provisions in mortgage loans prohibiting prepayment or providing
for the payment of prepayment premiums has been questioned as
described under "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS --
Enforceability of Certain Provisions -- Prepayment Provisions" in
the Prospectus. The Seller makes no representation or warranty as
to the effect of such Prepayment Premiums or lockout periods on
the rate of prepayment of the related Mortgage Loans.
The extent to which the Special Servicer forecloses upon,
takes title to and disposes of any Mortgaged Property related to
a Mortgage Loan will affect the weighted average lives of the
Offered Certificates. Because the Agreement provides that the
Special Servicer is required to dispose of any REO Property that
it acquires within two years of its acquisition (subject to
extension under certain circumstances), if a significant number
of Mortgage Loans are foreclosed upon by the Special Servicer and
depending upon the amount and timing of recoveries from related
REO Properties, the weighted average lives of the Offered
Certificates may be shortened.
Delays in liquidations of defaulted Mortgage Loans and
modifications extending the maturity of Mortgage Loans will tend
to extend the payment of principal of the Mortgage Loans. Because
a [significant] number of Mortgage Loans have Balloon Payments
due at maturity and because the ability of the Borrower to make a
Balloon Payment typically will depend upon its ability either to
refinance the Mortgage Loan or to sell the related Mortgaged
Property, there is a risk that a number of Mortgage Loans having
Balloon Payments may default at maturity, or that the Special
Servicer may extend the maturity of a number of such Mortgage
Loans in connection with workouts. No representation or warranty
is made by the Seller as to the ability of any of the related
Borrowers to make required Mortgage Loan payments on a full and
timely basis, including Balloon Payments at the maturity of these
Mortgage Loans. 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 Mortgaged Property is
located. In order to minimize losses on defaulted Mortgage Loans,
the Special Servicer is given considerable flexibility under the
Agreement[, subject to approval of the Controlling Class of
Certificates (see "SERVICING OF THE MORTGAGE LOANS --
Representative of the Controlling Class" herein),] to modify
Mortgage Loans that are in default or as to which a payment
default is reasonably foreseeable. Certificateholders are not
entitled to receive distributions of Balloon Payments when due
S-18
<PAGE>
except to the extent they actually are received. Instead, if a
Balloon Payment is not paid in full at maturity,
Certificateholders will be entitled to receive distributions
based on Assumed Scheduled Payments in respect of the related
Mortgage Loan until final liquidation of such Mortgage Loan.
Consequently, any defaulted Balloon Payment or modification which
extends the maturity of a Mortgage Loan can be expected to extend
the weighted average lives of each Class of Offered Certificates.
See "SERVICING OF THE MORTGAGE LOANS -- Mortgage Loan
Modifications" herein.
Early Termination.
The Trust Fund is subject to optional termination by the
Master Servicer, the Special Servicer (if all of the Mortgage
Loans are Specially Serviced Mortgage Loans), or the Holders of
the Class LR or Class R Certificates after the aggregate
Certificate Principal Amount of the Offered Certificates is less
than __% of the initial Certificate Principal Amount thereof at
the Cut-Off Date. In the event of such termination, Holders of
the Offered Certificates would receive some principal payments
earlier than otherwise, which could adversely affect their
anticipated yield to maturity. See "THE AGREEMENT -- Optional
Termination" herein.
Federal Income Tax Consequences.
For federal income tax purposes, the Seller will cause
elections to be made to treat the Trust Fund as two "real estate
mortgage investment conduits" (each, a "REMIC"). The Class ___,
Class ___, Class ___, Class ___, [Class PO] and [Class IO]
Certificates will be designated as REMIC regular interests and
the Class R Certificates and Class LR Certificates will be
designated as the REMIC residual interests. As REMIC regular
interests, the Certificates other than the Residual Certificates
generally will be treated as debt for federal income tax
purposes. Holders of such Certificates will be required to
include in income all interest, including original issue
discount, on such Certificates in accordance with the accrual
method of accounting regardless of such Certificateholders' usual
methods of accounting.
The Class ___ Certificates will, and the Class ___
Certificates may, be treated for federal income tax reporting
purposes as having been issued with original issue discount. A
Holder must include original issue discount in income as it
accrues, without regard to the timing of payments. The prepayment
assumption that will be used in determining the rate of accrual
of market discount, original issue discount and premium for
federal income tax purposes will be a _% constant prepayment rate
and a Balloon Loan extension of _ years (as discussed under
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein). No
representation is made that the Mortgage Loans will prepay at
that rate or at any other rate or that the average extension of
Balloon Loans will be that period or any other period.
A holder of a Class R or Class LR Certificate will be
required to include the taxable income or loss of the applicable
REMIC in determining its federal taxable income. It is
anticipated that all or a portion of the income derived from a
Class R or Class LR Certificate will be "excess inclusion"
income, which is treated as unrelated business taxable income to
Certificateholders that are tax-exempt entities and is not
subject to exemption from or reduction in withholding in the case
of Certificateholders that are foreign persons. Holders of Class
R Certificates, including thrift institutions, will not be
entitled to use other deductions or losses, including net
operating losses, to offset such income.
Ownership of a Class R or Class LR Certificate by a
pass-through entity could cause an annual tax to be imposed on
such pass-through entity if any interest therein is held by a
"disqualified organization," within the meaning of the Code,
including a government entity or any other tax-exempt
organization that is not subject to tax on unrelated business
S-19
<PAGE>
taxable income. See "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
The Class R and Class LR Certificates may not be
transferred, sold, pledged or otherwise assigned unless prior to
such transfer, the proposed transferee delivers to the Trustee an
affidavit certifying, among other things, that such transferee is
not a "disqualified organization," within the meaning of the
Code. If, notwithstanding such restrictions, a Class R or Class
LR Certificate is transferred to a "disqualified organization," a
substantial tax may be imposed on the transferor. In the case of
a transfer to or from a non-U.S. person, certain additional
conditions must be satisfied prior to the transfer of a Class R
or Class LR Certificate. In addition to the foregoing, transfer
of Class R and Class LR Certificates may be disregarded with the
result that the transferor will continue to be treated as the
owner of the Class R or Class LR Certificate. See "FEDERAL INCOME
TAX CONSEQUENCES" in the Prospectus.
S-20
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES
General
The Commercial Mortgage Pass-Through Certificates, Series
199_-__, will consist of the following _______ Classes: the Class
___, Class ___, Class ___, Class ___, [Class PO,] [Class IO,]
Class R and Class LR Certificates (each such certificate, a
"Certificate"). Only the Class ___, Class ___, [Class PO,] [Class
IO,] Class R and Class LR (the " Offered Certificates") are
offered hereby.
The Certificates will represent beneficial ownership
interests in a trust fund (the "Trust Fund") to be created by GS
Mortgage Securities Corporation II (the "Seller") the assets of
which will consist of, among other things, approximately ____
[fixed-rate, step rate and rate reset mortgage loans, including
mortgage loans that pay interest only until maturity or for a
specified period, amortizing balloon payment loans and
fully-amortizing loans] (the "Mortgage Loans"), secured by
mortgages and deeds of trust on commercial and multifamily real
properties and certain other property held in trust for the
benefit of the holders of the Certificates (the
"Certificateholders"). The Mortgage Loans will have an aggregate
Scheduled Principal Balance as of the Cut-Off Date of
approximately $________. The Mortgage Loans will have had
individual principal balances at Origination of not less than
$________ or more than $________.
The description of the Mortgage Loans set forth in this
Prospectus Supplement is based on the characteristics of the
Mortgage Loans expected to be included in the Mortgage Pool as of
the date of this Prospectus Supplement. Mortgage Loans may be
removed from the Mortgage Pool prior to the date of issuance of
the Certificates as a result of prepayments or delinquencies or
for other reasons, and additional Mortgage Loans may be added to
the Mortgage Pool. In the event that any of the characteristics
of the Mortgage Loans actually included in the Trust Fund varies
in any material respect from those set forth in the Prospectus
Supplement, information as to such characteristics will be
included in a Current Report on Form 8-K filed by the Seller with
the Securities and Exchange Commission within fifteen days of the
issuance of the Certificates. Unless the context otherwise
requires, all percentages used herein will be based on the
aggregate principal balance of the Mortgage Loans as of the
Cut-Off Date.
The Mortgage Loans had the following characteristics as of
the Cut-Off Date (based, in the case of any characteristic
expressed as a weighted average, on the outstanding Scheduled
Principal Balance of each Mortgage Loan as of the Cut-Off Date):
(i) Mortgage Interest Rates ranging from ____% per annum
to ____% per annum;
(ii) a weighted average Mortgage Interest Rate and a
weighted average Net Mortgage Interest Rate for all
Mortgage Loans of ____% per annum and ____% per annum,
respectively;
(iii) Scheduled Principal Balances as of the Cut-Off Date
ranging from $________ to $________;
(iv) an average Scheduled Principal Balance as of the Cut-Off
Date of $________;
(v) remaining terms to stated maturity for all Mortgage Loans
ranging from ____ months to ____ months;
S-21
<PAGE>
(vi) remaining terms to stated maturity for Mortgage Loans
providing for Balloon Payments ranging from ____
months to ____ months and for Fully Amortizing Loans
ranging from ____ months to ____ months;
(vii) a weighted average remaining term to stated maturity of
____ months for all of the Mortgage Loans;
(viii) a weighted average remaining term to stated maturity
of ____ months for Mortgage Loans providing for
Balloon Payments and ____ months for Fully Amortizing
Loans;
(ix) weighted average seasoning from Origination to the Cut-Off
Date of ____ months;
(x) approximately ____%, ____%, ____%, ____%, ____%, ____%
and ____%, respectively, of the Initial Pool Balance
are secured by Mortgaged Properties which are
primarily office buildings, industrial buildings,
multifamily residential properties, retail properties,
mobile home parks, hotels and parking garages;
(xi) all of the Mortgage Loans have Due Dates of the first
day of each month, and in general, but not uniformly,
the stated maturity dates of the Mortgage Loans
coincide with their Due Dates; and
(xii) debt service coverage ratios (calculated in the
manner and subject to the assumptions described under
"-- Mortgage Loan Data -- Debt Service Coverage
Ratios") for the Mortgage Loans ranging from __ to __,
with a weighted average debt service coverage ratio of
__.
For purposes of this Prospectus Supplement, including for
purposes of showing calculations regarding the Mortgage Loans,
the date of "Origination" means (i) for the Modified Loans, the
effective date of the most recent modification, refinance or
increase relating to such Modified Loans and (ii) for the
remainder of the Mortgage Loans, the time that such Mortgage
Loans were initially funded and underwritten by the Seller.
Each Mortgage Loan included in the Trust Fund is evidenced
by one or more promissory notes (each, a "Note") and is secured
by a first mortgage, deed of trust or similar security instrument
(in each case, a "Mortgage") on a fee simple or leasehold
interest in commercial property, including multifamily
residential property (each such interest or property, as the case
may be, a "Mortgaged Property") located in one of ____ states [or
the District of Columbia]. For purposes of this Prospectus
Supplement, references to "Mortgage Loan" will include any
Specially Serviced Mortgage Loan, including any REO Mortgage
Loan.
All of the Mortgage Loans were originated by the Originator
and will be acquired by the Seller from [the Originator] in
exchange for the Certificates. [Add description of applicable
underwriting standard or standards.]
The Mortgage Loans are not insured or guaranteed, in whole
or in part, by any Federal or State governmental agency or by any
private mortgage or other insurer or guarantor, and substantially
all of the Mortgage Loans are "non-recourse" loans, as to which,
in the event of default by the obligor (the "Borrower") on the
related Note, the Trustee may look only to the related Mortgaged
Properties (including any assignments of leases of the Mortgaged
Properties) and any other collateral security (and not to the
Borrower's other assets) for satisfaction of the amounts due on
the affected Mortgage Loans. Substantially all of the
non-recourse loans contain limited and customary exceptions to
the non-recourse limitation, including exceptions providing
recourse to the Borrower for losses suffered by the lender as a
result of the Borrower's misapplication or misappropriation of
rents or other income associated with the operation of the
Mortgaged Property, fraud or misrepresentation by the Borrower
S-22
<PAGE>
and, for a smaller number of loans, environmental contamination
of the Mortgaged Property. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS -- Anti-Deficiency Legislation; Bankruptcy Laws".
All of the Mortgage Loans on Mortgaged Properties occupied
by tenants are secured by one or more assignments of leases and
rents and in some cases by certain letters of credit, guarantees,
escrow funds or combinations thereof. Pursuant to an assignment
of leases and rents, the Borrower assigns its right, title and
interest as landlord under each lease and the income derived
therefrom to the lender, while retaining a license to collect the
rents for so long as there is no default. If the Borrower
defaults, upon the election of, and following notice from, the
lender, the license terminates and the lender is entitled to
collect the rents from tenants to be applied to the monetary
obligations of the Borrower. The law in certain jurisdictions may
limit or restrict the enforcement of the assignment of leases and
rents by a lender. Moreover, the priority of a lender's interest
in such leases and rents may be affected by its failure to take
possession of the related income or Mortgaged Property or to
obtain a judicial appointment of a receiver. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS -- Leases and Rents" in the
Prospectus.
[There are a number of instances of multiple Mortgage Loans
made to a single Borrower. These are primarily Multiple Loans on
a Single Property. The largest number of Mortgage Loans to a
single Borrower outside that category is a group of ____ Mortgage
Loans secured by [type of property] representing approximately
____% of the Mortgage Loans by Initial Pool Balance.]
Certain Borrowers may be considered related as a result of
a person or persons maintaining an ownership interest in one or
more Borrowers ("Related Borrowers"). Substantially all of the
Mortgage Loans provided to Related Borrowers are non-recourse and
were underwritten on the basis that the primary security for each
Mortgage Loan was the related Mortgaged Property. Consequently,
the existence of Related Borrowers should not materially and
adversely affect the ability of the Trust Fund to enforce
remedies available to it (including realization against the
Mortgaged Property) in connection with a defaulted Mortgage Loan.
[Approximately ____% of the Mortgage Loans by Initial Pool
Balance are cross-collateralized with other Mortgage Loans in the
Trust Fund so that two or more Mortgage Loans are each secured by
two or more Mortgages on separate Mortgaged Properties
("Cross-Collateralized Loans"). No Mortgage Loan is
cross-collateralized with a loan that is not in the Trust Fund.
All Cross-Collateralized Loans are secured by Mortgaged
Properties owned at the time of Origination by the same Borrower.
The Seller makes no representation that any such
cross-collateralization arrangements involving Related Borrowers
are enforceable. For purposes of this Prospectus Supplement, the
category of Cross-Collateralized Loans does not include all
Mortgage Loans that are related. In addition to
Cross-Collateralized Loans, related loans include "Multiple Loans
on a Single Property", which are (i) multiple Mortgage Loans
secured by a single Mortgage on a single Mortgaged Property
(typically on a pari passu basis) and (ii) multiple Mortgage
Loans secured by separate Mortgages on the same Mortgaged
Property but having different lien priorities. Approximately
____% of the Mortgage Loans by Initial Pool Balance are Multiple
Loans on a Single Property. Cross-Collateralized Loans and
Multiple Loans on a Single Property are referred to collectively
in the Mortgage Loan Schedule attached hereto as "Shared
Collateral Loans".]
[Modified Loans
From time to time subsequent to the initial funding date of
the Mortgage Loans, the Originator has revised certain of the
Mortgage Loans to reflect changes in their payment terms and/or
to extend their maturity. Such Mortgage Loans are referred to
herein as "Modified Loans". Modified Loans are the consequence of
S-23
<PAGE>
(i) actual or anticipated delinquencies and the inability of
Borrowers to make balloon payments at maturity, or (ii) in the
case of certain fully performing Mortgage Loans refinanced prior
to ___________________, the Originator's willingness to advance
additional funds or to refinance the Mortgage Loan by remaining
as the lender following maturity. Mortgage Loans modified under
the circumstances described in clause (i) of the preceding
sentence did not meet the Originator's underwriting standards in
certain respects at the time of modification. See "RISK FACTORS
- --Balloon Payments at Maturity and Extension of Maturity;
Modified Loans" herein.
As of the Cut-Off Date, approximately ____% of the Mortgage
Loans by Initial Pool Balance constitute Modified Loans. As of
the Cut-off Date, the Modified Loans have remaining terms to
stated maturity ranging from ____ months to ____ months, a
weighted average remaining term to stated maturity of ____
months, and a weighted average seasoning (based on the number of
months from Origination to the Cut-Off Date) of ____ months.
Approximately _____% of the Modified Loans by Initial Pool
Balance provide for Balloon Payments at stated maturity. The debt
service coverage ratios for the Modified Loans are set forth
under " -- Mortgage Loan Data -- Debt Service Coverage Ratios".
Since the later of ____ __, 19__ and their respective dates of
Origination (ranging from ________ __, 19__ to ________ __,
19__), none of the scheduled payments of principal and/or
interest on the Modified Loans have been, as of the last day of
any calendar quarter, past due for a period of more than [ ] days
(without regard to notice and grace periods).]
Mortgage Loan Data
As of the Cut-Off Date, the Mortgage Loans in the Trust
Fund had the characteristics set forth in the Mortgage Loan
Schedule appearing as Annex A to this Prospectus Supplement and
those described in the following tables. The information
expressed as a percentage of the Initial Pool Balance may not
total 100% due to rounding, and the sum of the amounts listed as
aggregate Scheduled Principal Balances of the Mortgage Loans as
of the Cut-off Date may not total the indicated amount due to
rounding.
Mortgage Rates. [All of the Mortgage Loans are either
fixed-rate loans, Step Rate Loans or Rate Reset Loans.
Approximately ___% of the Mortgage Loans by Initial Pool Balance
bear interest at a fixed per annum rate that remains constant for
the life of the Loan. Approximately ____% of the Mortgage Loans
by Initial Pool Balance are Step Rate Loans that bear interest at
a fixed rate subject to increase (a "step up") or decrease (a
"step down") to a new fixed rate on specified dates as described
herein. Approximately ____% of the Mortgage Loans by Initial Pool
Balance are Rate Reset Loans that bear interest at a fixed rate
that is subject to a one-time reset based upon specified indices
as of specified dates falling on or before the date of reset.]
The per annum rate at which interest accrues on each Mortgage
Loan is referred to herein as the "Mortgage Interest Rate". The
"Net Mortgage Interest Rate" of a Mortgage Loan is the Mortgage
Interest Rate for such loan minus the [highest] Servicing Fee
Rate.
The following table sets forth the ranges of the Mortgage
Interest Rates as of the Cut-Off Date:
S-24
<PAGE>
Distribution of Mortgage Interest Rates
Mortgage Percentage of
Interest Number of Aggregate Scheduled Initial Pool
Rates Mortgage Loans Principal Balance Balance
- ----- -------------- ----------------- -------
[6.00- $ . %
6.99%
7.00- .
7.99%
8.00- .
8.99%
9.00- .
9.49%
9.50- .
9.99%
10.00- .
10.49%
10.50- .
10.99%
11.00- .
11.99%
12.00- .
12.99%
13.00- .
13.99%]
Total $ 100.00%
The weighted average Mortgage Interest Rate of all Mortgage Loans
is ____%.
Debt Service Coverage Ratios. The table below sets forth
debt service coverage ratios of certain of the Mortgage Loans.
For any Mortgage Loan, the debt service coverage ratio is
calculated by dividing annual net operating income generated by
the related Mortgaged Property (before payment of any debt
service on such Mortgage Loan) by the annual debt service on the
Mortgage Loans secured by such Mortgaged Property. [For the most
part, net operating income is derived from operating statements
provided by Borrowers to the Originator for the year ending
December 31, 19__. Most of the operating statements were
unaudited and, in some cases, related only to a portion of the
year ending December 31, 19__. For partial years, net operating
income was annualized based upon the partial information
provided. In addition to operating statements provided by
Borrowers, to the extent available, other information submitted
to the Originator (such as information relating to property
operating expenses) was used in determining 19__ net operating
income. In no event, however, has the Originator made any attempt
to verify the accuracy of any operating statements or other
S-25
<PAGE>
information provided or to reflect changes in net operating
income that may have occurred since the end of the
period reflected in the applicable operating statements.]
Annual net operating income equals total annual revenues
received less total normal and customary property operating
expenses incurred in connection with the operation of a Mortgaged
Property during a specified twelve month period. An assumed
annual reserve for normal and customary capital expenditures (but
not for unusual or major capital expenditures) may or may not
have been included as a property operating expense. In certain
circumstances, adjustments were made to the information provided
by Borrowers to standardize presentations and to eliminate
expense items not related to operations, including property
depreciation, debt amortization, interest expense, capital
expenditures specifically identified as such and administrative
overhead charges. In this regard, some Borrowers may not have
specifically identified capital expenditures and administrative
overhead charges as an operating expense. In these situations,
such expenses may not have been detected and eliminated.
Annual debt service for each Mortgage Loan is an assumed
amount derived by multiplying the first scheduled Monthly Payment
after the Cut-Off Date (which for all loans will be the Monthly
Payment payable ________ 1, 19__) by 12. For purposes of this
calculation, the first scheduled Monthly Payment after the
Cut-Off Date for Mortgage Loans maturing on ________ 1, 19__ was
assumed to equal the Monthly Payment in effect on or immediately
prior to the Cut-Off Date. Accordingly, the debt service coverage
ratio for each Mortgage Loan generally represents a comparison of
19__ annual net operating income to assumed 19__ debt service.
[For Mortgage Loans which are Cross-Collateralized Loans,
the estimated debt service coverage ratios have been calculated
separately for each Mortgage Loan and related Mortgaged Property,
as if such cross-collateralization did not exist. For Mortgage
Loans which are Multiple Loans on a Single Property, the
estimated debt service coverage ratio is based on the combined
annual debt service of all Mortgage Loans secured by the same
Mortgaged Property.]
Methodologies used by Borrowers in calculating and
presenting annual net operating income were not consistent
(including in particular as described above the treatment by
Borrowers of capital expenditures and administrative overhead
charges). As noted above, no independent verification of the data
provided by Borrowers was made by the Originator or any other
person, and no information has been sought or used regarding
changes in net operating income since the end of the period
reflected in the applicable operating statements. As a
consequence, the debt service coverage ratios provided in the
table below do not represent current debt service coverage
ratios, and there can be no assurance that the information
accurately reflects (i) the income-generating capacity of any
Mortgaged Property to satisfy the debt service requirements of
any related Mortgage Loan or (ii) the ability of any Borrower to
make debt service payments in a timely and full manner. In this
regard, prospective investors should understand that the Mortgage
Loans are non-recourse loans as to which, in the event of a
Borrower default, recourse may be had only against the property
(which, in most instances, is the Mortgaged Property only)
pledged to secure each Mortgage Loan (and not against the
Borrower's other assets).
S-26
<PAGE>
Debt Service Coverage Ratios of the Mortgage Loans
--------------------------------------------------
Percentage of
Debt Service Number of Aggregate Scheduled Initial Pool
Coverage Ratios Mortgage Loans Principal Balance Balance
- --------------- -------------- ----------------- -------
[0.600 and below $ %
0.601-0.800
0.801-0.999
1.000-1.050
1.051-1.100
1.101-1.150
1.151-1.200
1.201-1.250
1.251-1.300
1.301-1.400
1.401-1.500
1.501-2.000
2.001 and greater]
Total $ 100.00%
The weighted average debt service coverage ratio for all Mortgage
Loans is ____.
S-28
<PAGE>
Distribution of Original Principal
Balances of the Mortgage Loans
----------------------------------
Percentage of
Original Number of Aggregate Scheduled Initial Pool
Balances Mortgage Loans Principal Balance Balance
-------------- ----------------- -------
[$1 - 1,000,000
1,000,001 - 2,000,000 $ %
2,000,001 - 3,000,000
3,000,001 - 4,000,000
4,000,001 - 5,000,000
5,000,001 - 6,000,000
6,000,001 - 7,000,000
7,000,001 - 8,000,000
8,000,001 - 9,000,000
9,000,001 - 10,000,000
10,000,001 - 15,000,000
15,000,001 - 20,000,000
20,000,001 - 25,000,000
25,000,001 - 30,000,000
30,000,001 - 35,000,000]
Total $ 100.00%
The average original principal balance of the Mortgage Loans was
approximately $________.
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<PAGE>
Distribution of Scheduled Principal
Balances of the Mortgage Loans
-----------------------------------
Number of Percentage of
Cut-Off Date Mortgage Aggregate Scheduled Initial Pool
Scheduled Principal Balances Loans Principal Balance Balance
- ---------------------------- ----- ----------------- -------
[$1 - 1,000,000 $ %
1,000,001 - 2,000,000
2,000,001 - 3,000,000
3,000,001 - 4,000,000
4,000,001 - 5,000,000
5,000,001 - 6,000,000
6,000,001 - 7,000,000
7,000,001 - 8,000,000
8,000,001 - 9,000,000
9,000,001 - 10,000,000
10,000,001 - 15,000,000
15,000,001 - 20,000,000
20,000,001 - 25,000,000
25,000,001 - 30,000,000
30,000,001 - 35,000,000]
Total $ 100.00%
The average scheduled principal balance of the Mortgage Loans was
approximately $________.
Amortization Type
-----------------
Number of Percentage of
Mortgage Aggregate Scheduled Initial Pool
Amortization Type Loans Principal Balance Balance
- ----------------- ----- ----------------- -------
[Amortizing Balloon
Loans ] $ %
[Interest-Only
Loans]
[Interest-Only/
Amortizing Balloon
Loans]
[Negatively Amortizing
Loans ]
[Fully Amortizing
Loans]
Total $ 100.00%
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<PAGE>
Term from Origination to Stated Maturity
of the Mortgage Loans
----------------------------------------
Number of Percentage of
Years from Origination Mortgage Aggregate Scheduled Initial Pool
to Stated Maturity Loans Principal Balance Balance
- ---------------------- ----- ----------------- -------
[5 years or less $ %
5+ to 7
7+ to 10
10+ to 15
20+ to 30
Over 30 years]
Total $ 100.00%
The weighted average term from Origination to stated maturity of
the Mortgage Loans is ____ years.
Remaining Terms to Stated Maturity
of Mortgage Loans Providing for Balloon Payment
-----------------------------------------------
Number of Percentage of
Years Remaining Mortgage Aggregate Scheduled Initial Pool
as of Cut-Off Date Loans Principal Balance Balance
- ------------------ ----- ----------------- -------
[0 to 1 years $ %
1+ to 2 years
2+ to 3 years
3+ to 4 years
4+ to 5 years
5+ to 6 years
6+ to 7 years
7+ to 8 years
8+ to 9 years
9+ to 10 years
10+ to 15 years]
Total $ %
The weighted average remaining term to stated maturity of the
Mortgage Loans providing for Balloon Payments is ____ years.
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<PAGE>
Remaining Terms to Stated Maturity
of Fully Amortizing Mortgage Loans
----------------------------------
Aggregate Percentage of
Years Remaining Number of Scheduled Initial Pool
as of Cut-Off Date Mortgage Loans Principal Balance Balance
- ------------------ -------------- ----------------- -------
[2+ to 3 years $ %
3+ to 4 years
5+ to 6 years
6+ to 7 years
7+ to 8 years
8+ to 9 years
10+ to 15 years
15+ to 20 years
20+ to 30 years]
Total $ %
The weighted average remaining term to stated maturity of the
Fully Amortizing Loans is ____ years.
Seasoning of Mortgage Loans
---------------------------
Aggregate Percentage of
Number of Years Number of Scheduled Initial Pool
as of Cut-Off Date Mortgage Loans Principal Balance Balance
- ------------------ -------------- ----------------- -------
[0 to 1 years $ %
1+ to 2 years
2+ to 3 years
3+ to 4 years
4+ to 5 years
5+ to 6 years
6+ to 7 years
7+ to 8 years
8+ to 9 years
9+ to 10 years
10+ to 15 years
15+ to 20 years]
Total $ %
As of the Cut-Off Date, the seasoning of the Mortgage Loans
(expressed as the weighted average number of months from the
month of Origination to the Cut-Off Date) was approximately
____ years.
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<PAGE>
Types of Mortgaged Properties
-----------------------------
Number of Aggregate Percentage of
Types of Mortgage Scheduled Initial Pool
Mortgaged Properties (1) Loans Principal Balance Balance
- ------------------------ ----- ----------------- -------
[Office $ %
Industrial
Multifamily
Retail
Hotel
Mobile Home Park
Parking Garage]
Total $ %
- --------------------------
(1) Property type classification is determined on the basis of
the predominant use (i.e., percentage use even if such use
is less than 50% based upon the rentable square footage) of
the Mortgaged Property, except for the industrial property
type classification. A Mortgaged Property is classified as
an industrial property if it is configured for at least
some percentage of industrial use, even if the property's
predominant use is for office purposes. "R&D", "flex",
warehouse, manufacturing, truck terminals and other similar
utilizations are included within the industrial
classification.
The table below provides information regarding occupancy
rates for the different types of Mortgaged Properties securing
the Mortgage Loans. The occupancy rate, with respect to any
Mortgaged Property as of a specified date, is a percentage based
upon the aggregate rentable square feet subject to leases as of
such date divided by the total number of rentable square feet
within the Mortgaged Property. This information is based upon
information provided by Borrowers, including tenant rent rolls,
summary occupancy data, or both. For approximately ____% of the
Mortgage Loans by Initial Pool Balance, the information included
in the table reflects occupancy rates reported as of various
dates in 19__ or 19__. For approximately ____% of the Mortgage
Loans by Initial Pool Balance, the date for the determination of
the occupancy rate was not available, was calculated as of a date
prior to 19__ or was not applicable since the Mortgaged Property
was owner-occupied. The dates as of which Borrowers provided
occupancy information and the methodologies they used to
calculate this information are not consistent among Mortgaged
Properties. For certain Mortgaged Properties, occupancy rates
include tenants that do not occupy their leased space but
continue to pay rent as required under their leases. For certain
Mortgaged Properties, the Originator has supplemented the
information provided by Borrowers with information contained in
its files, and with information provided by other persons
familiar with the Mortgaged Properties. Notwithstanding the
Originator's efforts to supplement occupancy rate information in
certain cases, the Originator has not made any general attempt to
verify the accuracy of the information provided by Borrowers or
other persons or to reflect changes in occupancy rates that may
have occurred subsequent to the calculation date of the occupancy
rate as provided by the Borrowers. As a consequence, the
occupancy rates provided in the table below may not represent
current occupancy rates, nor can there be any assurance that the
information provided is accurate or complete. The occupancy rates
set forth in the table are not comparable to the occupancy data
used in calculating debt service coverage ratios since the
occupancy rates in the table are based on the most current
information available to the Originator, as opposed to the 19__
and 19__ occupancy information primarily used in the debt service
coverage ratio calculations.
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<PAGE>
Occupancy Rates
---------------
Weighted Average
Types of Mortgaged Properties Occupancy Rates
- ----------------------------- ---------------
[Office .....................................
Industrial ..................................
Multifamily .................................
Retail ......................................
Hotel .......................................
Mobile Home Park ............................
Parking Garages .............................]
Geographic Distribution of Mortgaged Properties
-----------------------------------------------
Percentage
Number of Aggregate Scheduled of Initial
Location Mortgage Loans Principal Balance Pool Balance
- -------- -------------- ----------------- ------------
[List relevant states] .. $ %
Total ........... $ 100.0%
Prepayment Provisions
Approximately ____% of the Mortgage Loans by Initial Pool
Balance may be voluntarily prepaid in full and, in certain cases,
in part at any time [upon payment of a Prepayment Premium]
[describe calculation of Prepayment Premium].
The condemnation (or taking in lieu of condemnation) of a
Mortgaged Property, casualty loss on a Mortgaged Property or
acceleration of the payments due under a Mortgage Loan by reason
of default also may result in a principal prepayment at any time
with or without payment of a Prepayment Premium. The Mortgage
Loans generally provide for the payment of a Prepayment Premium
in connection with acceleration of a loan due to default, but not
in connection with prepayments due to condemnation or casualty
loss. In certain jurisdictions, the enforceability of a
prohibition on the prepayment of a loan and the enforceability of
provisions in mortgage loans providing for the payment of
prepayment premiums has been questioned. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS -- Enforceability of Certain
Provisions -- Prepayment Provisions" in the Prospectus.
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<PAGE>
[Types of Prepayment Provisions
-------------------------------
Percentage
Number of Aggregate Scheduled of Initial
Prepayment Provisions Mortgage Loans Principal Balance Pool Balance
- --------------------- -------------- ----------------- ------------
$ %
Total $ 100.0%]
Insurance
Each Mortgage Loan requires the Borrower to maintain
insurance of the types and in the amounts required in the
Mortgage Loan documents, which may include fire, public
liability, property damage and rent loss insurance.
For most of the Mortgage Loans, the Borrower is required as
a minimum to maintain insurance providing (i) comprehensive
general liability with a broad form coverage endorsement in a
combined single limit of at least $_________, (ii) protection
against fire, "extended coverage" and other "all risks" perils
for the full replacement value of the Mortgaged Property and
(iii) rent loss insurance in an amount not less than a sum equal
to twelve months' rental income from all leases related to the
Mortgaged Property. Certain risks, including; but not limited to,
damages resulting from war, revolution, governmental actions,
floods and other water-related causes, earth movement, nuclear
reactions, rot, vermin, domestic animals, theft and vandalism
typically will not be covered by insurance policies on the
Mortgaged Properties.
With respect to most of the Mortgage Loans, insurance
proceeds payable on account of any casualty are assigned to the
holder of the Mortgage Loan. Subject to the following sentence,
at the discretion of such holder the insurance proceeds may be
applied against the Mortgage Loan or to the restoration of the
Mortgaged Property destroyed by the casualty or to both. The
holder of the Mortgage Loan may be required to disburse the
insurance proceeds to the Borrower for the restoration of the
Mortgaged Property if certain conditions are satisfied, including
the absence of any event of default under the Mortgage Loan, the
approval of the restoration by the holder of the Mortgage Loan
and the sufficiency of the insurance proceeds to restore the
Mortgaged Property to the satisfaction of the holder of the
Mortgage Loan.
THE ORIGINATOR
[Add general description of the Originator and the underwriting
standard or standards applicable to the Mortgage Loans and
information regarding the Originator's commercial and multifamily
loan portfolio.]
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Agreement.
See "THE AGREEMENT" herein for additional information regarding
the terms of the Agreement. Reference also is made to the
accompanying Prospectus for important additional information
regarding the terms and conditions of the Pooling and Servicing
Agreement dated as of ________ [1], 19__ (the "Agreement"), among
the Seller, the Trustee, the Master Servicer and the Special
Servicer, and of the Certificates. The following summaries do not
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<PAGE>
purport to be complete descriptions of all provisions of the
Agreement. When particular provisions or terms used in the
Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference. A complete
copy of the Agreement is available upon request by any potential
investor.
The Class ___, Class ___ [and Class PO] Certificates will
be issued in registered form in minimum denominations of
$________ initial Certificate Principal Amount and integral
multiples of $________ in excess thereof[; and the Class IO
Certificates will be issued in registered form in minimum
denominations of $________ initial Notional Amount and in
integral multiples of $________ in excess thereof]. However, one
Certificate of each Class may be issued in definitive form in an
amount representing the remainder of such Class.
Distributions of interest and in reduction of Certificate
Principal Amount to Holders of each Class of Certificates will be
made monthly, to the extent of such Class's entitlement thereto
as described herein under "-- Distributions," on the [15th] day
of each month or, if such day is not a Business Day, on the
succeeding Business Day (each, a "Distribution Date"), commencing
on ________ __, 19__.
A "Business Day" is a day other than Saturday, Sunday or a
day on which banks in the City of New York, the State of ________
or the location of the Trustee's corporate trust office are
authorized or obligated by law or executive order to be closed
(or in the case of any Distribution Date, the City of New York
only).
Distributions
General. As more fully described below, distributions in
respect of principal and interest on the Certificates on any
Distribution Date will be made from, and to the extent of, the
Available Distribution Amount for such Distribution Date (which
generally consists of payments on the Mortgage Loans, net of (i)
certain expenses and other items permitted to be deducted
therefrom and (ii) any Amounts Held for Future Distribution),
plus the proceeds of any P&I Advances and Late Remittance
Advances made by the Master Servicer in respect of such
Distribution Date to cover scheduled Monthly Payments due (or
deemed due) that are delinquent or that have not been remitted on
a timely basis to the Master Servicer. The Available Distribution
Amount for each Distribution Date will be allocated among the
different Classes of Certificates as described below under "--
Allocation Among Classes". Such distributions will be made on
each Distribution Date in accordance with the Agreement to each
record owner of a Certificate (a "Certificateholder" or "Holder")
on the related Record Date. For each Distribution Date, the
"Record Date" for each Class of Certificates is the close of
business on the last day of the calendar month preceding the
month in which such Distribution Date occurs.
For each Distribution Date, the related "Due Period" is the
period commencing on (and including) the [second] day of the
month preceding the month in which such Distribution Date occurs
and ending on (and including) the [first] day of the month in
which such Distribution Date occurs. In the case of the first
Distribution Date, the Due Period will be ____________ [2], 19__
through __________ [1], 19__. For each Distribution Date, the
determination date (the "Determination Date") is the [fifth] day
(or if such date is not a Business Day, the preceding Business
Day) of the month in which the related Distribution Date occurs.
The first Determination Date will be _________ [5], 19__. For
each Distribution Date other than the first Distribution Date,
the "Prepayment Period" is the period from (and including) the
day immediately following the second preceding Determination Date
to (and including) the Determination Date in the month in which
such Distribution Date occurs. In the case of the first
Distribution Date, the Prepayment Period will be _________ __,
19__ through _______________ __, 19__. As to each Mortgage Loan
for any Distribution Date, the due date (the "Due Date") is the
day during the related Due Period on which a Monthly Payment is
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<PAGE>
due (without giving effect to any grace period). As of the
Cut-Off Date, all of the Mortgage Loans have Due Dates of the
[first] of the month. Although the stated maturity dates (which
are the dates on which Balloon Payments are due with respect to
Mortgage Loans other than Fully Amortizing Loans) of most of the
Mortgage Loans coincide with their Due Dates, a smaller number of
Mortgage Loans have stated maturity dates that do not fall on the
respective Due Dates for such Mortgage Loans. With respect to any
Mortgage Loan and any Due Period, the "Monthly Payment" is the
scheduled monthly payment of principal and interest, excluding
any Balloon Payment, on such Mortgage Loan which is payable by a
Borrower during such Due Period under the related Note or, in the
case of an REO Mortgage Loan, which otherwise would have been
payable under the Note relating to such REO Mortgage Loan,
determined in accordance with the Agreement.
As referred to herein, the "Scheduled Principal Balance" of
a Mortgage Loan with respect to any Determination Date is equal
to the principal balance of such Mortgage Loan as of the Cut-Off
Date (i) reduced by (a) any Principal Prepayments and any Balloon
Payments received on or prior to such Determination Date, (b) any
payment in respect of principal, if any, due on or before such
Determination Date (other than a Balloon Payment, but including
the principal portion of any Assumed Scheduled Payment, if
applicable, in respect of the related Mortgage Loan),
irrespective of any delinquency in payment by the Borrower (but
after giving effect to any previous modification in the payment
terms of such Mortgage Loan) and (c) any adjustment resulting
from a modification reducing the principal amount due on such
Mortgage Loan [and (ii) increased by the amount of Mortgage Loan
Negative Amortization, if any, added to the principal balance of
such Mortgage Loan on or before such Determination Date.
"Mortgage Loan Negative Amortization" for any Mortgage Loan as of
any Due Date is equal to the excess, if any, of (a) one month's
interest accrued on the Scheduled Principal Balance thereof at
the related Mortgage Interest Rate over (b) the Monthly Payment
or, if applicable, Assumed Scheduled Payment due on such Due
Date.]
The Scheduled Principal Balance of a Mortgage Loan that is
delinquent as to its Balloon Payment and that has not yet been
the subject of a modification as a consequence thereof will be
calculated with reference to the Assumed Scheduled Payments in
respect of such Mortgage Loan. As referred to herein, "Assumed
Scheduled Payment" means, with respect to any Mortgage Loan
that is delinquent in respect of its Balloon Payment (including
any REO Mortgage Loan for which the related Note provided for a
Balloon Payment) and that has not been the subject of a
modification as a result of such delinquency, an amount deemed to
be due for such Mortgage Loan with respect to each Due Period
ending on or after the Due Date for the Balloon Payment. The
Assumed Scheduled Payment for any Mortgage Loan will be equal to
the Monthly Payment that otherwise would have been due on such
Mortgage Loan during such Due Period had such Balloon Payment not
become due, but instead had been restructured to provide for
amortization of its Scheduled Principal Balance immediately prior
to the Due Date for such Balloon Payment (prior to taking into
account any payment due on such Due Date) on a monthly level
payment basis beginning on the Due Date for such Balloon Payment
and ending on the earlier of the last day of the original
amortization period for such Mortgage Loan and the date two years
prior to the Final Scheduled Distribution Date.
The Scheduled Principal Balance of any Mortgage Loan as to
which title to the related Mortgaged Property has been acquired
by the Special Servicer on behalf of the Trust Fund through
foreclosure, deed in lieu of foreclosure or otherwise (such
Mortgage Loan, an "REO Mortgage Loan" and such Mortgaged
Property, an "REO Property"), will be determined in the manner
described in the second preceding paragraph as if the related
Note had remained outstanding. Net proceeds received in respect
of any such REO Property in excess of the sum of (i) the
scheduled Monthly Payments or Assumed Scheduled Payments that are
assumed to remain in effect and (ii) unreimbursed Advances in
respect of the related REO Mortgage Loan will be treated as
prepayments of the Scheduled Principal Balance of such REO
Mortgage Loan. After the Special Servicer has made a Final
Recovery Determination with respect to any Specially Serviced
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<PAGE>
Mortgage Loan, the Scheduled Principal Balance of such Specially
Serviced Mortgage Loan will be deemed to be zero. A "Final
Recovery Determination" is a determination, made by the Special
Servicer with respect to any such Mortgage Loan, that the Trust
Fund has received the full amount of all Insurance Proceeds,
Liquidation Proceeds and other payments (including proceeds of
the final sale of any Defaulted Mortgage Loan or REO Property)
which the Special Servicer in its reasonable judgment expects to
be finally recoverable, without regard to any obligation of the
Master Servicer to make Advances.
In the event that a Mortgage Loan is prepaid in full, the
principal portion of any Monthly Payment received during the
Prepayment Period in which such prepayment is received but after
the Due Period which ended during such Prepayment Period shall be
treated as part of such principal prepayment.
Available Distribution Amount. On each Distribution Date,
distributions in respect of interest and/or principal (in the
amounts determined as described herein) will be made to the
Holders of the Certificates in an aggregate amount equal to, and
to the extent of, the Available Distribution Amount for such
Distribution Date, in the order of priority to each Class
described below. The "Available Distribution Amount" for any
Distribution Date will equal the sum of (i) the Available Funds
for such Distribution Date, plus (ii) all amounts remitted by the
Special Servicer on or before the [third] Business Day preceding
the Distribution Date (the "Special Servicer Remittance Date") in
respect of REO Mortgage Loans for such Distribution Date, plus
(iii) the proceeds of all P&I Advances and Late Remittance
Advances made by the Master Servicer on the [second] Business Day
preceding the Distribution Date (the "Master Servicer Advance
Date") in respect of such Distribution Date to cover shortfalls
in Monthly Payments due (or Assumed Scheduled Payments deemed
due) on any Mortgage Loan in respect of such Distribution Date as
a result of the failure of the Borrower to make such payments on
a timely basis, or the failure by the Special Servicer or a
subservicer to remit such payments to the Master Servicer on a
timely basis. See "SERVICING OF THE MORTGAGE LOANS -- Advances".
For any Distribution Date, the amount of "Available Funds"
will be equal to (a) the amount on deposit in the Lower-Tier
Collection Account (see " -- Collection and Distribution
Accounts") as of the close of business on the related
Determination Date, less (b) to the extent included in the amount
so on deposit, the sum of any Amounts Held for Future
Distribution, any interest or investment income earned on funds
held in the Lower-Tier Collection Account and all other amounts
either not required to be deposited by the Master Servicer in the
Lower-Tier Collection Account or permitted to be withdrawn
therefrom by the Master Servicer in accordance with the
Agreement. Amounts on deposit in the Lower-Tier Collection
Account as of any Determination Date will generally consist of
(x) payments on account of interest and principal (including
Balloon Payments, Principal Prepayments [and Prepayment
Premiums]) on the Mortgage Loans (other than REO Mortgage Loans)
as well as in respect of Insurance Proceeds and Liquidation
Proceeds on such Mortgage Loans received by, or remitted by the
Special Servicer or a subservicer to, the Master Servicer during
the Prepayment Period ending on such Determination Date [and (y)
interest or other investment income earned thereon and not
withdrawn by the Master Servicer].
In addition, under the Agreement, with respect to each REO
Mortgage Loan, the Special Servicer is required to remit to the
Master Servicer on the Special Servicer Remittance Date all
amounts on deposit in the REO Account maintained with respect to
such REO Mortgage Loan (representing the revenues from the
related REO Property net of expenses) not necessary to be
reserved for future expenses of operating and maintaining the
related REO Property.
With respect to any Distribution Date, "Amounts Held for
Future Distribution" will be equal to all Monthly Payments
deposited in the Lower-Tier Collection Account on or prior to the
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<PAGE>
related Determination Date, but which are due during the Due
Period relating to a subsequent Distribution Date (but excluding
any Monthly Payment if the principal component thereof is
distributable on such Distribution Date in connection with
payment of a Balloon Payment or a Principal Prepayment in full).
The Master Servicer will retain such Amounts Held for Future
Distribution in the Lower-Tier Collection Account pending
distribution on the appropriate subsequent Distribution Date.
The Master Servicer is permitted to make withdrawals from
amounts on deposit in the Lower-Tier Collection Account, among
other things, to pay to the Master Servicer all income and
investment income earned on funds held in the Lower-Tier
Collection Account, to pay any applicable servicing fees and to
reimburse the Master Servicer for P&I Advances and Property
Protection Advances, in each case together with all accrued and
unpaid interest on such Advances made with respect to any
Mortgage Loan or the related Mortgaged Property [from, and to the
extent of, collections on account of such Mortgage Loan or
Mortgaged Property].
Distributions of Interest. Each Class of Certificates
[(other than the Class PO Certificates)] will be entitled on each
Distribution Date, to the extent the Available Distribution
Amount on such Distribution Date distributed in accordance with
the priorities described below is sufficient therefor, to receive
distributions in respect of interest equal to the Class Interest
Distribution Amount for such Class on such Distribution Date. The
Class Interest Distribution Amount for any Class on any
Distribution Date represents the amount payable in respect of
interest on such date to such Class. As more fully described
below, such amount may be less than one month's accrued interest
in respect of such Class. In general, the Class Interest
Distribution Amount payable to the Holders of any Class of
Certificates [(other than the Class PO Certificates)] on any
Distribution Date will be equal to the Accrued Certificate
Interest for such Class for such Distribution Date, less the sum
of
[(i) in the case of the Class ___, Class ___ and Class ___
Certificates, the amount, if any, of Certificate
Negative Amortization allocable to such Class; and
(ii)] to the extent any Excess Prepayment Interest
Shortfall is not fully offset by Prepayment Premiums,
the amount, if any, of such Excess Prepayment Interest
Shortfall allocable to such Class.
See ["-- Allocation of Certificate Negative Amortization," and]
"-- Allocation of Excess Prepayment Interest Shortfall".
In determining Accrued Certificate Interest with respect to
any Distribution Date, the applicable "Interest Accrual Period"
is the calendar month immediately preceding the calendar month in
which such Distribution Date occurs. The "Certificate Principal
Amount" of any Class of Certificates [(other than the Class IO
Certificates)] with respect to any Distribution Date is the
Certificate Principal Amount of such Class as of the Cut-Off
Date, less all amounts previously distributed to such Class in
reduction of Certificate Principal Amount and any Certificate
Writeoffs allocated to such Class, in each case as described
below[, plus any Certificate Negative Amortization added to the
Certificate Principal Amount of such Class in accordance with the
Agreement]. The Certificate Principal Amounts of the Certificates
and any outstanding Class Unpaid Interest Shortfalls will be
subject to writeoff without distribution (a "Certificate
Writeoff") on any Distribution Date in the amount by which (i)
the sum of (a) the aggregate outstanding Certificate Principal
Amount of the Certificates on such Distribution Date (without
regard to any writeoff on such Distribution Date, but after
giving effect to any distributions in reduction of Certificate
Principal Amount on such Distribution Date [and any additions to
Certificate Principal Amount on account of any Certificate
Negative Amortization on such Distribution Date]) plus (b) the
aggregate amount of outstanding P&I Advances and Property
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<PAGE>
Protection Advances (together with accrued interest thereon) as
of such Distribution Date (after giving effect to any Advances
repaid on such Distribution Date and any new Advances made with
respect to such Distribution Date) plus (c) the aggregate
outstanding Class Unpaid Interest Shortfall for all Classes of
Certificates for such Distribution Date exceeds (ii) ___% of the
aggregate outstanding unpaid principal balance of all of the
Mortgage Loans, including any REO Mortgage Loans, plus the
aggregate accrued unpaid interest due on such Mortgage Loans, as
of the preceding Determination Date. [Description of allocation
of Certificate Writeoffs.] Any Certificate Principal Amount or
Class Unpaid Interest Shortfall so written off will no longer
accrue interest and will not thereafter be payable even in the
event there should be amounts available therefor from payments or
other receipts on or in respect of the Mortgage Loans or
otherwise.
[The Class IO Certificates are not denominated in
Certificate Principal Amounts, but rather are denominated based
on the Notional Amount thereof.] [Description of Notional Amount
of Class IO Certificates.]
Interest to be distributed on each Class of Certificates on
any Distribution Date will be calculated based on the assumption
that distributions on the Distribution Date immediately preceding
such Distribution Date in reduction of Certificate Principal
Amount and any write-off of Certificate Principal Amounts on a
Distribution Date were made[, and any additions to Certificate
Principal Amount in respect of Certificate Negative Amortization
were made,] at the beginning of the related Interest Accrual
Period rather than on the Distribution Date when actually made or
added. Interest on each Class of Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day
months. [All] of the Mortgage Loans bear interest on the basis of
a 360-day year consisting of twelve 30-day months.
The Accrued Certificate Interest on any Distribution Date
for each of the Class ___, Class ___, Class LR and Class R
Certificates will be equal to the amount of interest that
accrues, for the related Interest Accrual Period, on the
aggregate Certificate Principal Amount of such Class as of the
beginning of such Interest Accrual Period, at the applicable
Pass-Through Rate for such Class.
The applicable Pass-Through Rates for each Class of
Certificates will be a per annum rate equal to (i) ___% (the
"Class ___ Pass-Through Rate"), in the case of the Class ___
Certificates, (ii) ___% (the "Class ___ Pass-Through Rate"), in
the case of the Class ___ Certificates, (iii) [___% (the "Class
IO Pass-Through Rate"), in the case of the Class IO Certificates,
(iv)] ___% (the "Class LR Pass-Through Rate"), in the case of the
Class LR Certificates, (v)] ___% (the "Class R Pass-Through
Rate"), in the case of the Class R Certificates [and [(vi)] in
the case of the Class ___ Certificates, the variable rate
determined as described below.] [The Class PO Certificates will
not accrue interest and will not have a Pass-Through Rate.]
[Description of Pass-Through Rate on floating rate Certificates,
if applicable.]
[As used herein, the term "Prepayment Premium" means any
premium paid or payable by the related Borrower in connection
with any Principal Prepayment on any Mortgage Loan pursuant to
any provision under the related Mortgage or Note which provides
for the payment of any such premium or in connection with any
provision in any related Note or Mortgage for any Mortgage Loan
which provides for the payment of such premium in the event of
acceleration of the principal balance of such Mortgage Loan upon
a default, and the term "Prepayment Premium Amount" for any
Distribution Date will be equal to the excess, if any, of the
aggregate amount of all Prepayment Premiums received during the
Prepayment Period related to such Distribution Date over any
Excess Prepayment Interest Shortfall for such Distribution Date.]
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<PAGE>
[Allocation of Certificate Negative Amortization. At the
Cut-Off Date, approximately ____% of the Mortgage Loans by
Initial Pool Balance are Negatively Amortizing Loans. Mortgage
Loan Negative Amortization on such Mortgage Loans on any
Distribution Date will be allocated pro rata among the Class ___
and Class ___ Certificates based on the respective Class Interest
Distribution Amounts thereof that would otherwise be payable for
such Distribution Date (prior to giving effect to any reduction
therein attributable to Certificate Negative Amortization or
Excess Prepayment Interest Shortfall). The aggregate amount of
interest required to be paid to the holders of the Class ___ and
Class ___ Certificates will be decreased (but not below zero) by
the aggregate amount of Mortgage Loan Negative Amortization
allocated to such Certificates, and the amount of such Mortgage
Loan Negative Amortization allocated to the Class ___ and Class
___ Certificates will be added to the Certificate Principal
Amount of such Certificates. It is also possible that by reason
of a modification, waiver or amendment after the Cut-Off Date,
additional Mortgage Loans may become subject to Mortgage Loan
Negative Amortization. In the case of such Mortgage Loans, the
aggregate amount of interest required to be paid to the most
junior Class of Certificates outstanding on any Distribution Date
will be decreased by the aggregate amount of Mortgage Loan
Negative Amortization added to such Mortgage Loans in the related
Due Period and the amount thereof will be added to the
Certificate Principal Amount of such Class of Certificates. The
amount of Mortgage Loan Negative Amortization that is allocated
to any Class of Certificates is referred to as the "Certificate
Negative Amortization" for such Class.]
Allocation of Excess Prepayment Interest Shortfall. For any
Distribution Date, a "Prepayment Interest Shortfall" will arise
with respect to any Mortgage Loan if a Borrower makes a full or
partial Principal Prepayment or a Balloon Payment during the
related Prepayment Period, but the date such payment was made
occurred prior to (i) in the case of a Principal Prepayment, the
Due Date for such Mortgage Loan occurring in the related Due
Period for such Distribution Date and (ii) in the case of a
Balloon Payment, the date (the "Assumed Due Date") 30 days after
the Due Date for such Mortgage Loan occurring in the second Due
Period preceding such Distribution Date. Such a shortfall arises
because the amount of interest (net of servicing fees) which accrues
on the amount of such Principal Prepayment or Balloon Payment
will be less than the corresponding amount of interest accruing
on the Certificates [(other than the Class PO Certificates)]. The
Prepayment Interest Shortfall for any such Mortgage Loan is an
amount equal to for any Distribution Date, the aggregate amount
of interest which would have accrued (at the Net Mortgage
Interest Rate for such Mortgage Loan) on the amount of such
Principal Prepayment or Balloon Payment from the date such
Principal Prepayment or Balloon Payment was made (and including
such date, unless the related Borrower paid interest through such
date on the amount of such Principal Prepayment or Balloon
Payment) to the date 30 days after the Due Date for such Mortgage
Loan occurring in the second Due Period preceding such
Distribution Date. If a full or partial Principal Prepayment or a
Balloon Payment with respect to any Mortgage Loan is made on any
day in the Due Period occurring after the Due Date for such
Mortgage Loan, "Excess Prepayment Interest" will arise with
respect to such Mortgage Loan, because the amount of interest
(net of servicing fees) which accrues on the amount of such
Principal Prepayment or Balloon Payment will exceed the
corresponding amount of interest accruing on the Certificates
[(other than the Class PO Certificates)]. The amount of Excess
Prepayment Interest for any such Mortgage Loan is an amount equal
to the interest that accrues on the Mortgage Loan at the Net
Mortgage Interest Rate from the Due Date to the date such payment
was actually made. To the extent that any Excess Prepayment
Interest for all Mortgage Loans exceeds any Prepayment Interest
Shortfalls for all Mortgage Loans as of a Distribution Date, the
excess amount will be included in the Available Distribution
Amount available for distribution to Certificateholders and will
be applied as described below under "-- Allocation Among
Classes". To the extent that any Prepayment Interest Shortfalls
for all Mortgage Loans exceed any Excess Prepayment Interest for
all Mortgage Loans as of A Distribution Date (such amount, the
"Excess Prepayment Interest Shortfall"), such amount [will first
be applied to reduce the Prepayment Premium Amount, if any, for
such Distribution Date, and any remaining Excess Prepayment
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Interest Shortfall] will be allocated to reduce the amount of
interest distributable in respect of each Class of Certificates
[(other than the Class PO Certificates)]. Such allocation will be
made on such Distribution Date pro rata to each such Class based
on the respective Class Interest Distribution Amount thereof that
otherwise would be payable (prior to giving effect to any
reduction therein attributable to Certificate Negative
Amortization or Excess Prepayment Interest Shortfall) for such
Distribution Date [and without giving any effect to the
Prepayment Premium Amount included in the Class Interest
Distribution Amount for the Class IO Certificates]. [Under the
Agreement, neither the Master Servicer nor the Special Servicer
has any obligation to cover the amount of any Excess Prepayment
Interest Shortfall by reducing the servicing compensation payable
to it or otherwise to provide for reimbursement to the Trust Fund
therefor.] Any Excess Prepayment Interest Shortfall is not
included in any Class Unpaid Interest Shortfall.
Distributions In Respect of Certificate Principal Amount.
On each Distribution Date, to the extent the Available
Distribution Amount is sufficient therefor, distributions in
respect of principal will be made in an aggregate amount equal to
the Optimal Mortgage Loan Principal for such Distribution Date.
Such distributions in respect of principal will be made on each
Distribution Date in the order of priority described below under
"-- Allocation Among Classes", and any such distributions made in
respect of principal of any Class will reduce the aggregate
Certificate Principal Amount of such Class.
As referred to herein, the "Optimal Mortgage Loan
Principal" on any Distribution Date equals (i) the Optimal
Mortgage Loan Principal Shortfall for such Distribution Date,
plus (ii) the sum, for all Mortgage Loans, of:
(a) the principal component of all scheduled Monthly
Payments (other than Balloon Payments) which become due
(regardless of whether received but after giving effect to
any previous modification in the payment terms of such
Mortgage Loans) during the related Due Period on the
Mortgage Loans,
(b) the principal component of all Assumed Scheduled
Payments deemed to become due (regardless of whether
received) during the related Due Period with respect to the
Mortgage Loans,
(c) to the extent not included in the preceding
clauses, the principal component of the purchase price of
each Mortgage Loan which either was purchased or
repurchased from the Trust Fund during the related
Prepayment Period,
(d) to the extent not included in the preceding
clauses, the principal component of all Balloon Payments
received during the related Prepayment Period on any
Mortgage Loans, in each case up to the respective Scheduled
Principal Balances of the related Mortgage Loans as of the
Determination Date in the month preceding the month in
which such Distribution Date occurs, and
(e) to the extent not included in the preceding
clauses, any other full or partial Principal Prepayments
received during the related Prepayment Period (including
all recoveries and Insurance Proceeds from any REO Mortgage
Loans and related REO Properties and the proceeds from the
sale of any Defaulted Mortgage Loans) up to the respective
Scheduled Principal Balances of the related Mortgage Loans as
of the Determination Date in the month preceding the month in
which such Distribution Date occurs.
For purposes of the foregoing definition, the term "Optimal
Mortgage Loan Principal Shortfall" for any Distribution Date
after the initial Distribution Date means the amount, if any, by
which (i) the Optimal Mortgage Loan Principal for the preceding
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Distribution Date exceeded (ii) the aggregate amount distributed
in respect of principal on the Certificates on such preceding
Distribution Date.
Allocation Among Classes. On each Distribution Date, the
Trustee will determine the Available Distribution Amount.
[Description of allocation of principal among Classes.]
As referred to herein, the "Class Unpaid Interest
Shortfall" for any Distribution Date after the initial
Distribution Date with respect to any Class of Certificates is
the excess, if any, of (i) the sum of the Class Interest
Distribution Amount and any outstanding Class Unpaid Interest
Shortfall payable to such Class on the preceding Distribution
Date over (ii) the aggregate amount of interest actually
distributed to such Class on such preceding Distribution Date,
plus interest accrued on such excess at the applicable
Pass-Through Rate. There will be no Class Unpaid Interest
Shortfall for any Class of Certificates on the first Distribution
Date.
[Notwithstanding the priorities set forth above,
distributions of the Available Distribution Amount will be made
on each Distribution Date to the Master Servicer prior to any
distribution of principal and interest to any Class of
Certificates, (A) to the extent necessary to reimburse the Master
Servicer for each P&I Advance, Property Protection Advance and
Reimbursable Late Remittance Advance with respect to a Mortgage
Loan (together will all accrued and unpaid interest thereon) that
remains outstanding (i) after the earlier of the date a Final
Recovery Determination is made with respect to such Mortgage Loan
and the third anniversary of the making of the first P&I Advance,
Property Protection Advance or Reimbursable Late Remittance
Advance remaining unreimbursed with respect to such Mortgage
Loan, prior to any distribution in respect of principal and
interest to the Class ___ Certificates and (ii) after the fifth
anniversary of the making of such first advance remaining
unreimbursed with respect to such Mortgage Loan, and (B) after
the aggregate Certificate Principal Amount of the Certificates is
less than __% of their initial aggregate Certificate Principal
Amount, to the extent the Master Servicer determines such amounts
will not be ultimately recoverable from the Trust Fund.]
Class R Certificates. The Class R Certificates represent
beneficial ownership of the residual interest in the Upper-Tier
REMIC. On each Distribution Date, the Class R Certificates will
be entitled to distributions of interest and principal in
accordance with the priorities described above to the extent the
Available Distribution Amount for such Distribution Date is
sufficient therefor. The Class R Certificates also will be
entitled to receive distributions on any Distribution Date after
the Certificate Principal Amounts [and Notional Amounts] of all of
the Certificates have been reduced to zero, but then only to the
extent of any funds remaining in the Upper-Tier REMIC (other than
investment income earned thereon), if any. It is not anticipated,
however, that any such additional distributions will be made on
the Class R Certificates.
Class LR Certificates. The Class LR Certificates represent
beneficial ownership of the residual interest in the Lower-Tier
REMIC. On each Distribution Date, the Class LR Certificates will
be entitled to distributions of interest and principal in
accordance with the priorities described above to the extent the
Available Distribution Amount for such Distribution Date is
sufficient therefor. In addition, the Class LR Certificates will
be entitled to receive distributions on any Distribution Date
after the Certificate Principal Amounts [and Notional Amounts] of
all of the Certificates have been reduced to zero, but then only
to the extent of the remaining assets of the Lower-Tier REMIC, if
any. It is not anticipated, however, that any such additional
distributions will be made on the Class LR Certificates.
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Final Scheduled Distribution Date
The Final Scheduled Distribution Date for each Class of
Offered Certificates is _______, 20__ (which is the date ___
months after the maturity date of the Mortgage Loan in the
Mortgage Pool as of the Cut-Off Date that is the latest to mature
of all the Mortgage Loans) and is the Distribution Date on which
the aggregate Certificate Principal Amount of such Class is
scheduled to be distributed in full, assuming that [(i) there are
no prepayments on the Mortgage Loans, (ii) payments in respect of
delinquent or defaulted Mortgage Loans are received no later than
the last day of the related Due Period or Prepayment Period, as
applicable, and (iii) no person exercises its right to effect an
early termination of the Trust Fund. See "THE AGREEMENT --
Optional Termination" herein.] The actual final Distribution Date
of a Class of Offered Certificates may occur significantly
earlier or significantly later (due to prepayments on the
Mortgage Loans or to delinquencies or defaults on the Mortgage
Loans) than its Final Scheduled Distribution Date. See "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS" herein and "YIELD
CONSIDERATIONS" in the Prospectus.
Example Of Distributions
The following chart sets forth an example of distributions
on the Certificates for the Distribution Date occurring in April
19__:
March [2] - April [1] ....(A) The Due Period with respect to
the April [15] Distribution Date.
Monthly Payments due during the
Due Period and any Assumed
Scheduled Payments deemed to be
due during the Due Period will be
distributed to Certificateholders
on the April [15] Distribution Date to
the extent the Available Distribution
Amount is sufficient therefor.
March [6] - April [5] ....(B) The Prepayment Period with respect
to the April [15] Distribution
Date. Balloon Payments and Principal
Prepayments (together with
interest thereon at least to the date
of such prepayment) made during
the Prepayment Period will be distri-
buted to Certificateholders on the
April [15] Distribution Date.
March [31] ...............(C) Record Date for the Certificates.
April [5] ................(D) Determination Date.
April [15] ...............(E) Distribution Date.
- -------------------------
(A) Monthly Payments due during the Due Period will be
deposited in the Lower-Tier Collection Account following
receipt by the Master Servicer for distribution to
Certificateholders on April [15], 19__.
(B) Balloon Payments and Principal Prepayments made during the
Prepayment Period will be deposited in the Lower-Tier
Collection Account following receipt by the Master Servicer
for distribution to Certificateholders on April [15], 19__.
(C) Distributions on the Certificates will be made to
Certificateholders of record at the close of business on
the last day of the month preceding the month in which the
Distribution Date occurs.
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(D) As of the close of business on April [5], the amounts of
principal and interest to be passed through to Certificateholders
will be determined and not later than the third Business Day
prior to the April [15] Distribution Date, the amount of any P&I
Advances and Late Remittance Advances will be determined. On or
before the [second] Business Day preceding the Distribution Date
(the "Master Servicer Remittance Date"), the Master Servicer will
deliver to the Trustee for deposit in the Upper-Tier Collection
Account an amount of funds equal to the Available Distribution
Amount (less any funds to be distributed to the Holders of the LR
Certificates), to the extent funds available for withdrawal from
the Lower-Tier Collection Account are sufficient therefor, and
immediately after the deposit of such funds in the Upper-Tier
Collection Account and prior to the close of business on the
Master Servicer Remittance Date, the Trustee will deposit in the
Distribution Account an amount of funds equal to the Upper-Tier
Available Transfer Amount, plus any funds to be distributed to
the Holders of Class LR Certificates (which, together, is equal
to the Available Distribution Amount for distribution to the
Holders of the Certificates).
(E) The Trustee or any paying agent on behalf of the Trustee
will make distributions to Certificateholders on the [15th]
day of each month or, if such day is not a Business Day, on
the next succeeding Business Day.
Collection and Distribution Accounts
All payments and collections in respect of the Mortgage
Loans will be deposited in an account (the "Lower-Tier Collection
Account") established and maintained by the Master Servicer, in
the name of the Trustee for the benefit of the
Certificateholders, with a depository institution and in a manner
acceptable to the Rating Agencies. The amounts (other than
amounts distributable with respect to the Class LR Certificates)
deposited in the Lower-Tier Collection Account will thereupon be
remitted to another account (the "Upper-Tier Collection Account"
and, together with the Lower-Tier Collection Account, the
"Collection Accounts") established and maintained by the Trustee
for the benefit of the Certificateholders, with a depository
institution and in a manner acceptable to the Rating Agencies. No
later than the business day prior to each Distribution Date, the
Master Servicer will remit to an account (the "Distribution
Account"), to be established and maintained by the Trustee, all
funds on deposit in the Collection Accounts that are required to
be distributed to the Certificateholders on such Distribution
Date. Such funds, together with the Advances, if any, required to
be deposited in the Distribution Account by the Master Servicer,
will be available to make distributions of interest on, and in
reduction of the Certificate Principal Amounts of, the
Certificates on each Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES -- Accounts" in the Prospectus.
[Subordination of the Class ___ and Class ___ Certificates]
[Description of subordination, if applicable.]
SERVICING OF THE MORTGAGE LOANS
The Master Servicer
__________________________, a ________ corporation (the
"Master Servicer"), will be the Master Servicer and in such
capacity will be responsible for servicing the Mortgage Loans,
except to the extent they become Specially Serviced Mortgage
Loans, in which event the Special Servicer will be responsible
for servicing such Mortgage Loans so long as they remain
Specially Serviced Mortgage Loans.
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<PAGE>
[Add description.]
The Master Servicer will be responsible for servicing the
Mortgage Loans pursuant to the Agreement and will oversee the
servicing of all Mortgage Loans serviced by any subservicer.
The information set forth herein concerning the Master
Servicer has been provided by the Master Servicer. Accordingly,
the Seller, the Special Servicer and the Trustee make no
representation or warranty as to the accuracy or completeness of
such information.
Specially Serviced Mortgage Loans
With respect to any Mortgage Loan (i) which has a Balloon
Payment which is past due or any other payment, including any
Monthly Payment, which is more than 60 days past due or as to
which a notice of monetary default has been issued to the related
Borrower; (ii) as to which the Master Servicer determines that a
payment default has occurred or is imminent and is not likely to
be cured by the Borrower within 60 days; (iii) as to which the
Borrower has entered into or consented to bankruptcy, appointment
of a receiver or conservator or a similar insolvency or similar
proceeding, or the Borrower has become the subject of a decree or
order for such a proceeding which shall have remained in force
undischarged or unstayed for a period of 60 days; (iv) as to
which the Borrower admits in writing its inability to pay its
debts generally as they become due, files a petition to take
advantage of any applicable insolvency or reorganization statute,
makes an assignment for the benefit of its creditors, or
voluntarily suspends payment of its obligations; (v) as to which
the Master Servicer has received notice of the foreclosure or
proposed foreclosure of any other lien on the Mortgaged Property;
(vi) as to which the Mortgaged Property has become an REO
Property; or (vii) as to which the Borrower has requested a
workout or proposed a modification or has proposed a prepayment
other than on the terms expressly contemplated by the related
Note, and prior to acceleration of any related Note or
commencement of any foreclosure or similar proceedings, the
Master Servicer will transfer servicing responsibilities with
respect to such Mortgage Loan to the Special Servicer, which will
collect and receive payments on such Mortgage Loans and make
remittances and prepare certain reports to the Trustee with
respect to such Mortgage Loans. The Mortgage Loans serviced by
the Special Servicer, including the REO Mortgage Loans, are
referred to herein as the "Specially Serviced Mortgage Loans".
The Master Servicer shall have no responsibility for the
performance by the Special Servicer of the Special Servicer's
duties under the Agreement.
To the extent any Specially Serviced Mortgage Loan, in
accordance with its original terms or as modified in accordance
with the Agreement, becomes a performing Mortgage Loan for at
least 90 days, the Special Servicer will return servicing of such
Mortgage Loan to the Master Servicer.
The Special Servicer
[Add description]
[The Special Servicer and its affiliates own and are in the
business of acquiring assets similar in type to the assets of the
Trust Fund. To the extent that assets owned, managed and/or
serviced by the Special Servicer and its affiliates are of a type
similar to the assets of the Trust Fund, such assets might,
depending upon the particular circumstances (including, for
example, the location of such assets) compete with the Mortgaged
Properties for tenants, purchasers, financing and the like.]
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The information set forth herein concerning the Special
Servicer has been provided by the Special Servicer. Accordingly,
the Seller, the Master Servicer and the Trustee make no
representation or warranty as to the accuracy or completeness of
such information.
The Special Servicer may resign at any time if it is no
longer legally permissible for it to act in such capacity, or may
be removed at any time by the Operating Advisor, provided that no
such resignation or removal will be effective until a qualified
successor Special Servicer has been appointed and has accepted
such appointment. Prior to the appointment of any successor
Special Servicer, the Trustee must have received a letter from
each of the Rating Agencies to the effect that the appointment of
such successor Special Servicer would not, in and of itself,
result in the reduction of the ratings at the time assigned to
any Class of the Certificates.
Servicing Standards
Under the Agreement, the Master Servicer is required to
service and administer the Mortgage Loans solely in the best
interests of and for the benefit of the Certificateholders (as
determined by the Master Servicer in its reasonable judgment
without taking into account any differing payment priorities
among the Classes of Certificates and any conflicts of interest
involving it, including with respect to its servicing
compensation and advancing obligations), in accordance with the
terms of the Agreement and the Mortgage Loans and to the extent
consistent with such terms, in the same manner in which, and with
the same care, skill, prudence and diligence with which, it
services and administers similar mortgage loans for other
portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial
mortgage lenders and loan servicers servicing their own loans.
Under the Agreement, unless acting at the direction of the
Operating Advisor as described below, the Special Servicer is
required to service and administer the Mortgage Loans solely in
the best interests of, and for the benefit of, the
Certificateholders (as determined by the Special Servicer in its
reasonable judgment without taking into account any differing
payment priorities among the Classes of Certificates and any
conflicts of interest involving it, including with respect to its
servicing compensation), in accordance with the terms of the
Agreement and the Mortgage Loans and, to the extent consistent
with such terms, in the same manner in which, and with the same
care, skill, prudence and diligence with which, it manages
similar assets for other portfolios, giving due consideration to
customary and usual standards of practice for prudent asset
managers. [When acting at the direction of the Operating Advisor,
the Special Servicer is required to service and administer the
Mortgage Loans as directed by the Operating Advisor, but shall in
any event, to the extent consistent with the terms of the
Agreement and the Mortgage Loans, act with the same care, skill,
prudence and diligence with which it manages similar assets for
the other portfolios, giving due consideration to customary and
usual standards of practice for prudent asset managers, and act
in a manner consistent with the customary and usual standards of
practice for prudent asset managers (but not necessarily in the
same manner as the Special Servicer would customarily act in
managing similar assets for other portfolios). The Special
Servicer will have the right to sell certain Specially Serviced
Mortgage Loans and REO Properties, subject to certain limitations
set forth in the Agreement and to the approval of the Operating
Advisor.]
[Representative of the Controlling Class
Certain actions taken by the Special Servicer must be
approved by a representative (the "Operating Advisor") of the
Holders of the Class of Certificates that is the Controlling
Class at that time. The Special Servicer will be required to
provide to the Operating Advisor for approval, among other
things, (i) any proposed modification of, or waiver with respect
to, a Specially Serviced Mortgage Loan that would result in the
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extension of the stated maturity of such loan (which extension
may be made only in the event of a Borrower default or imminent
default and may in no event extend beyond the date two years
prior to the Final Scheduled Distribution Date), a reduction in
the Mortgage Interest Rate (including a reduction in contingent
interest payable thereon), any Monthly Payment or any Prepayment
Premium of such loan or a forgiveness of interest on or principal
of such loan, (ii) any proposed foreclosure of a Specially
Serviced Mortgage Loan or any acquisition of the related
Mortgaged Property by deed in lieu of foreclosure and, in
connection therewith, a Phase I environmental assessment, (iii)
any proposed sale of a Specially Serviced Mortgage Loan or REO
Property (other than upon the termination of the Trust Fund as
described under "THE AGREEMENT -- Optional Termination" herein)
and (iv) any proposal to bring a Mortgaged Property relating to a
Specially Serviced Mortgage Loan or an REO Property into
compliance with applicable environmental laws. In no event shall
any direction of the Operating Advisor to the Special Servicer
require the Special Servicer to act other than in accordance with
the terms of the Agreement and the Mortgage Loans and, to the
extent consistent with such terms, other than with the same care,
skill, prudence and diligence with which the Special Servicer
administers similar mortgage loans for other portfolios, giving
due consideration to customary and usual standards of practice of
prudent asset managers. Any assignment of the duties of the
Special Servicer to any other entity which would result in the
release of the Special Servicer from its liabilities under the
Agreement will also be subject to approval of the Operating
Advisor.
The Controlling Class will be the Class of Certificates
having at any time of determination the largest number of Class
Votes, subject to the requirement set forth in the Agreement that
control shift to the Class of Certificates having the next
greatest number of Class Votes whenever the Class Determination
Balance of the then-Controlling Class is less than $________. For
purposes solely of determining the Controlling Class, on any date
the percentage of Class Votes allocated to any particular Class
of Certificates will be equal to the product of (i) the Class
Determination Balance of such Class as of such date and (ii) the
number of votes per $1,000,000 of Class Determination Balance for
such Class. The following number of votes per $1,000,000 of Class
Determination Balance will be allocated on the date of initial
issuance of the Certificates to each Class indicated (and such
number will not thereafter change): ____ for the Class ___
Certificates; ____ for the Class ___ Certificates; and ____ for
the Class ___ Certificates. No Class Votes will be allocated to
the Residual Certificates.
The Class Determination Balance of any Class as of any
date will equal the Certificate Principal Amount [or Notional
Amount] thereof and any applicable Class Unpaid Interest
Shortfalls, less any additional writeoff of the Certificate
Principal Amount that would have been allocated to such Class of
Certificates had the percentage used to determine the Certificate
Writeoff on all prior dates of determination been ___% instead of
___%.
The initial Operating Advisor, which may be a
Certificateholder, a corporation or some other entity chosen at
the option of the Controlling Class, will be appointed by the
Class ___ Certificateholders no later than ____ __, 19__. Upon
another Class of Certificates becoming the Controlling Class, the
Holders of a majority in aggregate Certificate Principal Amount
of such Class will immediately have the right to appoint a new
Operating Advisor pursuant to the procedures set forth in the
Agreement.]
Advances
The Master Servicer will be obligated, on the terms set
forth in the Agreement, to make cash advances ("P&I Advances")
with respect to delinquent Monthly Payments (or Assumed Scheduled
Payments deemed due) in respect of any Mortgage Loan (after
giving effect, in the case of any modified Mortgage Loan, to any
modification in the Monthly Payments thereof), to the extent such
P&I Advances (together with interest thereon at the Advance Rate
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referred to below), in the reasonable judgment of the Master
Servicer, will be ultimately recoverable from (i) future payments
and collections on such Mortgage Loan (or the related Mortgaged
Property or REO Property), (ii) Insurance Proceeds paid under
insurance policies required to be maintained with respect to such
Mortgage Loan (or the related Mortgaged Property or REO
Property), (iii) Liquidation Proceeds from such Mortgage Loan (or
the related Mortgaged Property or REO Property), less any
Liquidation Expenses in respect thereof, or (iv) net income (if
any) received with respect to such Mortgaged Property or REO
Property (any such P&I Advance which the Master Servicer is not
required to make being referred to herein as a "Nonrecoverable
P&I Advance"). Except to the extent the Master Servicer makes a
determination that a proposed P&I Advance is a Nonrecoverable P&I
Advance, the obligation of the Master Servicer to make P&I
Advances with respect to any Mortgage Loan is mandatory and
continues until the date a Final Recovery Determination is made
in respect of such Mortgage Loan.
In addition, for any Distribution Date, the Master Servicer
will be required to make a cash advance (a "Late Remittance
Advance") for any scheduled Monthly Payments that are due (or
Assumed Scheduled Payments deemed due) on any Mortgage Loans and
are actually paid on a timely basis by the related Borrower to
the Special Servicer or any subservicer, but are not remitted to
the Master Servicer prior to the Master Servicer Advance Date.
Late Remittance Advances with respect to amounts that the Special
Servicer or any subservicer for the Special Servicer failed to
remit, together with interest thereon, will be reimbursed to the
Master Servicer from the Trust Fund as described below. Such Late
Remittance Advances are referred to herein as "Reimbursable Late
Remittance Advances". Reimbursement of Late Remittance Advances
that are attributable to the failure by any subservicer of the
Master Servicer to remit collected amounts will not be an
obligation of the Trust Fund.
Not later than the [third] Business Day preceding each
Distribution Date, the Master Servicer is required to determine
whether and to what extent it is obligated to make any P&I
Advance or Late Remittance Advance and the amount thereof. All
P&I Advances and Late Remittance Advances in respect of such
Distribution Date will be made by the Master Servicer on the
Master Servicer Advance Date and will be deposited in the
Lower-Tier Collection Account. If the Master Servicer fails to
make any required P&I Advance or Late Remittance Advance by the
close of business on the Master Servicer Advance Date, the
Trustee will be obligated under the Agreement to deliver to the
Master Servicer by 3:00 p.m. on the next Business Day notice of
such failure and that continuance of such failure for a period of
one Business Day will be an Event of Default under the Agreement.
See "SERVICING OF THE MORTGAGE LOANS -- Events of Default" in the
Prospectus.
The Master Servicer also will be obligated to make a cash
advance ("Property Protection Advance", and collectively with P&I
Advances, "Advances") for taxes, insurance premiums and other
Property Protection Expenses with respect to any Mortgage Loan
(or related Mortgaged Property or REO Property) unless, (a) in
the reasonable judgment of the Master Servicer, such Property
Protection Advance (together with interest thereon at the Advance
Rate) will not be ultimately recoverable from the sources
described in clauses (i) through (iv) of the third preceding
paragraph or (b) in the case of a proposed Property Protection
Advance for Property Protection Expenses other than taxes and
insurance premiums, in the reasonable judgment of the Special
Servicer, the aggregate recovery from such Mortgage Loan (or the
related Mortgaged Property or REO Property), net of such Property
Protection Advance and interest thereon at the Advance Rate,
would not exceed, on a present value basis, the aggregate
recovery from such Mortgage Loan if the Property Protection
Advance were not made by the Master Servicer.
All P&I Advances, Property Protection Advances and
Reimbursable Late Remittance Advances by the Master Servicer will
bear interest at the Advance Rate on the unreimbursed amount
thereof for each day in a calendar month that such Advance is
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<PAGE>
outstanding. The "Advance Rate", for any day in a calendar month,
will be [the prime rate published in the "Money Rates" section of
The Wall Street Journal on such day or, if such day is not a
business day, on the preceding business day (or the average of
such rates if more than one rate is published on such day)].
Any P&I Advance, Property Protection Advance or
Reimbursable Late Remittance Advance in respect of any Mortgage
Loan (including all accrued unpaid interest thereon) will be
reimbursed [from all cash collected in the Lower-Tier Collection
Account in respect of such Mortgage Loan (and the related Mortgaged
Property or REO Property), until such P&I Advance or Property
Protection Advance (together with all accrued and unpaid interest
thereon) is reimbursed in full (assuming in each case that
amounts applied to repay the foregoing advances are applied first
to the advances most recently made), unless the Master Servicer
determines that all or part of the P&I Advances, Property
Protection Advances and Reimbursable Late Remittance Advances
then outstanding (together with interest thereon) will not be
ultimately recoverable from amounts remaining in the Trust Fund.
To the extent the Master Servicer makes such a determination,
such amounts will be reimbursed from the Available Distribution
Amount on each Distribution Date thereafter prior to the making
of any distribution in respect of any Class of Certificates].
All P&I Advances for delinquent principal and interest
payments on Specially Serviced Mortgage Loans (including REO
Mortgage Loans) and all Property Protection Advances for taxes,
insurance premiums and other Property Protection Expenses with
respect to any REO Properties and any other Mortgaged Properties
relating to Specially Serviced Mortgage Loans will be funded by
the Master Servicer to the same extent that the Master Servicer
is required to make such Advances on any other Mortgage Loan.
Although the Special Servicer will not be required to make any
Property Protection Advances regarding Specially Serviced
Mortgage Loans and REO Properties, under the Agreement the
Special Servicer will be required to advise the Master Servicer
of the amount of funds that the Master Servicer must advance to
cover a particular Property Protection Expense and to provide the
Master Servicer with the information necessary to determine
whether such Advance would be nonrecoverable, and the Master
Servicer will promptly make any Property Protection Advance with
respect thereto, subject only to the limitations set forth in the
third immediately preceding paragraph.
The obligation of the Master Servicer to advance funds as
described above is intended to provide limited liquidity but not
to ensure against ultimate losses.
Servicing Compensation and Payment of Expenses
The Master Servicer's principal compensation for its
activities under the Agreement will come from the payment to it
or retention by it, with respect to each Mortgage Loan, of the
Servicing Fee. Since the aggregate unpaid principal balance of
the Mortgage Loans generally will decline over time, the Master
Servicer's servicing compensation ordinarily will decrease as the
Mortgage Loans amortize.
The Servicing Fee with respect to each Mortgage Loan and
for any Due Period is the product of the Servicing Fee Rate and
the unpaid Scheduled Principal Balance of such Mortgage Loan
immediately prior to the application of the principal portion of
the Monthly Payment due on the Due Date in such Due Period
calculated on the basis of a 360-day year consisting of twelve
30-day months. The Servicing Fee Rate is the rate per annum equal
to (i) ____% with respect to each Mortgage Loan other than a
Specially Serviced Mortgage Loan and (ii) ____% with respect to
each Specially Serviced Mortgage Loan. The Master Servicer will
be responsible for paying, exclusively for its own account out of
the portion of the Servicing Fee based on the Servicing Fee Rate,
certain ongoing expenses associated with the Mortgage Loans and
S-49
<PAGE>
incurred by it in connection with its responsibilities under the
Agreement, including the annual fees and expenses of the Trustee
and the Basic Fee (as defined below) of the Special Servicer.
[In addition, the Master Servicer will be entitled to
receive, as additional compensation, any interest or other
investment income earned on funds deposited in the Collection
Accounts and, except to the extent such income is required to be
paid to the related Borrowers, the Escrow Account. The Master
Servicer will be entitled to retain as additional servicing
compensation any late payment charges (but not default interest)
received in respect of a Mortgage Loan it is then servicing.]
The Special Servicer's principal compensation for its
activities under the Agreement will come from payment to it or
retention by it, with respect to each Mortgage Loan, of the
Special Servicer Fee. The Special Servicer Fee will include [(x)
a fee (the "Basic Fee"), which will be an obligation of the
Master Servicer, calculated at a rate equal to ____% per annum on
the Scheduled Principal Balance of each Mortgage Loan, (y) an
additional fee (the "Supplemental Special Servicer Fee") equal to
the excess, if any, of (i) an aggregate amount calculated at a
rate equal to ____% per annum on the Scheduled Principal Balance
of each Specially Serviced Mortgage Loan, over (ii) the Basic
Fee, which will be an obligation of the Trust Fund, payable from
the Lower-Tier Collection Account or, if applicable, the
applicable REO Account, and (z) a fee (the "Workout Fee"), which
will be an obligation of the Trust Fund, equal to a fixed
percentage (the "Workout Fee Rate") of net collections and net
proceeds received with respect to each Mortgage Loan as to which
it is acting or at any time acted as special servicer (including
those for which servicing has been returned to the Master
Servicer). The Workout Fee Rate will be (i) ____% for each
Mortgage Loan with a Scheduled Principal Balance as of the Cut-Off
Date greater than $____________, (ii) ____% for each Mortgage Loan
with a Scheduled Principal Balance as of the Cut-Off Date greater than
$_____________ but less than or equal to $_____________, (iii)
____% for each Mortgage Loan with a Scheduled Principal Balance
as of the Cut-Off Date greater than $____________ but less than
or equal to $____________ and (iv) ____% for each Mortgage Loan
with a Scheduled Principal Balance as of the Cut-Off Date less
than or equal to $_________. Notwithstanding the foregoing, the
Workout Fee with respect to any net Liquidation Proceeds received
in connection with a sale of REO Property or upon a Final
Recovery Determination for any Mortgage Loan will equal the
product of (a) the otherwise applicable Workout Fee Rate referred
to in the preceding sentence times (b) a fraction the numerator
of which is equal to the net Liquidation Proceeds received (after
payment of all other fees and expenses with respect thereto) and
the denominator of which is equal to the unpaid principal balance
of the related Mortgage Loan and accrued and unpaid interest
thereon times (c) such net Liquidation Proceeds.]
[CREDIT ENHANCEMENT]
[If Credit Enhancement is provided with respect to a
Series, or the related Mortgage Loans, include a description of
(a) the amount payable under such Credit Enhancement, (b) any
conditions to payment thereunder not otherwise described herein,
(c) the conditions (if any) under which the amount payable under
such Credit Enhancement may be reduced and under which such
Credit Enhancement may be terminated or replaced and (d) the
material provisions of any agreement relating to such Credit
Enhancement. Additionally, set forth certain information with
respect to the issuer of any third-party Credit Enhancement,
including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or
licensed to do business, (iii) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the
date specified in such Prospectus Supplement.]
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<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Weighted Average Lives Of The Offered Certificates
Weighted average life refers to the average amount of time
from the date of issuance of a security until each dollar of
principal of such security will be repaid to the investor, and in
the case of the Offered Certificates, refers to the average
amount of time from the date of issuance thereof until the
Certificate Principal Amount [or, in the case of the Class IO
Certificates, the Notional Amount] thereof, is reduced to zero.
The weighted average lives of the Offered Certificates will be
affected by the rate at which principal payments (including
Principal Prepayments) on the Mortgage Loans are made.
Prepayments on mortgage loans are commonly measured by a
prepayment standard or model. The model used in this Prospectus
Supplement (the "Prepayment Model" or "CPR") represents an
assumed constant rate of prepayments each month, expressed as an
annual rate, relative to the then outstanding principal balance
of a pool of mortgage loans for the life of such mortgage loans.
CPR does not purport to be either an historical description of
the prepayment experience of any pool of Mortgage Loans or a
prediction of the anticipated rate of prepayment of any mortgage
loans, including the Mortgage Loans to be included in the Trust
Fund. The Seller does not make any representations or warranties
about the appropriateness of the CPR model used herein. The
discussion in the paragraphs below is meant to be illustrative of
the effect of Principal Prepayments on the Offered Certificates.
There can be no assurance that the Mortgage Loans will prepay or,
if so, at any particular rate.
The tables of percentages of initial Certificate Principal
Amount outstanding (the "Weighted Average Life Tables") for the
Class ___, Class ___, Class ___, Class LR and Class R
Certificates, in each case, at the respective percentages of CPR,
set forth below indicate the weighted average life of each Class
of Offered Certificates and set forth the percentage of the
initial Certificate Principal Amount of such Classes of
Certificates that would be outstanding after each of the dates
shown at the indicated percentages of CPR. Except as indicated
below, the Weighted Average Life Tables have been prepared on the
basis of the characteristics of the Mortgage Loans that are
expected to be included in the Mortgage Pool, as described under
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES" herein, assuming that interest on each Mortgage Loan
is calculated on the basis of a 360-day year of twelve 30-day
months, and using the following additional assumptions: [(i) the
Mortgage Loans prepay ([without Prepayment Premiums and] without
regard to any applicable lockout provisions) at the indicated
percentage of the CPR; (ii) that distributions on the
Certificates are received, in cash, on the [15th] day of each
month, commencing __________ [15], 19__; (iii) with respect to
the table assuming no extensions, that no defaults or
delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Borrowers of principal and
interest on the Mortgage Loans occur; (iv) with respect to the
tables assuming extensions, that with respect to the Mortgage
Loans that provide for Balloon Payments (a) for each
respective table, the maturity dates of such Mortgage Loans are
extended to the earlier of (1) a date three years or five years,
as applicable, after their stated maturity dates and (2) if
applicable, the end of their amortization terms, in each case, as
in effect on the Cut-Off Date, (b) their Monthly Payments after
extension are the same as they were prior to extension, (c) no
Workout Fee or Supplemental Special Servicer Fee following
extension is payable, and no reduction in the Servicing Fee Rate
occurs, with respect thereto and (d) apart from the assumed
extensions, there are no defaults or delinquencies in, or
modifications, waivers or amendments respecting, the payment by
the Borrowers of principal and interest on such Mortgage Loans;
(v) prepayments represent proportionate payment of individual
Mortgage Loans, are received on the respective Due Dates, include
30 days' interest thereon and result in a proportionate reduction
in the principal and interest payments on the individual Mortgage
Loans; (vi) there are no repurchases or substitutions of Mortgage
S-51
<PAGE>
Loans by the Seller; (vii) the Certificates are acquired on
_____, 199_; (viii) no call option in respect of any Mortgage
Loan or right of optional termination of the Trust Fund is
exercised; (ix) [no negative amortization arises in respect of
the Negatively Amortizing Loans;] and (x) the initial Certificate
Principal Amount of each of the Class R Certificates and the
Class LR Certificates is $____.] The foregoing assumptions are
referred to herein as the "Mortgage Loan Assumptions".
The actual performance of the Mortgage Loans will vary from
the Mortgage Loan Assumptions made in preparing the Weighted
Average Life Tables set forth below. In particular, actual
prepayments are not likely to occur at constant rates or at the
assumed rates and the terms of extension are not likely to be
uniform, and variations in prepayment speeds and extension terms,
even if averaging to the same constant prepayment rate over time
and to the same weighted average extension term, may have
different effects on the payment rates of the Offered
Certificates. Furthermore, not all Mortgage Loans providing for
Balloon Payments at maturity are expected to be extended or to be
extended for the assumed terms, and prepayments and extensions
may apply disproportionately to Mortgage Loans with different
Mortgage Interest Rates. There can be no assurance as to the
actual rates of prepayment or extension of the Mortgage Loans or
as to variations in applicable interest rates. Finally, certain
prepayments and Balloon Payments received at maturity in respect
of Mortgage Loans with maturity dates prior to the respective
Assumed Due Dates may result in Prepayment Interest Shortfalls.
See "DESCRIPTION OF THE CERTIFICATES -- Distributions --
Allocation of Excess Prepayment Interest Shortfall".
Furthermore, the actual terms of the Offered Certificates
and the Agreement vary to some degree from the Mortgage Loan
Assumptions made in preparing the Weighted Average Life Tables in
that: (i) any extension of a Mortgage Loan will occur only under
circumstances in which such Mortgage Loan has become a Specially
Serviced Mortgage Loan subject to deduction of a Workout Fee and
the Supplemental Special Servicer Fee, if applicable, from all
future Monthly Payments; and (ii) the terms of any extension
permitted under the Agreement may require an increase or allow a
decrease in the Mortgage Interest Rate or the Monthly Payment,
rather than providing for continuation of the same terms.
S-52
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL AMOUNT OUTSTANDING AT VARIOUS
PERCENTAGES OF THE CONSTANT PREPAYMENT RATE
ASSUMING NO BALLOON EXTENSIONS
CLASS R AND LR CLASS ___ AND CLASS ___
CERTIFICATES CERTIFICATES
------------------------- -------------------------
CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR
[0% 3% 5% 7% 10% 0% 3% 5% 7% 10%
--- -- -- -- --- -- -- -- -- ---
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
CLASS ___ CERTIFICATES
-------------------------
CPR CPR CPR CPR CPR
0% 3% 5% 7% 10%]
-- -- -- -- ----
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
- ---------------------
* Indicates an amount above zero and less than 0.5% of the original
aggregate Certificate Principal Amount is outstanding.
(1) The weighted average life of each Class of Offered
Certificates is determined by (i) multiplying the amount of
each assumed principal distribution received on such Class
of Certificates by the number of years from the date of
issuance of the Certificates to the related Distribution
Date, (ii) summing the results and (iii) dividing the sum
by the total amount of principal distributed on such Class
of Certificates.
S-53
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL AMOUNT OUTSTANDING AT VARIOUS
PERCENTAGES OF THE CONSTANT PREPAYMENT RATE
ASSUMING THREE-YEAR BALLOON EXTENSIONS
CLASS R AND LR CLASS ___ AND CLASS ___
CERTIFICATES CERTIFICATES
------------------------- -------------------------
CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR
[0% 3% 5% 7% 10% 0% 3% 5% 7% 10%
--- -- -- -- --- -- -- -- -- ---
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
CLASS ___ CERTIFICATES
-------------------------
CPR CPR CPR CPR CPR
0% 3% 5% 7% 10%]
-- -- -- -- ----
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
- ---------------------
* Indicates an amount above zero and less than 0.5% of the original
aggregate Certificate Principal Amount is outstanding.
(1) The weighted average life of each Class of Offered
Certificates is determined by (i) multiplying the amount of
each assumed principal distribution received on such Class
of Certificates by the number of years from the date of
issuance of the Certificates to the related Distribution
Date, (ii) summing the results and (iii) dividing the sum
by the total amount of principal distributed on such Class
of Certificates.
S-54
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE
PRINCIPAL AMOUNT OUTSTANDING AT VARIOUS
PERCENTAGES OF THE CONSTANT PREPAYMENT RATE
ASSUMING FIVE-YEAR BALLOON EXTENSIONS
CLASS R AND LR CLASS ___ AND CLASS ___
CERTIFICATES CERTIFICATES
------------------------- -------------------------
CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR
[0% 3% 5% 7% 10% 0% 3% 5% 7% 10%
--- -- -- -- --- -- -- -- -- ---
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
CLASS ___ CERTIFICATES
-------------------------
CPR CPR CPR CPR CPR
0% 3% 5% 7% 10%]
-- -- -- -- ----
Distribution Date:
Initial Percentage.
_____________, 19__.
_____________, 19__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
_____________, 20__.
Weighted Average Life
(years)(1).....
- ---------------------
* Indicates an amount above zero and less than 0.5% of the original
aggregate Certificate Principal Amount is outstanding.
(1) The weighted average life of each Class of Offered
Certificates is determined by (i) multiplying the amount of
each assumed principal distribution received on such Class
of Certificates by the number of years from the date of
issuance of the Certificates to the related Distribution
Date, (ii) summing the results and (iii) dividing the sum
by the total amount of principal distributed on such Class
of Certificates.
S-55
<PAGE>
[Yield on Class IO Certificates
The Holders of Class IO Certificates (the "Class IO
Certificates") are not entitled to receive distributions in
respect of principal. Distributions on the Class IO Certificates
on each Distribution Date will be made in respect of interest on
their respective Notional Amounts to the extent described above
under "DESCRIPTION OF THE CERTIFICATES -- Distributions --
Distributions of Interest." To the extent distributions are made
that reduce (or eliminate) the Scheduled Principal Balances of
the Mortgage Loans upon which the Notional Amount of the Class IO
Certificates is based, the amount distributable in respect of
interest on the Class IO Certificates will be correspondingly
reduced or eliminated.
Accordingly, the yield to maturity on the Class IO
Certificates will be extremely sensitive to the rate and timing
of Principal Prepayments on the Mortgage Loans. Investors in the
Class IO Certificates should fully consider the associated risks,
including the risk that a rapid rate of Principal Prepayments on
[some or all of] the Mortgage Loans, could result in the failure
of investors in the Class IO Certificates to fully recoup their
investment[, notwithstanding the fact that the adverse effect on
the yield to maturity on the Class IO Certificates that may
result from such Principal Prepayments will be mitigated, in
part, by the distribution under the Agreement to such Class IO
Certificates of its respective percentage of the Prepayment
Premium Amount]. See "DESCRIPTION OF THE CERTIFICATES --
Distributions -- Distributions of Interest" herein. Any optional
termination of the Trust Fund will have an adverse effect on the
yield to maturity of any outstanding Class IO Certificates,
because a termination will have the same effect as a prepayment
in full of the Mortgage Loans. See "THE AGREEMENT -- Optional
Termination" herein.
The tables below (the "Class IO Certificate Sensitivity
Tables") indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class IO Certificates to
various constant prepayment rates. The yields set forth in the
Class IO Certificate Sensitivity Tables below were calculated by
determining the monthly discount rates that, when applied to the
assumed stream of cash flows to be paid on the Class IO
Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed aggregate
purchase prices of such Class of Certificates and converting such
monthly rates to corporate bond equivalent rates. The Class IO
Certificate Sensitivity Tables also indicate the CPR percentage
for the Class IO Certificates (at the assumed purchase prices set
forth below for such Class [and disregarding any Prepayment
Premiums that may be received]) at which the pre-tax yield to
maturity on such Class IO Certificates approximates 0%.
Accordingly, if the actual prepayment rate of the Mortgage Loans
were to exceed such percentage for as little as one month (while
equaling such rate for other months), investors in such Class of
Certificates may not fully recoup their investments. Such
calculations do not take into account variations that may occur
in the interest rates at which investors may be able to reinvest
funds received by them as distributions on such Class of
Certificates and consequently do not purport to reflect the
return on any investment in such Class of Certificates when such
reinvestment rates are considered.
The Class IO Certificate Sensitivity Table below has been
prepared on the basis of the Mortgage Loan Assumptions, except
that [(i)] the aggregate purchase prices of the Class IO
Certificates are as set forth in the table, which include accrued
interest thereon from _______ 1, 199_, [and (ii) it is assumed
that no Balloon Payment is extended beyond the maturity date of
the related Mortgage Loan in effect as of the Cut-Off Date.]
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<PAGE>
Sensitivity of the Class IO Certificates to
Principal Prepayments Assuming No
Balloon Extension:
Pre-Tax Yields to Maturity
Percentage of
Assumed CPR at which
Purchase Price Percentages of CPR Yield = 0%
- -------------- -------------------------------------- -------------
[0% 3% 5% 7% 10%]
--- -- -- -- ----
$ % % % % % %
There can be no assurance that the Mortgage Loans will
prepay at any of the rates shown in the tables or at any other
particular rate, that the pre-tax yields on the Class IO
Certificates will correspond to any of the pre-tax yields shown
herein or that the aggregate purchase prices of such Certificates
will be as assumed. In addition, it is not likely that the
Mortgage Loans will prepay at a constant rate until maturity or
that all of such Mortgage Loans will prepay at the same rate.
Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase
any Class IO Certificates.]
[Yield on Class PO Certificates
The Class PO Certificates will be principal only
certificates and will not bear interest. If such Certificates are
offered at a substantial discount to their original Certificate
Principal Amount, lower than anticipated rates of prepayments on
the Mortgage Loans will have a negative effect on the pre-tax
yield to maturity of the Class PO Certificates.
The tables below (the "Class PO Sensitivity Tables")
indicate the sensitivity of the pre-tax yield to maturity (on a
corporate bond equivalent basis) of the Class PO Certificates
under the different constant prepayment rates indicated. The
yields set forth in the Class PO Sensitivity Tables were
calculated by determining the monthly discount rates which, when
applied to the assumed stream of cash flows to be paid on the
Class PO Certificates, would cause the discounted present value
of such assumed stream of cash flows to equal the assumed
aggregate purchase price of the Class PO Certificates, and by
converting such monthly discount rates to corporate bond
equivalent rates. Such calculations do not take into account
variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as
distributions of principal on the Class PO Certificates and
consequently do not purport to reflect the return on any
investment in such Class of Certificates when such reinvestment
rates are considered.
The yields in the Class PO Sensitivity Table below were
calculated on the basis of the expected characteristics of the
Mortgage Loans and on the basis of the Mortgage Loan Assumptions
except that (i) the aggregate purchase price of the Class PO
Certificates was assumed to be equal to the percentage of the
initial Class PO Certificate Principal Amount set forth in such
table [and (ii) it was assumed that no Balloon Payment is
extended beyond the maturity date of the related Mortgage Loan in
effect as of the Cut-Off Date].
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<PAGE>
Sensitivity of the Class PO Certificates to
Principal Prepayments Assuming No
Balloon Extension:
Pre-Tax Yields to Maturity
Assumed
Purchase
Price Percentages of CPR
- ---------- --------------------------------------
[0% 3% 5% 7% 10%]
__% of par % % % % %
There can be no assurance that the Mortgage Loans will
prepay at any of the rates shown in the Class PO Sensitivity
Table or at any other particular rate, that the pre-tax yields to
maturity on the Class PO Certificates will correspond to any of
the pre-tax yields shown herein, or that the aggregate purchase
price of the Class PO Certificates will be as assumed. The rate
of distribution of principal of the Class PO Certificates will be
affected by disproportionate payments of such Mortgage Loans
having different interest rates. As a result, the pre-tax yield
to maturity on the Class PO Certificates may differ from those
shown in the Class PO Sensitivity Tables even if all such
Mortgage Loans prepay at the indicated constant percentages of
CPR. In addition, it is not likely that such Mortgage Loans will
prepay at a constant level of CPR until maturity or that all of
such Mortgage Loans will prepay at the same rate. The timing of
changes in the rate of prepayments may significantly affect the
actual yield to maturity to an investor, even if the average rate
of principal prepayments is consistent with an investor's
expectation. Investors must make their own decisions as to the
appropriate prepayment assumption to be used in deciding whether
to purchase a Class PO Certificate.]
THE AGREEMENT
Representations and Warranties
[The Originator has made certain representations and
warranties to the Seller regarding the Mortgage Loans, as
summarized in Annex B. On the Closing Date, the Seller will
assign its rights under such representations and warranties to
the Trustee for the benefit of the Certificateholders.] [On the
Closing Date, the Seller will make certain representations and
warranties regarding the Mortgage Loans, as summarized in Annex
B.] Upon the discovery or notice of a breach of any of such
representations or warranties (other than the representations and
warranties regarding the tax status of the Mortgage Loans
described in clause __ of Annex B) that adversely and materially
affects the interests of Certificateholders, then within 90 days
of the [Seller's] [Originator's] discovery of such breach or its
receipt of notice of such breach, the [Seller] [Originator] is
required to either (1) cure such breach in all material respects,
(2) repurchase the related Mortgage Loan which is the subject of
such breach or (3) during the two years following the Closing
Date, and subject to approval of the Rating Agencies and to
certain restrictions to ensure that the tax status of the two
REMICs is not jeopardized, replace such Mortgage Loan with
another Mortgage Loan that, under the Agreement, has
substantially the same terms as such Mortgage Loan being
replaced.
In the event of a breach of the [Seller's] [Originator's]
representation and warranty to the effect that each Mortgage Loan
is a "qualified mortgage" within the meaning of the REMIC
Provisions of the Code, the [Seller] [Originator] will repurchase
the affected Mortgage Loan within 90 days of discovery of such
breach (provided such breach is not cured during such 90 day
S-58
<PAGE>
period) or, subject to Rating Agency approval and to certain
restrictions to ensure that the tax status of the two REMICs is
not jeopardized, replace such Mortgage Loan with another Mortgage
Loan that, under the Agreement, has substantially the same terms
as such Mortgage Loan being replaced. See "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC Elections" in the Prospectus.
The Trustee
________________________ will act as Trustee under the
Agreement. The office from which ____________________________
will perform its duties as Trustee under the Agreement is located
at ____________________________, Attention:
_________________________. __________________ is a [national
banking association].
Statements to Certificateholders
The Trustee will prepare and forward on each Distribution
Date to each Certificateholder and to the Seller, the Master
Servicer, the Special Servicer and the Underwriters a
Distribution Date statement setting forth, to the extent
applicable: (i) the amount, if any, of such distribution to the
Holders of each Class of Certificates [(other than the Class IO
Certificates)] applied to reduce the respective Certificate
Principal Amounts thereof; (ii) the amount of such distribution
to Holders of each Class of Certificates [(other than the Class
PO Certificates)] allocable to (a) the Class Interest
Distribution Amount and (b) any Class Unpaid Interest Shortfall
included in such distribution; [(iii) the amount by which such
distribution in respect of interest to Holders of each Class of
Certificates [(other than the Class PO Certificates)] was reduced
by the allocation of Certificate Negative Amortization and Excess
Prepayment Interest Shortfall; (iv) the aggregate Certificate
Principal Amount of each Class of Certificates [(other than the
Class IO Certificates)] before and after giving effect to the
distribution made on such Distribution Date [(separately
identifying, in the case of each Class of Certificates, the
amount added to the Certificate Principal Amount of each such
Class in respect of such Distribution Date on account of
Certificate Negative Amortization]; [(v) the aggregate Notional
Amount of each Class of Class IO Certificates before and after
giving effect to the distributions made on such Distribution
Date;] (vi) the aggregate amount of Principal Prepayments made
[and Prepayment Premiums received] during the related Prepayment
Period; (vii) the aggregate Class Unpaid Interest Shortfall
remaining undistributed, if any, for each Class of Certificates
[(other than the Class PO Certificates)] after giving effect to
the distribution made on such Distribution Date; (viii) the
Certificate Factor with respect to each Class of Certificates
applicable to such Distribution Date; (ix) the aggregate amount
of servicing fees retained by or paid to the Master Servicer and
the Special Servicer; (x) the aggregate outstanding amount of
Property Protection Advances (including accrued and unpaid
interest thereon) made by the Master Servicer as of the related
Determination Date; (xi) the number and aggregate outstanding
amount of P&I Advances (including accrued and unpaid interest
thereon) in respect of each of the Mortgage Loans, as of such
Distribution Date; and (xii) the amount, if any, by which the
Certificate Principal Amount of any Class of Certificates was
written off pursuant to the Agreement.
In the case of information furnished pursuant to subclauses
(i), (ii), (iv), [(v)] and (xii) above, the amounts shall be
expressed as a dollar amount in the aggregate for all
Certificates of each applicable Class and per single Certificate.
Within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each person who at any
time during the calendar year was a Holder of a Certificate a
statement containing the information set forth in subclauses (i)
and (ii) only above, aggregated for such calendar year or
applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Trustee will be deemed
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to have been satisfied to the extent that substantially
comparable information is provided by the Trustee pursuant to any
requirements of the Code.
In addition, the following monthly reports will be made
available to Certificateholders:
(i) a Mortgage Loan Status Report, which provides updated
information as set forth in the tables contained
herein under "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES" and a loan-by-loan
listing showing loan name, property type, location,
unpaid principal balance, interest rate, paid through
date and maturity date, which loan-by-loan listing
will be made available electronically;
(ii) a Comparative Financial Status Report, which provides,
among other things, revenue, net operating income and
debt service coverage ratio for each of the then [100]
largest Mortgage Loans;
(iii) a Delinquent Loan Status Report, which provides,
among other things, loan name, loan number and unpaid
principal balance of Mortgage Loans which are
delinquent 30-59 days, 60-89 days, 90 days or more, or
are in foreclosure but have not yet become REO
Properties;
(iv) an Historical Loan Modification Report, which
provides, among other things, information on those
Mortgage Loans which have been modified;
(v) an Historical Loss Estimate Report, which provides on
a loan-by-loan basis, among other things, the
aggregate amount of Liquidation Proceeds, liquidation
expenses and realized losses for certain Specially
Serviced Mortgage Loans;
(vi) an REO Status Report, which provides, among other
things, for each REO Property, the date of
acquisition, net operating income and the value of
such REO Property (based on the most recent appraisal
or valuation); and
(vii) a Watch List, which provides, among other things, a
list of Mortgage Loans in jeopardy of becoming
Specially Serviced Mortgage Loans.
The Master Servicer and the Special Servicer each will make
its records relating to the Mortgage Loans available to
Certificateholders for their review, during normal business hours
and upon reasonable prior notice.
Optional Termination
[The Master Servicer, the Holders of the Class LR or Class
R Certificates, or, if all Mortgage Loans are then Specially
Serviced Mortgage Loans, the Special Servicer (the "Possible
Purchasers"), may effect termination of the Trust Fund on any
Distribution Date after the date on which the aggregate
Certificate Principal Amount of the Certificates is reduced to
less than __% of the initial aggregate Certificate Principal
Amount thereof, by purchasing all the assets of the Trust Fund at
a purchase price, payable in cash, in an amount not less than the
greater of (x) 100% of the then outstanding aggregate Certificate
Principal Amount of the Class ___, Class ___, Class ___, Class
___, and [Class PO] Certificates plus accrued and unpaid
interest, if any, thereon to the date of purchase, plus the fair
market value of [the Class IO Certificates and] the Residual
Certificates, determined as provided in the Agreement, plus all
unreimbursed P&I Advances, Property Protection Advances and
Reimbursable Late Remittance Advances (including accrued unpaid
interest thereon) and all other obligations of the Trust Fund
then due and payable and (y) the aggregate fair market value of
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the Mortgage Loans and any other property in the Trust Fund as of
the date of repurchase, determined as provided in the Agreement.
The Agreement provides that the Possible Purchaser who will be
entitled to purchase the assets of the Trust Fund will be the
Possible Purchaser who offers to pay the highest price for the
assets of the Trust Fund, within 30 days following receipt of
notice from any Possible Purchaser of notice of optional
termination of the Trust Fund.] The proceeds of such sale will be
treated as a prepayment of the Mortgage Loans for purposes of
distributions to Certificateholders. Such sale will effect a
termination of the Trust Fund and an early retirement of the
Certificates. Such sale and consequent termination of the Trust
Fund must constitute a "qualified liquidation" of the Upper-Tier
REMIC and the Lower-Tier REMIC under Section 860F of the Code.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
State Law Considerations
The following discussion contains summaries of certain
legal aspects of mortgage loans in ___________ (approximately
____% of the Mortgage Pool by Initial Pool Balance and
____________ (approximately ____% of the Mortgage Loans by
Initial Pool Balance) which are general in nature. The summaries
do not purport to be complete and are qualified in their entirety
by reference to the applicable federal and state laws governing
the Mortgage Loans. [If a Trust Fund contains a substantial
concentration of Mortgage Loans in a single state, insert a
description of material differences, if any, between the legal
aspects of Mortgage Loans in such state and the summary of
general legal aspects of Mortgage Loans set forth under "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS" in the Prospectus.]
Environmental Considerations
The Agreement will provide that the Special Servicer,
acting on behalf of the Trust Fund, may not acquire title to, or
possession of, a Mortgaged Property underlying a Mortgage Loan,
take over its operation or take any other action that might
subject the Trust Fund to liability under CERCLA or comparable
laws unless the Special Servicer has previously determined, based
upon a Phase I or other specified environmental assessment
prepared by a person who regularly conducts such environmental
assessments that is reasonably satisfactory to the Trustee [and
satisfactory to the Operating Advisor], that the Mortgaged
Property is in compliance with applicable environmental laws and
that there are no circumstances relating to use, management,
presence or disposal of any Hazardous Substances for which
investigation, monitoring, containment, clean-up or remediation
could be required under applicable environmental laws, or that it
would be in the best economic interest of the Trust Fund to take
such actions as are necessary to bring the Mortgaged Property
into compliance therewith or as may be required under such laws.
This is required of the Special Servicer to effectively preclude
enforcement of the security for the related Note until a
satisfactory environmental assessment is obtained or any required
remedial action is taken, reducing the likelihood that the Trust
Fund will become liable for any Environmental Condition affecting
a Mortgaged Property, but making it more difficult to realize on
the security for the Mortgage Loan. However, there can be no
assurance that any environmental assessment obtained by the
Special Servicer will detect all possible Environmental
Conditions or that the other requirements of the Agreement, even
if fully observed by the Special Servicer, will in fact insulate
the Trust Fund from liability for Environmental Conditions.
If a lender is or becomes liable for clean-up costs, it may
bring an action for contribution against the current owners or
operators, the owners or operators at the time of on-site
disposal activity or any other party who contributed to the
environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Seller will cause
elections to be made to treat the Trust Fund as two "real estate
mortgage investment conduits" (each, a "REMIC" or, in the
alternative, the "Lower-Tier REMIC" and the "Upper-Tier REMIC,
respectively). The Class ___, Class ___, Class ___, Class ___,
[Class PO] and [Class IO] Certificates will be designated as
REMIC regular interests in the Upper-Tier REMIC and the Class R
Certificates will be designated as the REMIC residual interest in
the Upper-Tier REMIC. The Class LR Certificates will be
designated as the REMIC residual interest in the Lower-Tier
REMIC. As REMIC regular interests, the Certificates other than
the Residual Certificates generally will be treated as debt for
federal income tax purposes. Holders of the Certificates will be
required to include in income all interest on such Certificates
in accordance with the accrual method of accounting regardless of
such Certificateholders' usual methods of accounting.
The Class ___ Certificates will, and the Class ___
Certificates may, be treated for federal income tax reporting
purposes as having been issued with original issue discount. The
assumptions that will be used in determining the rate of accrual
of market discount, original issue discount and premium for
federal income tax purposes will be a _% constant prepayment rate
and a Balloon Loan extension of _ years (as discussed under
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein). No
representation is made that the Mortgage Loans will prepay at
that rate or at any other rate or that the average extension of
Balloon Loans will be that period or any other period.
The Offered Certificates generally will be treated as "real
estate assets" for real estate investment trusts ("REITs") in the
same proportion that the assets in the Lower-Tier REMIC would be
so treated. The Offered Certificates generally will be treated as
"loans secured by an interest in real property" for domestic
building and loan associations only to the extent the Mortgage
Loans are secured by multifamily apartment buildings. In
addition, interest on the Offered Certificates will be treated as
"interest on obligations secured by mortgages on real property"
for REITs to the extent that the Offered Certificates are treated
as "real estate assets."
A holder of a Class R or Class LR Certificate will be
required to include the taxable income or loss of the applicable
REMIC in determining its federal taxable income. It is
anticipated that all or a portion of the income derived from a
Class R or Class LR Certificate will be "excess inclusion"
income, which is treated as unrelated business taxable income to
Certificateholders that are tax-exempt entities and is not
subject to exemption from or reduction in withholding in the case
of Certificateholders that are foreign persons. Holders of Class
R Certificates, including thrift institutions, will not be
entitled to use other deductions or losses, including net
operating losses, to offset such income. In addition, the
Internal Revenue Service may disregard transfers of Class R and
Class LR Certificates, with the result that the transferor will
continue to be treated as the owner of the Class R or Class LR
Certificate.
Ownership of a Class R or Class LR Certificate by a
pass-through entity could cause an annual tax to be imposed on
such pass-through entity if any interest therein is held by a
"disqualified organization," within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"), including a
government entity or any other tax-exempt organization that is
not subject to tax on unrelated business taxable income. See
"FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
The Class R and Class LR Certificates may not be
transferred, sold, pledged or otherwise assigned unless prior to
such transfer, the proposed transferee delivers to the Trustee an
affidavit certifying, among other things, that such transferee is
not a "disqualified organization," within the meaning of the
Code. If, notwithstanding such restrictions, a Class R or Class
LR Certificate is transferred to a "disqualified organization," a
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<PAGE>
substantial tax may be imposed on the transferor. In the case of
a transfer to or from a non-U.S. person, certain additional
conditions must be satisfied prior to the transfer of a Class R
or Class LR Certificate. In addition to the foregoing, transfer
of Class R and Class LR Certificates may be disregarded with the
result that the transferor will continue to be treated as the
owner of the Class R or Class LR Certificate. See "FEDERAL INCOME
TAX CONSEQUENCES" in the Prospectus.
ERISA CONSIDERATIONS
[The characteristics of the Offered Certificates will not
meet the requirements of any exemption from the application of
the prohibited transaction provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Accordingly,
the Offered Certificates may not be acquired by any employee
benefit plan within the meaning of Section 3(3) of ERISA or
Section 4975 of the Code. See "ERISA CONSIDERATIONS" in the
Prospectus.]
[Describe other applicable ERISA considerations.]
LEGAL INVESTMENT CONSIDERATIONS
[The appropriate characterization of the Offered
Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to
purchase the Offered Certificates, may be subject to significant
interpretative uncertainties. The Offered Certificates, other
than the Class [ ], Class [ ][, and Class [ ]] Certificates, will
[not] constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Institutions whose investment activities are subject to
review by federal, state or other regulatory authorities
should consult with their counsel or the applicable authorities
to determine whether and to what extent the Offered Certificates
constitute legal and qualified investments for them. See "LEGAL
INVESTMENT" in the Prospectus.]
[Describe other applicable SMMEA considerations.]
USE OF PROCEEDS
[The Seller will apply the net proceeds of the sale of the
Offered Certificates towards the acquisition of the Mortgage
Loans.]
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting
Agreement dated __________ __, 199_ among the Seller and Goldman,
Sachs & Co., an affiliate of the Seller (the "Underwriters"), the
Class ___, Class ___, [Class PO,] [Class IO], Class R and Class
LR Certificates (the "Offered Certificates") offered hereby are
being purchased from the Seller by the Underwriters upon
issuance. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions
precedent. Distribution of the Offered Certificates will be made
by the Underwriters from time to time in negotiated transactions
or otherwise at varying prices to be determined at the time of
sale. In connection with the purchase and sale of the Offered
Certificates, the Underwriters may be deemed to have received
compensation from Seller in the form of underwriting discounts.
The Seller has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
S-63
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Offered Certificates
will be passed upon for the Seller by _________________________
and for the Underwriters by ____________________. The material
federal income tax consequences of the Offered Certificates will
be passed upon for the Seller by ______________________________.
RATINGS
It is expected that the Class ___ and Class ___
Certificates will be rated at least "__" by __________ [and "__"
by __________] and that the Class ___ and Class ___ Certificates
will be rated at least "__" by _________ [and "__" by
__________]. It is a condition of the issuance of the Offered
Certificates that the Class _ Certificates be rated not lower
than "___" by __________ [and "__" by __________]. The ratings on
mortgage pass-through certificates address the likelihood of the
receipt by certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. Such rating
opinions address the structural and legal aspects associated with
the certificates, including the nature of the underlying mortgage
loans. Ratings on mortgage pass-through certificates do not,
however, represent an assessment of the timing or frequency of
principal prepayments by mortgagors or the degree to which such
prepayments might differ from those originally anticipated and,
as a result, that the Class ___ and Class ___ Certificateholders
might suffer a lower than anticipated yield, or may fail to fully
recover their investment. In addition, ratings on mortgage
pass-through certificates do not address the receipt of
prepayment premiums or the timing or frequency of the receipt
thereof.
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. In addition, a security rating does not address the
frequency of prepayments of mortgage loans or the corresponding
effect on yield to investors. The Seller will request a rating of
the Offered Certificates by [one or] both of the Rating Agencies.
There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue
a rating and, if so, what such rating would be. A rating assigned
to the Offered Certificates by a rating agency that has not been
requested by the Seller to do so may be lower than the rating
assigned by a Rating Agency pursuant to the Seller's request. See
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein.
S-64
<PAGE>
ANNEX A
MORTGAGE LOAN SCHEDULE
S-65
<PAGE>
ANNEX B
REPRESENTATIONS AND WARRANTIES
[The Seller hereby represents and warrants that it is the
beneficiary of the representations and warranties made by the
Responsible Party in the Mortgage Purchase Agreement dated
_____________ __, 199_ between the Seller and the Responsible
Party that it has validly assigned to the Trustee and the Trustee
is the beneficiary of such representations and warranties, and
that such representations and warranties are as follows:
As to each Mortgage Loan, as of the date specified below or, if
no such date is specified, as of the Closing date, except as
otherwise specified herein:
(i) As of the time of transfer to the Seller the
Responsible Party has good and marketable title to the related
Note and Mortgage and is the sole owner and holder of such
Mortgage Loan, has full right and authority to sell and assign
the related Mortgage Loan documents, and is transferring such
Mortgage Loan to the Trust Fund free and clear of any and all
liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature;
(ii) Each of the Mortgage Loan documents is genuine and is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms except as such
enforcement may be limited by (A) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and (B) general equity principles
(regardless of whether such enforcement is considered in a
proceeding in equity or at law); the Responsible Party has no
actual knowledge of anything that would lead it to believe that
the maker of any of the Mortgage Loan documents was not
authorized to execute and deliver, or did not duly execute and
deliver, such instruments and agreements; there is no valid
offset, defense or counterclaim or right of rescission to any
Mortgage Loan document, including the obligation of the mortgagor
to pay the unpaid principal of and interest on the Note, which
arises from the actions or omissions of the Responsible Party and
the Responsible Party has not received any notice, and otherwise
has no actual knowledge, with respect to any such offset,
defense, counterclaim or right of rescission;
(iii) The terms of the related Mortgage Loan documents have
not been impaired, waived, altered or modified in any material
respect, except as evidenced by documents that reflect such
matters or the consequences thereof and that are contained in the
Responsible Party's files which have been made available to the
Trustee by delivery to the Master Servicer and which have been
recorded, if necessary; the related mortgagor or guarantor has
not been released, in whole or in part, from its obligations, if
any, under the related Mortgage Documents, other than pursuant to
the terms of such Mortgage Loan documents or releases previously
approved in writing by or on behalf of the Responsible Party or
any Affiliate thereof, copies of which are contained in the
Responsible Party's files which have been made available to the
Trustee by delivery to the Master Servicer;
(iv)(a) As of the Cut-Off Date, there is no monetary
default or event of acceleration existing under any of the
related Mortgage Documents, and (b) the Responsible Party has not
received any notice and otherwise has no actual knowledge that
there exists any material non-monetary default, breach, violation
or event of acceleration under any of the related Mortgage Loan
documents or any event which, with the passing of time or the
giving of notice, would constitute a material non-monetary
default;
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<PAGE>
(v) All federal, state and local laws, rules and
regulations applicable to the origination of such Mortgage Loan,
including without limitation, usury laws and laws relating to
equal credit opportunity, real estate settlement procedures and
disclosure requirements, have been satisfied or complied with in
all material respects. The related Borrower represented at the
Origination Date of such Mortgage Loan that the related Mortgaged
Property was in compliance in all material respects with all
applicable federal, state and local laws, rules and regulations,
including without limitation those relating to zoning and
building requirements;
(vi) To the extent required under applicable law, the
Originator was authorized on the Origination Date thereof to
originate, and any servicer thereof was authorized to service,
such Mortgage Loan in the jurisdiction in which the related
Mortgaged Property is located at all times when the Originator
and the Seller held the Mortgage Loan;]
[List any additional representations and warranties made
by the Responsible Party.]
S-67
<PAGE>
**********************************************************************
* Information contained herein is subject to completion or *
* amendment. A registration statement relating to these securities *
* has been filed with the Securities and Exchange Commission. These *
* securities may not be sold nor may offers to buy be accepted *
* prior to the time the registration statement becomes effective. *
* This prospectus shall not constitute an offer to sell or the *
* soliciation of an offer to buy nor shall there be any sale of *
* these securities in any State in which such offer, solicitation *
* or sale would be unlawful prior to registration or qualification *
* under the securities laws of any such State. *
**********************************************************************
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 25, 1997
- -----------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------
GS MORTGAGE SECURITIES CORPORATION II
Seller
Commercial Mortgage Pass-Through
Certificates (Issuable in Series)
GS Mortgage Securities Corporation II (the "Seller") from
time to time will offer Commercial Mortgage Pass-Through
Certificates (the "Offered Certificates") in series (each, a
"Series") by means of this Prospectus and a separate Prospectus
Supplement for each Series. If specified in the related
Prospectus Supplement, a Series may include one or more Classes
of certificates (together with the Offered Certificates, the
"Certificates") not offered by means of this Prospectus. The
Certificates of each Series will evidence beneficial ownership
interests in a trust fund (each, a "Trust Fund") to be
established by the Seller. The Certificates of a Series may be
divided into two or more Classes which may have different
interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights
of the holders of certain Classes to receive principal and
interest may be subordinated to those of other Classes.
Each Trust Fund will consist primarily of a pool (each, a
"Mortgage Pool") of (i) one or more mortgage loans secured by
first, second or more junior liens on commercial real estate
properties, multifamily residential properties and/or mixed
residential/commercial properties, and related property and
interests, or (ii) certain financial leases and similar
arrangements equivalent to such mortgage loans as described
herein and in the related Prospectus Supplement (the "Mortgage
Loans"), conveyed to such Trust Fund by the Seller, and other
assets, including any reserve funds established with respect to a
Series, insurance policies on the Mortgage Loans, letters of
credit, certificate guarantee insurance policies or other credit
enhancements described in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the Mortgage
Loans included in a Mortgage Pool may also include participation
interests in such types of mortgage loans and installment
contracts for the sale of such types of properties. The Mortgage
Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity
and others will provide for balloon payments at maturity. Unless
otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will be non-recourse obligations of the
mortgagors. The Mortgage Loans will be either seasoned or newly
originated Mortgage Loans acquired by the Seller from third
parties, which third parties may or may not be the originators of
such Mortgage Loans and may or may not be affiliates of the
Seller. Information regarding each Series of Certificates,
including interest and principal payment provisions for each
Class of Offered Certificates, as well as information regarding
the size, composition and other characteristics of the Mortgage
Pool relating to such Series, will be furnished in the related
Prospectus Supplement. The Mortgage Loans, other than, if so
specified in the related Prospectus Supplement, Specially
Serviced Mortgage Loans, will be serviced by a Master Servicer
identified in the related Prospectus Supplement. If so specified
<PAGE>
in the related Prospectus Supplement, Mortgage Loans that become
Specially Serviced Mortgage Loans (as described in such
Prospectus Supplement) will be serviced by a Special Servicer
identified therein.
The Certificates will not represent an obligation of or an
interest in the Seller or any affiliate thereof. Unless otherwise
specified in the related Prospectus Supplement, the Certificates
will not be insured or guaranteed by any governmental agency or
instrumentality. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans will not be insured or
guaranteed by any governmental agency or instrumentality or any
insurer.
The Seller, as specified in the related Prospectus
Supplement, may elect to treat all or a specified portion of the
related Trust Fund as one or more "real estate mortgage
investment conduits" (each a "REMIC"), for federal income tax
purposes. If such an election is made, each Class of Certificates
of a Series will be either "regular interests" or "residual
interests", as specified in the related Prospectus Supplement. If
no such election is made, the Trust Fund, as specified in the
related Prospectus Supplement, may elect to be treated as a
"financial asset securitization investment trust" ("FASIT"), or if
no such election is made, will be classified as a grantor trust
for federal income tax purposes. See "FEDERAL INCOME TAX
CONSEQUENCES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR
ALL INVESTORS. IN PARTICULAR, NO INVESTOR SHOULD PURCHASE
CERTIFICATES OF ANY CLASS UNLESS THE INVESTOR UNDERSTANDS AND IS
ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET RISKS
ASSOCIATED WITH THAT CLASS.
THE RISKS ASSOCIATED WITH THE OFFERED CERTIFICATES MAY MAKE
THEM UNSUITABLE FOR SOME INVESTORS. SEE "RISK FACTORS" ON PAGE
4 HEREIN. THE OFFERED CERTIFICATES ARE COMPLEX SECURITIES AND IT
IS IMPORTANT THAT EACH INVESTOR IN ANY CLASS OF OFFERED
CERTIFICATES POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT
ADVISOR, THE EXPERTISE NECESSARY TO EVALUATE THE INFORMATION
CONTAINED AND INCORPORATED IN THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT IN THE CONTEXT OF THAT INVESTOR'S FINANCIAL
SITUATION.
THE YIELD OF EACH CLASS OF OFFERED CERTIFICATES WILL DEPEND
UPON, AMONG OTHER THINGS, ITS PURCHASE PRICE, ITS SENSITIVITY TO
THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS AND THE ACTUAL
CHARACTERISTICS OF THE MORTGAGE LOANS. MORTGAGE LOAN PREPAYMENT
RATES ARE LIKELY TO FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME.
INVESTORS SHOULD CONSIDER THE ASSOCIATED RISKS, INCLUDING:
ii
<PAGE>
- FAST MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE THE
YIELDS OF THE OFFERED CERTIFICATES, INCLUDING ANY
INTEREST-ONLY CLASSES, PURCHASED AT A PREMIUM OVER
THEIR PRINCIPAL AMOUNTS.
- SLOW MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE THE
YIELDS OF THE OFFERED CERTIFICATES, INCLUDING ANY
PRINCIPAL-ONLY CLASSES, PURCHASED AT A DISCOUNT TO
THEIR PRINCIPAL AMOUNTS.
- SMALL DIFFERENCES IN THE ACTUAL CHARACTERISTICS OF
THE MORTGAGE LOANS CAN AFFECT THE WEIGHTED AVERAGE
LIVES AND YIELDS OF THE OFFERED CERTIFICATES.
SEE "RISK FACTORS" AND "YIELD CONSIDERATIONS" IN THIS
PROSPECTUS AND "RISK FACTORS" AND "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" IN THE RELATED PROSPECTUS SUPPLEMENT.
- ---------------
Offers of the Offered Certificates may be made through one
or more different methods, including offerings through
underwriters, as more fully described under "PLAN OF
DISTRIBUTION" herein and in the related Prospectus Supplement.
Affiliates of the Seller may from time to time act as agents or
underwriters in connection with the sale of the Offered
Certificates. Offerings of certain Classes of the Certificates,
as specified in the related Prospectus Supplement, may be made in
one or more transactions exempt from the registration
requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration
Statement of which this Prospectus forms a part.
There will have been no secondary market for any Series of
the Offered Certificates prior to the offering thereof. There can
be no assurance that such a market will develop for the Offered
Certificates of any Series or, if it does develop, that it will
continue.
This Prospectus may not be used to consummate sales of the
Offered Certificates unless accompanied by a Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS ___________ __, 199__
iii
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of
Offered Certificates will, among other things, set forth with
respect to such Series of Offered Certificates, to the extent
applicable thereto: (i) any structural features, such as multiple
levels of trusts or the use of special finance vehicles to hold
the Mortgage Pool, used in structuring the transaction; (ii) the
identity of each Class within such Series; (iii) the initial
aggregate principal amount, the interest rate (the "Pass-Through
Rate") (or the method for determining such rate) and the
authorized denominations of each Class of Offered Certificates of
such Series; (iv) certain information concerning the Mortgage
Loans relating to such Series, including the principal amount,
type and characteristics of such Mortgage Loans on the Cut-Off
Date for such Series of Offered Certificates, and, if applicable,
the amount of any Reserve Fund for such Series; (v) the identity
of the Master Servicer; (vi) the identity of the Special
Servicer, if any, and the characteristics of any Specially
Serviced Mortgage Loans; (vii) the method of selection and powers
of any Operating Advisor directing and approving actions of the
Special Servicer; (viii) the circumstances, if any, under which
the Offered Certificates of such Series are subject to redemption
prior to maturity; (ix) the final scheduled distribution date of
each Class of Offered Certificates of such Series; (x) the method
used to calculate the aggregate amount of principal available and
required to be applied to the Offered Certificates of such Series
on each Distribution Date; (xi) the order of the application of
principal and interest payments to each Class of Offered
Certificates of such Series and the allocation of principal to be
so applied; (xii) the extent of subordination of any Subordinate
Certificates; (xiii) the principal amount of each Class of
Offered Certificates of such Series that would be outstanding on
specified Distribution Dates, if the Mortgage Loans relating to
such Series were prepaid at various assumed rates; (xiv) the
Distribution Dates for each Class of Offered Certificates of such
Series; (xv) the representations and warranties to be made by the
Seller and any other entity, in respect of the Mortgage Loans;
(xvi) if applicable, relevant financial information with respect
to the Borrower(s) and the Mortgaged Properties underlying the
Mortgage Loans relating to such Series; (xvii) information with
respect to the terms of the Subordinate Certificates or Residual
Certificates, if any, of such Series, (xviii) additional
information with respect to any Credit Enhancement or cash flow
agreement relating to such Series and, if the Certificateholders
of such Series will be materially dependent upon any provider
of Credit Enhancement or any cash flow agreement counter-
party for timely payment of interest and/or principal on
their Certificates, information (including financial
statements) regarding such provider or counterparty; (xix)
additional information with respect to the plan of distribution
of such Series; (xx) whether the Offered Certificates of such
Series will be available in definitive form or through the
book-entry facilities of The Depository Trust Company or another
depository; (xxi) if a Trust Fund contains a concentration of
Mortgage Loans having a single Borrower, including affiliates
thereof, or Mortgage Loans secured by Mortgaged Properties leased
to a single lessee, including affiliates thereof, representing
20% or more of the aggregate principal balance of the Mortgage
Loans in such Trust Fund, financial statements for such
Mortgaged Properties as well as specific information with
respect to such Mortgage Loans, Mortgaged Properties and, to the
extent material, leases and additional information concerning any
common ownership, common management or common control of, or cross-
default, cross-collateralization or similar provisions relating to,
such Mortgaged Properties and the concentration of credit risk
thereon; (xxii) if a Trust Fund contains a concentration of
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Mortgage Loans having a single Borrower, including
affiliates thereof, or Mortgage Loans secured by Mortgaged
Properties leased to a single lessee, including affiliates
thereof, representing 10% or more, but less than 20%, of the
aggregate principal balance of the Mortgage Loans in such Trust
Fund, selected financial information with respect to such
Mortgaged Properties as well as, to the extent material, specific
information with respect to any common ownership, common
management or common control of, or cross-default,
cross-collateralization or similar provisions relating to, such
Mortgaged Properties and the concentration of credit risk
thereon; (xxiii) if applicable, additional information concerning
any known concerns regarding unique economic or other factors
where there is a material concentration of any of the Mortgage
Loans in a specific geographic region; (xxiv) if applicable,
additional financial and other information concerning individual
Mortgaged Properties when there is a substantial concentration of
one or a few Mortgage Loans in a jurisdiction or region thereof
experiencing economic difficulties which may have a material
effect on such Mortgaged Properties; (xxv) if a Trust Fund
contains a substantial concentration of one or a few Mortgage
Loans in a single jurisdiction, a description of material
differences, if any, between the legal aspects of Mortgage Loans
in such jurisdiction and the summary of general legal aspects of
Mortgage Loans set forth under "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS;" and (xxvi) the rating assigned to each Class of
Offered Certificates by the nationally recognized statistical
rating organization or organizations identified therein.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for
each Series of Offered Certificates will contain, a summary of
the material terms of the documents referred to herein and
therein, but neither contains nor will contain all of the
information set forth in the Registration Statement (the
"Registration Statement") of which this Prospectus and the
related Prospectus Supplement is a part. For further information,
reference is made to such Registration Statement and the exhibits
thereto which the Seller has filed with the Securities and
Exchange Commission (the "Commission"), under the Securities Act
of 1933, as amended (the "Act"). Statements contained in this
Prospectus and any Prospectus Supplement as to the contents of
any contract or other document referred to are summaries and in
each instance reference is made to the copy of the contract or
other document filed as an exhibit to the Registration Statement.
Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be
examined free of charge at the Commission's offices. Reports and
other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Regional Offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web (the "Web") at
"http://www.sec.gov" at which users can view and download copies
of reports, proxy and information statements and other
information filed electronically through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. Copies of the
Agreement pursuant to which a Series of Certificates is issued
will be provided to each person to whom a Prospectus and the
related Prospectus Supplement are delivered, upon written or oral
3
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request directed to the Seller at 85 Broad Street, SC Level, New
York, New York 10004 (phone: 212/902-1171), Attention:
Prospectus Department.
The Master Servicer or the Trustee will be required to mail
to Holders of Offered Certificates of each Series periodic
unaudited reports concerning the related Trust Fund. Unless and
until definitive Certificates are issued, such reports may be
sent on behalf of the related Trust Fund to Cede & Co., as
nominee of The Depository Trust Company ("DTC") and registered
Holder of the Offered Certificates, pursuant to the applicable
Agreement. If so specified in the related Prospectus Supplement,
such reports may be sent to beneficial owners identified to the
Master Servicer or Trustee. Such reports may also be available to
holders of interests in the Certificates upon request to their
respective DTC participants. See "DESCRIPTION OF THE CERTIFICATES
- - Reports to Certificateholders." The Seller will file or cause
to be filed with the Commission such periodic reports with
respect to each Trust Fund as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder. Reports filed
by the Seller with the Commission pursuant to the Exchange Act
will be filed by means of the EDGAR system and therefor should be
available at the Commission's site on the Web.
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE
All documents filed by the Seller pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the
offering of the Offered Certificates of a Series shall be deemed
to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed
document which is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Seller will provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the
documents incorporated herein by reference (not including the
exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such
copies should be directed to the office of the Secretary, 85
Broad Street, New York, New York 10004 (phone: 212/902-1000).
RISK FACTORS
Commercial and Multifamily Lending Generally.
Commercial and multifamily lending generally is viewed as
exposing the lender to a greater risk of loss than one- to
four-family residential lending. Commercial and multifamily
lending typically involves larger loans to single borrowers or
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<PAGE>
groups of related borrowers than residential one- to- four-family
mortgage loans. Further, the repayment of loans secured by income
producing properties is typically dependent upon the successful
operation of the related real estate project. If the cash flow
from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan
may be impaired. Commercial and multifamily real estate can be
affected significantly by the supply and demand in the market for
the type of property securing the loan and, therefore, may be
subject to adverse economic conditions. Market values may vary as
a result of economic events or governmental regulations outside
the control of the borrower or lender that impact the cash flow
of the property, for example, laws which may require
modifications to properties such as the Americans with
Disabilities Act, and rent control laws in the case of
multifamily mortgage loans. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS" -- Certain Laws and Regulations," "-- Type of
Mortgaged Property" and "-- Americans With Disabilities Act"
herein.
Unless otherwise specified in the related Prospectus
Supplement, no new appraisals of the Mortgaged Properties will be
obtained and no new valuations will be assigned to the Mortgage
Loans by the Seller in connection with the offering of the
Offered Certificates. It is possible that the market values of
the Mortgaged Properties underlying a Series of Certificates will
have declined since the origination of the related Mortgage
Loans.
Limited Obligations.
The Certificates of any Series will represent beneficial
ownership interests solely in the assets of the related Trust
Fund and will not represent an interest in or obligation of the
Seller, the Originator, the Trustee, the Master Servicer, the
Special Servicer or any other person. The related Agreement will
provide that the Holders of the Certificates will have no rights
or remedies against the Seller or any of its affiliates for any
losses or other claims in connection with the Certificates or the
Mortgage Loans other than the repurchase of the Mortgage Loans by
the Seller, if specifically set forth in such Agreement.
Distributions on any Class of Certificates will depend solely on
the amount and timing of payments and other collections in
respect of the related Mortgage Loans. There can be no assurance
that these amounts, together with other payments and collections
in respect of the related Mortgage Loans, will be sufficient to
make full and timely distributions on any Offered Certificates.
Except to the extent described in the related Prospectus
Supplement, neither the Offered Certificates nor the Mortgage
Loans will be insured or guaranteed, in whole or in part, by the
United States or any governmental entity or by any private
mortgage or other insurer.
Limited Liquidity.
There will have been no secondary market for any Series of
the Offered Certificates prior to the offering thereof. There can
be no assurance that such a market will develop or, if it does
develop, that it will provide holders of the Offered Certificates
with liquidity of investment or continue for the life of the
Offered Certificates.
5
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Variability in Average Life of Offered Certificates.
The payment experience on the related Mortgage Loans will
affect the actual payment experience on and the weighted average
lives of the Offered Certificates and, accordingly, may affect
the yield on the Offered Certificates. Prepayments on the
Mortgage Loans will be influenced by the prepayment provisions of
the related Notes and also may be affected by a variety of
economic, geographic and other factors, including the difference
between the interest rates on the Mortgage Loans (giving
consideration to the cost of refinancing) and prevailing mortgage
rates and the availability of refinancing for commercial mortgage
loans. In general, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to
increase. Conversely, if prevailing interest rates rise
significantly above the Mortgage Interest Rates on the Mortgage
Loans, the rate of prepayment would be expected to decrease.
Certain of the Mortgage Loans may provide for a Prepayment
Premium in connection with the prepayment thereof, and certain of
the Mortgage Loans may prohibit prepayments of principal in whole
or in part during a specified period. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES" in the
related Prospectus Supplement for a description of the Prepayment
Premiums and lockout periods, if any, for the Mortgage Loans
underlying a Series of Certificates. Such Prepayment Premiums and
lockout periods can, but do not necessarily, provide a material
deterrent to prepayments. In addition, in certain jurisdictions,
the enforceability of provisions in mortgage loans prohibiting
prepayment or providing for the payment of prepayment premiums
has been questioned as described under "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS -- Enforceability of Certain Provisions --
Prepayment Provisions." The Seller makes no representation or
warranty as to the effect of such Prepayment Premiums or lockout
periods on the rate of prepayment of the related Mortgage Loans.
The extent to which the Master Servicer or Special
Servicer, if any, forecloses upon, takes title to and disposes of
any Mortgaged Property related to a Mortgage Loan will affect the
weighted average lives of the Offered Certificates. If a
significant number of the related Mortgage Loans are foreclosed
upon by the Master Servicer or Special Servicer, if any, and
depending upon the amount and timing of recoveries from related
REO Properties, the weighted average lives of Offered
Certificates may be shortened.
Delays in liquidations of defaulted Mortgage Loans and
modifications extending the maturity of Mortgage Loans will tend
to extend the payment of principal of the Mortgage Loans. Because
the ability of the Borrower to make a Balloon Payment typically
will depend upon its ability either to refinance the Mortgage
Loan or to sell the related Mortgaged Property, if a significant
number of the Mortgage Loans underlying a Series of Certificates
have Balloon Payments due at maturity, there is a risk that a
number of such Mortgage Loans may default at maturity, or that
the Master Servicer or Special Servicer, if any, may extend the
maturity of a number of such Mortgage Loans in connection with
workouts. No representation or warranty is made by the Seller as
to the ability of any of the related Borrowers to make required
Mortgage Loan payments on a full and timely basis, including
Balloon Payments at the maturity of such Mortgage Loans. In the
case of defaults, recovery of proceeds may be delayed by, among
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other things, bankruptcy of the Borrower or adverse conditions in
the market where the Mortgaged Property is located. Shortfalls in
distributions to Certificateholders also may result from losses
incurred with respect to Mortgage Loans due to uninsured risks or
insufficient hazard insurance proceeds and from any
indemnification of the Master Servicer or Special Servicer in
connection with legal actions relating to the Agreement or
Certificates.
Certain Legal Aspects of the Mortgage Loans.
Many of the legal aspects of the Mortgage Loans are
governed by the laws of the jurisdiction in which the respective
Mortgaged Properties are located (which laws may vary
substantially). These laws may affect the ability to foreclose
on, and the value of, the Mortgaged Properties securing the
Mortgage Loans. For example, state law determines what
proceedings are required for foreclosure, whether the borrower
and any foreclosed junior lienors may redeem the property,
whether and to what extent recourse to the borrower is permitted,
what rights junior mortgagees have and whether the amount of fees
and interest that lenders may charge is limited. In addition, the
laws of some jurisdictions may render certain provisions of the
Mortgage Loans unenforceable, such as prepayment provisions,
due-on-sale and acceleration provisions. Installment Contracts
and Financial Leases also may be subject to similar legal
requirements. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS"
herein. Delays in liquidations of defaulted Mortgage Loans and
shortfalls in amounts realized upon liquidation as a result of
the application of such laws may result in delays and shortfalls
in payments to Certificateholders.
Environmental Law Considerations.
The Agreement for each Series generally will provide that
an updated phase I environmental assessment be obtained with
respect to any Mortgaged Property prior to acquiring title
thereto or assuming its operation. This requirement effectively
precludes assuming ownership, control or management of the
related Mortgaged Property until a satisfactory environmental
assessment is obtained (or any required remedial action is
taken), reducing the likelihood that the related Trust Fund will
become liable for any environmental condition affecting a
Mortgaged Property, but making it more difficult to foreclose.
However, there can be no assurance that the requirements of the
Agreement will in fact insulate the Trust Fund from liability for
environmental conditions.
Under the laws of certain states, failure to perform the
remediation of environmental conditions required or demanded by
the state may give rise to a lien on a Mortgaged Property or a
restriction on the right of the owner to transfer the Mortgaged
Property to ensure the reimbursement of remediation costs
incurred by the state. Although the costs of remedial action
could be substantial, the state of the law in certain of these
jurisdictions presently is unclear as to whether and under what
circumstances such costs (or the requirements to otherwise
undertake remedial actions) would be imposed on a secured lender
such as the Trust Fund. However, under the laws of some states
and under applicable federal law, a lender may be liable for such
costs in certain circumstances as the "owner" or "operator" of
the Mortgaged Property. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS -- Environmental Considerations" herein.
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Early Termination.
The Trust Fund for a Series of Certificates may be subject
to optional termination by the Master Servicer, the Special
Servicer, if any, (if all of the Mortgage Loans are Specially
Serviced Mortgage Loans), or Holders of certain Classes of
Certificates under certain circumstances. In the event of such
termination, Holders of the Offered Certificates might receive
some principal payments earlier than otherwise, which could
adversely affect their anticipated yield to maturity. See "THE
AGREEMENT -- Optional Termination" herein.
THE SELLER
The Seller was incorporated in the State of Delaware on
November 16, 1995, for the purpose of engaging in the business,
among other things, of acquiring and depositing mortgage assets
in trusts in exchange for certificates evidencing interests in
such trusts and selling or otherwise distributing such
certificates. The principal executive offices of the Seller are
located at 85 Broad Street, New York, New York 10004. Its
telephone number is (212) 902-1000. The Seller will not have any
material assets other than the Trust Funds.
Neither the Seller, nor any of its affiliates will insure
or guarantee distributions on the Certificates of any Series. The
Agreement (as defined below) for each Series will provide that
the Holders of the Certificates for such Series will have no
rights or remedies against the Seller or any of its affiliates
for any losses or other claims in connection with the
Certificates or the Mortgage Loans other than the repurchase of
the Mortgage Loans by the Seller, if specifically set forth in
such Agreement.
The Certificate of Incorporation, as amended, of the Seller
provides that a director of the corporation shall not be liable
to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent that
such exemption from liability or limitation thereof is not
permitted under the Delaware General Corporation Law as currently
in effect or as may be amended. In addition, the Bylaws of the
Seller provide that the Seller shall indemnify to the full extent
permitted by law any person made or threatened to be made a party
to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a
director, officer or employee of the Seller or serves or served,
at the request of the Seller, any other enterprise as a director,
officer or employee. Insofar as indemnification for liabilities
arising under the Act may be permitted to directors, officers and
controlling persons of the Seller pursuant to the foregoing
provisions, or otherwise, the Seller 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.
USE OF PROCEEDS
The Seller intends to apply all or substantially all of the
net proceeds from the sale of each Series offered hereby and by
the related Prospectus Supplement to acquire the Mortgage Loans
relating to such Series, to establish the Reserve Funds, if any,
for the Series, to obtain other Credit Enhancement, if any, for
the Series, to pay costs incurred in connection with structuring
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and issuing the Certificates and for general corporate purposes.
Certificates may be exchanged by the Seller for Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to
a separate Pooling and Servicing Agreement (the "Agreement")**
to be entered into among the Seller, the Master Servicer, the
Special Servicer, if any, and the Trustee for that Series and any
other parties described in the related Prospectus Supplement,
substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus is a part or in such other
form as may be described in the related Prospectus Supplement.
The following summaries describe certain provisions expected to
be common to each Series and the Agreement with respect to the
underlying Trust Fund. However, the Prospectus Supplement for
each Series will describe more fully additional characteristics
of the Offered Certificates and any additional provisions of the
related Agreement.
At the time of issuance, it is anticipated that the Offered
Certificates of each Series will be rated "investment grade,"
typically one of the four highest generic rating categories, by
at least one nationally recognized statistical rating
organization at the request of the Seller. Each of such rating
organizations specified in the related Prospectus Supplement as
rating the Offered Certificates of the related Series at the
request of the Seller is hereinafter referred to as a "Rating
Agency." 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. There can be no
assurance as to whether any rating agency not requested to rate
the Offered Certificates will nonetheless issue a rating and, if
so, what such rating would be. A rating assigned to the Offered
Certificates by a rating agency that has not been requested by
the Seller to do so may be lower than the rating assigned by a
rating agency pursuant to the Seller's request.
General
The Certificates of each Series will be issued in
registered or book-entry form and will represent beneficial
ownership interests in the Trust Fund created pursuant to the
Agreement for such Series. The Trust Fund for each Series will
- --------
* Whenever in this Prospectus the terms "Certificates,"
"Trust Fund" and "Mortgage Pool" are used, such terms will
be deemed to apply, unless the context indicates otherwise,
to a specific Series of Certificates, the Trust Fund
underlying the related Series and the related Mortgage
Pool.
** In the case of a Funding Note (as described below), some or
all of the provisions described herein as being part of the
Agreement may be found in other contractual documents
connected with such Funding Note, such as a collateral
indenture or a separate servicing agreement, and the term
"Agreement" as used in this Prospectus will include such
other contractual documents. The Prospectus Supplement for
a Series in which a Funding Note is used will describe such
other contractual documents and will indicate in which
documents various provisions mentioned in this Prospectus
are to be found and any modifications to such provisions.
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consist of the following, to the extent provided in the
Agreement: (i) the Mortgage Pool, consisting primarily of the
Mortgage Loans conveyed to the Trustee pursuant to the Agreement;
(ii) all payments on or collections in respect of the Mortgage
Loans due on or after the date specified in the related
Prospectus Supplement; (iii) all property acquired by foreclosure
or deed in lieu of foreclosure with respect to the Mortgage
Loans; and (iv) such other assets or rights, such as a Funding
Note, as are described in the related Prospectus Supplement. In
addition, the Trust Fund for a Series may include various forms
of Credit Enhancement, such as, but not limited to, insurance
policies on the Mortgage Loans, letters of credit, certificate
guarantee insurance policies, the right to make draws upon one or
more Reserve Funds or other arrangements acceptable to each
Rating Agency rating the Offered Certificates. See "CREDIT
ENHANCEMENT." Such other assets, if any, will be described more
fully in the related Prospectus Supplement.
The Prospectus Supplement for any Series will describe any
specific features of the transaction established in connection
with the holding of the underlying Mortgage Pool. For example, if
so indicated in the Prospectus Supplement, at the time the
Mortgage Loans are to be acquired from a third party and conveyed
to the Trust Fund, the third party may establish a
bankruptcy-remote special-purpose entity or a trust, to which the
Mortgage Loans will be conveyed and which in turn will issue to
the Trustee a debt instrument collateralized by, having recourse
only to, and paying through payments (which may be net of
servicing fees and any retained yield) from, the Mortgage Pool (a
"Funding Note"), and such debt instrument may be conveyed to the
Trust Fund as the medium for holding the Mortgage
Pool.
If specified in the related Prospectus Supplement,
Certificates of a given Series may be issued in a single Class or
two or more Classes which may pay interest at different rates,
may represent different allocations of the right to receive
principal and interest payments, and certain of which may be
subordinated to other Classes in the event of shortfalls in
available cash flow from the underlying Mortgage Loans or
realized losses on the underlying Mortgage Loans. Alternatively,
or in addition, if so specified in the related Prospectus
Supplement, Classes may be structured to receive principal
payments in sequence. The related Prospectus Supplement may
provide that each Class in a group of Classes structured to
receive sequential payments of principal will be entitled to be
paid in full before the next Class in the group is entitled to
receive any principal payments, or may provide for partially
concurrent principal payments among one or more of such Classes.
If so specified in the related Prospectus Supplement, a Class of
Offered Certificates may also provide for payments of principal
only or interest only or for disproportionate payments of
principal and interest. Subordinate Certificates of a given
Series of Offered Certificates may be offered in the same
Prospectus Supplement as the Senior Certificates of such Series
or may be offered in a separate Prospectus Supplement or may be
offered in one or more transactions exempt from the registration
requirements of the Act. Each Class of Offered Certificates of a
Series will be issued in the minimum denominations specified in
the related Prospectus Supplement.
The Prospectus Supplement for any Series including types of
Classes similar to any of those described above will contain a
description of their characteristics and risk factors, including,
as applicable, (i) mortgage principal prepayment effects on the
weighted average lives of such Classes, (ii) the risk that
interest only, or disproportionately interest weighted, Classes
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purchased at a premium may not return their purchase prices under
rapid prepayment scenarios and (iii) the degree to which an
investor's yield is sensitive to principal prepayments.
The Offered Certificates of each Series will be freely
transferable and exchangeable at the office specified in the
related Agreement and Prospectus Supplement; provided, however,
-------- -------
that certain Classes of Offered Certificates may be subject to
transfer restrictions described in the related Prospectus
Supplement.
If specified in the related Prospectus Supplement, the
Offered Certificates may be transferable only in book-entry form
through the facilities of The Depository Trust Company or another
depository identified in such Prospectus Supplement.
If the Certificates of a Class are transferable only on the
books of The Depository Trust Company (the "Depository"), no
person acquiring such a Certificate that is in book-entry form
(each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Certificate except in the
limited circumstances described in the related Prospectus
Supplement. Instead, such Certificates will be registered in the
name of a nominee of the Depository, and beneficial interests
therein will be held by investors through the book-entry
facilities of the Depository, as described herein. The Seller has
been informed by the Depository that its nominee will be Cede &
Co. Accordingly, Cede & Co. is expected to be the holder of
record of any such Certificates that are in book-entry form.
If the Certificates of a Class are transferable only on the
books of the Depository, each beneficial owner's ownership of
such a Certificate will be recorded on the records of the
brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Certificate will be
recorded on the records of the Depository (or of a participating
firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of the
Depository, if the beneficial owner's Financial Intermediary is
not a Depository participant). Beneficial ownership of a
book-entry Certificate may only be transferred in compliance with
the procedures of such Financial Intermediaries and Depository
participants. Because the Depository can act only on behalf of
participants, who in turn act on behalf of indirect participants
and certain banks, the ability of a beneficial owner to pledge
book-entry Certificates to persons or entities that do not
participate in the Depository system, or to otherwise act with
respect to such book-entry Certificates, may be limited due to
the lack of a physical certificate for such book-entry
Certificates.
The Depository, which is a New York-chartered limited
purpose trust company, performs services for its participants,
some of whom (and/or their representatives) own the Depository.
In accordance with its normal procedure, the Depository is
expected to record the positions held by each Depository
participant in the book-entry Certificates, whether held for its
own account or as a nominee for another person. In general,
beneficial ownership of Certificates will be subject to the
rules, regulations and procedures governing the Depository and
Depository participants as are in effect from time to time.
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If the Offered Certificates are transferable on the books
of the Depository, the Depository, or its nominee as record
holder of the Offered Certificates, will be recognized by the
Seller and the Trustee as the owner of such Certificates for all
purposes, including notices and consents. In the event of any
solicitation of consents from or voting by Certificateholders
pursuant to the Agreement, the Trustee may establish a reasonable
record date and give notice of such record date to the
Depository. In turn, the Depository will solicit votes from the
beneficial owners in accordance with its normal procedures, and
the beneficial owners will be required to comply with such
procedures in order to exercise their voting rights through the
Depository.
Distributions of principal of and interest on the
book-entry Certificates will be made on each Distribution Date to
the Depository or its nominee. The Depository will be responsible
for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the
Depository's normal procedures. Each Depository participant will
be responsible for disbursing such payments to the beneficial
owners for which it is holding book-entry Certificates and to
each Financial Intermediary for which it acts as agent. Each such
Financial Intermediary will be responsible for disbursing funds
to the beneficial owners of the book-entry Certificates that it
represents.
The information herein concerning the Depository and its
book-entry system has been obtained from sources believed to be
reliable, but the Seller takes no responsibility for the accuracy
or completeness thereof.
In the event a depository other than The Depository Trust
Company is identified in a Prospectus Supplement, information
similar to that set forth above will be provided with respect to
such depository and its book-entry facilities in such Prospectus
Supplement.
Distributions on Certificates
Distributions of principal and interest on the Certificates
of each Series will be made to the registered holders thereof
("Certificateholders" or "Holders") by the Trustee (or such other
paying agent as may be identified in the related Prospectus
Supplement) on the day (the "Distribution Date") specified in the
related Prospectus Supplement, beginning in the period specified
in the related Prospectus Supplement following the establishment
of the related Trust Fund. Distributions for each Series will be
made by check mailed to the address of the person entitled
thereto as it appears on the certificate register for such Series
maintained by the Trustee, by wire transfer or by such other
method as is specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
the final distribution in retirement of the Certificates of each
Series will be made only upon presentation and surrender of the
Certificates at the office or agency specified in the notice to
the Certificateholders of such final distribution. In addition,
the Prospectus Supplement relating to each Series will set forth
the applicable due period, prepayment period, record date,
Cut-Off Date and determination date in respect of each Series of
Certificates.
With respect to each Series of Certificates on each
Distribution Date, the Trustee (or such other paying agent as may
be identified in the related Prospectus Supplement) will
distribute to the Certificateholders the amounts of principal
and/or interest, calculated as described in the related
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Prospectus Supplement, that are due to be paid on such
Distribution Date. In general, such amounts will include
previously undistributed payments of principal (including
principal prepayments, if any) and interest on the Mortgage Loans
(or amounts in respect thereof) received by the Trustee after a
date specified in the related Prospectus Supplement (the "Cut-Off
Date") and prior to the day preceding each Distribution Date
specified in the related Prospectus Supplement.
The related Prospectus Supplement for any Series of
Certificates will specify, for any Distribution Date on which the
principal balance of the Mortgage Loans is reduced due to losses,
the priority and manner in which such losses will be allocated.
Unless otherwise specified in the related Prospectus Supplement,
losses on Mortgage Loans generally will be allocated after all
proceeds of defaulted Mortgage Loans have been received by
reducing the outstanding Certificate Principal Amount of the most
subordinate outstanding Class of Certificates. If specified in
the related Prospectus Supplement, losses may be estimated on the
basis of a qualified appraisal of the Mortgaged Property and
allocated prior to the final liquidation of the Mortgaged
Property. The related Prospectus Supplement for any Series of
Certificates also will specify the manner in which principal
prepayments, negative amortization and interest shortfalls
will be allocated among the Classes of Certificates.
Accounts
It is expected that the Agreement for each Series of
Certificates will provide that the Trustee establish an account
(the "Distribution Account") into which the Master Servicer will
deposit amounts held in the Collection Account and from which
account distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will
apply amounts on deposit in the Distribution Account generally to
make distributions of interest and principal to the
Certificateholders in the manner described in the related
Prospectus Supplement.
It is also expected that the Agreement for each Series of
Certificates will provide that the Master Servicer establish and
maintain a special trust account (the "Collection Account") in
the name of the Trustee for the benefit of Certificateholders.
Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer will deposit into the Collection Account, as
more fully described in the related Prospectus Supplement (other
than in respect of principal of, or interest on, the Mortgage
Loans due on or before the Cut-Off Date): (1) all payments on
account of principal, including principal prepayments, on the
Mortgage Loans; (2) all payments on account of interest on the
Mortgage Loans and all Prepayment Premiums; (3) all proceeds from
any insurance policy relating to a Mortgage Loan ("Insurance
Proceeds") other than proceeds applied to restoration of the
related Mortgaged Property or otherwise applied in accordance
with the terms of the related Mortgage Loans; (4) all proceeds
from the liquidation of a Mortgage Loan ("Liquidation Proceeds"),
including the sale of any Mortgaged Property acquired on behalf
of the Trust Fund through foreclosure or deed in lieu of
foreclosure ("REO Property"); (5) all proceeds received in
connection with the taking of a Mortgaged Property by eminent
domain; (6) any amounts required to be deposited by the Master
Servicer to cover net losses on Permitted Investments made with
funds held in the Collection Account; (7) any amounts required to
be deposited in connection with the application of co-insurance
clauses, flood damage to REO Properties and blanket policy
deductibles; (8) any amounts required to be deposited from income
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with respect to any REO Property and deposited in the REO Account
(to the extent the funds in the REO Account exceed the expenses
of operating and maintaining REO Properties and reserves
established therefor); (9) any Advance made by the Master
Servicer that is required to be deposited therein pursuant to the
Agreement; and (10) any amounts received from Borrowers which
represent recoveries of Property Protection Expenses. Unless
otherwise specified in the related Prospectus Supplement, the
Special Servicer, if any, will be required to remit immediately
to the Master Servicer for deposit in the Collection Account any
amounts of the types described above that it receives in respect
of the Specially Serviced Mortgage Loans. "Prepayment Premium"
means any premium paid or payable by the related Borrower in
connection with any principal prepayment on any Mortgage Loan.
"Property Protection Expenses" comprise certain costs and
expenses incurred in connection with defaulted Mortgage Loans,
acquiring title or management of REO Property or the sale of
defaulted Mortgage Loans or REO Properties, as more fully
described in the related Agreement. As set forth in the Agreement
for each Series, the Master Servicer will be entitled to make
from time to time certain withdrawals from the Collection Account
to, among other things: (i) remit certain amounts for the related
Distribution Date into the Distribution Account; (ii) to the
extent specified in the related Prospectus Supplement, reimburse
Property Protection Expenses and pay taxes, assessments and
insurance premiums and certain third-party expenses in accordance
with the Agreement; (iii) pay accrued and unpaid servicing fees
to the Master Servicer out of all Mortgage Loan collections; and
(iv) reimburse the Master Servicer, the Special Servicer, if any,
the Trustee and the Seller for certain expenses and provide
indemnification to the Seller, the Master Servicer, the Trustee
and, if applicable, the Special Servicer, as described in the
Agreement.
The amounts at any time credited to the Collection Account
may be invested in Permitted Investments that are payable on
demand or in general mature or are subject to withdrawal or
redemption on or before the business day preceding the next
succeeding Master Servicer Remittance Date. The Master Servicer
will be required to remit amounts required for distribution to
Certificateholders to the Distribution Account on the business
day preceding the related Distribution Date that is specified in
the related Prospectus Supplement (the "Master Servicer
Remittance Date"). Unless otherwise set forth in the related
Prospectus Supplement, the income from the investment of funds in
the Collection Account in Permitted Investments will constitute
additional servicing compensation for the Master Servicer, and
the risk of loss of funds in the Collection Account resulting
from such investments will be borne by the Master Servicer. The
amount of any such loss will be required to be deposited by the
Master Servicer in the Collection Account immediately as
realized.
It is expected that the Agreement for each Series of
Certificates will provide that a special trust account (the
"REO Account") will be established and maintained in order to be
used in connection with each REO Property and, if specified in
the related Prospectus Supplement, certain other Mortgaged
Properties. To the extent set forth in the Agreement, certain
withdrawals from the REO Account will be made to, among other
things, (i) make remittances to the Collection Account as
required by the Agreement, (ii) pay taxes, assessments, insurance
premiums, other amounts necessary for the proper operation,
management and maintenance of the REO Properties and such other
Mortgaged Properties and certain third-party expenses in
accordance with the Agreement (including expenses relating to any
appraisal, property inspection and environmental assessment
reports required by the Agreement) and (iii) provide for the
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reimbursement of certain expenses in respect of the REO
Properties and such Mortgaged Properties.
The amount at any time credited to each REO Account will be
fully insured to the maximum coverage possible or will be
invested in Permitted Investments that mature, or are subject to
withdrawal or redemption, on or before the business day on which
such amounts are required to be remitted to the Master Servicer
for deposit in the Collection Account. Unless otherwise specified
in the related Prospectus Supplement, the income from the
investment of funds in the REO Account in Permitted Investments
shall be deposited in the REO Account for remittance to the
Collection Account, and the risk of loss of funds in the REO
Account resulting from such investments will be borne by the
Trust Fund.
Unless otherwise specified in the related Prospectus
Supplement, "Permitted Investments" will consist of one or more
of the following:
(i) direct obligations of, or guaranteed as to timely
payment of principal and interest by, the United States or any
agency or instrumentality thereof provided that such obligations
are backed by the full faith and credit of the United States;
(ii) direct obligations of, or guaranteed as to timely
payment of principal and interest by, the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association or the Federal Farm Credit System, provided that any
such obligation, at the time of purchase of such obligation or
contractual commitment providing for the purchase thereof, is
qualified by each Rating Agency as an investment of funds backing
securities having ratings equivalent to each Rating Agency's
highest initial rating of the Certificates;
(iii) demand and time deposits in, or certificates of
deposit of, or bankers' acceptances issued by, any bank or trust
company, savings and loan association or savings bank, provided
that, in the case of obligations that are not fully FDIC-insured
deposits, the commercial paper and /or long-term unsecured debt
obligations of such depository institution or trust company (or
in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt
obligations of such holding company) have the highest rating
available for such securities by each Rating Agency (in the case
of commercial paper) or have received one of the two highest
ratings available for such securities by each Rating Agency (in
the case of long-term unsecured debt obligations), or such lower
rating as will not result in the downgrading or withdrawal of the
rating or ratings then assigned to the Certificates by any Rating
Agency;
(iv) general obligations of, or obligations guaranteed by,
any state of the United States or the District of Columbia
receiving one of the two highest long-term debt ratings available
for such securities by each Rating Agency, or such lower rating
as will not result in the downgrading or withdrawal of the rating
or ratings then assigned to the Certificates by any such Rating
Agency;
(v) commercial or finance company paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more
than one year after the date of issuance thereof) that is rated
by each Rating Agency in its highest short-term unsecured rating
category at the time of such investment or contractual commitment
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providing for such investment, and is issued by a corporation the
outstanding senior long-term debt obligations of which are then
rated by each Rating Agency in one of its two highest long-term
unsecured rating categories, or such lower rating as will not
result in the downgrading or withdrawal of the rating or ratings
then assigned to the Certificates by any Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation rated in one of the two
highest ratings available to such issuers by each Rating Agency
at the time of such investment, provided that any such agreement
must by its terms provide that it is terminable by the purchaser
without penalty in the event any such rating is at any time lower
than such level;
(vii) repurchase obligations with respect to any security
described in clause (i) or (ii) above entered into with a
depository institution or trust company (acting as principal)
meeting the ratings standard described in (iii) above;
(viii) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the
United States or any state thereof and rated by each Rating
Agency in one of its two highest long-term unsecured rating
categories at the time of such investment or contractual
commitment providing for such investment, subject to such
limitations, if any, as are provided in the related Agreement;
(ix) units of taxable money market funds which funds are
regulated investment companies, seek to maintain a constant net
asset value per share and invest solely in obligations backed by
the full faith and credit of the United States, and have been
designated in writing by each Rating Agency as Permitted
Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any
other demand, money market or time deposit, or any other
obligation, security or investment, as may be acceptable to each
Rating Agency as an investment of funds backing securities having
ratings equivalent to each Rating Agency's highest initial rating
of the Certificates; and
(xi) such other obligations as are acceptable as Permitted
Investments to each Rating Agency; provided, however, that (a)
such instrument or security shall qualify as a "cash flow
investment" pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") and (b) no instrument or security shall be a
Permitted Investment if (i) such instrument or security evidences
a right to receive only interest payments or (ii) the stated
interest rate on such investment is in excess of 120% of the
yield to maturity produced by the price at which such investment
was purchased.
As described in the related Prospectus Supplement, for a
Series of Certificates where the underlying Mortgage Loans are
held through a Funding Note, some of the accounts described above
may be held by the issuer or collateral trustee of such Funding
Note.
Amendment
The Agreement for each Series will provide that it may be
amended by the parties thereto without the consent of any of the
Certificateholders (i) to cure any ambiguity, (ii) to correct or
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supplement any provision therein that may be inconsistent with
any other provision therein or in the Prospectus Supplement,
(iii) to maintain the rating or ratings assigned to the
Certificates by a Rating Agency or (iv) to make other provisions
with respect to matters or questions arising under the Agreement
which are not materially inconsistent with the provisions of the
Agreement, provided that any such amendment pursuant to clause
(iv) above will not, as evidenced by an opinion of counsel
acceptable to the Seller and the Trustee, or as otherwise
specified in the Agreement and the related Prospectus Supplement,
adversely affect in any material respect the interests of any
Certificateholder.
Unless otherwise specified in the related Prospectus
Supplement, each Agreement also will provide that it may be
amended by the parties thereto with the consent of the Holders of
Certificates representing an aggregate outstanding principal
amount of not less than 66 2/3% of each Class of Certificates
affected by the proposed amendment for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of the Agreement or modifying in any manner the rights
of Certificateholders; provided, however, 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 any Certificate without the consent of each
affected Certificateholder, (ii) reduce the aforesaid percentage
of Certificates the Holders of which are required to consent to
any such amendment, without the consent of the Holders of all
Certificates then outstanding, or (iii) alter the servicing
standard set forth in the Agreement. Further, the Agreement for
each Series may provide that the parties thereto, at any time and
from time to time, without the consent of the Certificateholders,
may amend the Agreement to modify, eliminate or add to any of its
provisions to such extent as shall be necessary to maintain the
qualification of the Trust Fund as a REMIC or a FASIT, as the
case may be, or to prevent the imposition of any additional state
or local taxes, at all times that any of the Certificates are
outstanding; provided, however, that such action, as evidenced by
an opinion of counsel acceptable to the Trustee, is necessary or
helpful to maintain such qualification or to prevent the
imposition of any such taxes, and would not adversely affect in
any material respect the interest of any Certificateholder.
The Agreement relating to each Series may provide that no
amendment to such Agreement will be made unless there has been
delivered in accordance with such Agreement an opinion of counsel
to the effect that such amendment will not cause such Series to
fail to qualify as a REMIC or a FASIT, as the case may be, at any
time that any of the Certificates are outstanding or cause a tax
to be imposed on the Trust Fund under the REMIC or FASIT
provisions of the Code.
The Prospectus Supplement for a Series may describe other
or different provisions concerning the amendment of the related
Agreement.
Termination
Unless otherwise specified in the related Prospectus
Supplement, the obligations of the parties to the Agreement for
each Series will terminate upon: (i) the purchase of all of the
assets of the related Trust Fund, as described in the related
Prospectus Supplement; (ii) the later of (a) the distribution to
Certificateholders of that Series of final payment with respect
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to the last outstanding Mortgage Loan or (b) the disposition of
all property acquired upon foreclosure or deed in lieu of
foreclosure with respect to the last outstanding Mortgage Loan
and the remittance to the Certificateholders of all funds due
under the Agreement; (iii) the sale of the assets of the related
Trust Fund after the principal amounts of all Certificates have
been reduced to zero under certain circumstances set forth in the
Agreement; or (iv) mutual consent of the parties and all
Certificateholders. With respect to each Series, the Trustee will
give or cause to be given written notice of termination of the
Agreement to each Certificateholder and, unless otherwise
specified in the related Prospectus Supplement, the final
distribution under the Agreement will be made only upon surrender
and cancellation of the related Certificates at an office or
agency specified in the notice of termination.
Reports to Certificateholders
Concurrently with each distribution for each Series, the
Trustee (or such other paying agent as may be identified in the
related Prospectus Supplement) will make available to each
Certificateholder several monthly reports setting forth such
information as is specified in the Agreement and described in the
related Prospectus Supplement, which may include the following
information, if applicable:
(i) a Distribution Date Statement that provides, among
other things, standard information as to principal and interest
distributions, Certificate Principal Amounts, Advances and
Scheduled Principal Balances of the Mortgage Loans;
(ii) a Mortgage Loan Status Report, which provides updated
information regarding the Mortgage Loans and a loan-by-loan
listing showing loan name, property type, location, unpaid
principal balance, interest rate, paid through date and maturity
date, which loan-by-loan listing may be made available
electronically;
(iii) a Financial Status Report, which provides, among
other things, revenue, net operating income and debt service
coverage ratio for certain Mortgage Loans;
(iv) a Delinquent Loan Status Report, which provides, among
other things, loan name, loan number and unpaid principal balance
of Mortgage Loans which are delinquent 30-59 days, 60-89 days, 90
days or more, or are in foreclosure but have not yet become REO
Properties;
(v) an Historical Loan Modification Report, which provides,
among other things, information on those Mortgage Loans which
have been modified;
(vi) an Historical Loss Estimate Report, which provides on
a loan-by-loan basis, among other things, the aggregate amount of
Liquidation Proceeds, liquidation expenses and realized losses
for certain Specially Serviced Mortgage Loans;
(vii) an REO Status Report, which provides, among other
things, for each REO Property, the date of acquisition, net
operating income and the value of such REO Property (based on the
most recent appraisal or valuation); and
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(viii) a Watch List, which provides, among other things, a
list of Mortgage Loans in jeopardy of becoming Specially Serviced
Mortgage Loans.
The Trustee
The Seller will select a bank or trust company to act as
trustee (the "Trustee") under the Agreement for each Series and
the Trustee will be identified in the related Prospectus
Supplement.
THE MORTGAGE POOLS
General
Each Mortgage Pool will consist of one or more mortgage
loans secured by first, second or more junior mortgages, deeds of
trust or similar security instruments ("Mortgages") on, or
installment contracts ("Installment Contracts") for the sale of
or financial leases and other similar arrangements equivalent to
such mortgage loans on, fee simple or leasehold interests in
commercial real property, multifamily residential property, mixed
residential/commercial property, and related property and
interests (each such interest or property, as the case may be, a
"Mortgaged Property"). Each such mortgage loan, lease or
Installment Contract is herein referred to as a "Mortgage Loan."
Mortgage Loans will be of one or more of the following
types:
1. Mortgage Loans with fixed interest rates;
2. Mortgage Loans with adjustable interest rates;
3. Mortgage Loans with principal balances that
fully amortize over their remaining terms to maturity;
4. Mortgage Loans whose principal balances do not
fully amortize but instead provide for a substantial
principal payment at the stated maturity of the loan;
5. Mortgage Loans that provide for recourse against
only the Mortgaged Properties;
6. Mortgage Loans that provide for recourse against
the other assets of the related Borrowers; and
7. any other types of Mortgage Loans described in
the related Prospectus Supplement.
Certain Mortgage Loans ("Simple Interest Loans") may
provide that scheduled interest and principal payments thereon
are applied first to interest accrued from the last date to which
interest has been paid to the date such payment is received and
the balance thereof is applied to principal, and other Mortgage
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Loans may provide for payment of interest in advance rather than
in arrears.
Mortgage Loans may also be secured by one or more
assignments of leases and rents, management agreements, security
agreements, or rents, fixtures and personalty or operating
agreements relating to the Mortgaged Property and in some cases
by certain letters of credit, personal guarantees or both.
Pursuant to an assignment of leases and rents, the obligor (the
"Borrower") on the related promissory note (the "Note") assigns
its right, title and interest as landlord under each lease and
the income derived therefrom to the related lender, while
retaining a right, or in some cases a license, to collect the
rents for so long as there is no default. If the Borrower
defaults, the license terminates and the related lender is
entitled to collect the rents from tenants to be applied to the
monetary obligations of the Borrower. State law may limit or
restrict the enforcement of the assignment of leases and rents by
a lender until the lender takes possession of the related
Mortgaged Property and a receiver is appointed. See "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS -- Leases and Rents."
Certain Mortgage Loans may provide for "equity
participations" which, as specified in the related Prospectus
Supplement, may or may not be assigned to the Trust Fund. If so
specified in the related Prospectus Supplement, the Mortgage
Loans may provide for holdbacks of certain of the proceeds of
such loans. In such event, the amount of such holdback will be
deposited by the Seller into an escrow account held by the
Trustee unless otherwise specified in the related Prospectus
Supplement.
Unless otherwise specified in the Prospectus Supplement for
a Series, the Mortgage Loans will not be insured or guaranteed by
the United States, any governmental agency or any private
mortgage insurer.
Unless otherwise specified therein, the Prospectus
Supplement relating to each Series will provide specific
information regarding the characteristics of the Mortgage Loans,
as of the Cut-Off Date, including, among other things: (i) the
aggregate principal balance of the Mortgage Loans and the
largest, smallest and average principal balance of the Mortgage
Loans; (ii) the types of properties securing the Mortgage Loans
and the aggregate principal balance of the Mortgage Loans secured
by each type of property; (iii) the interest rate or range of
interest rates of the Mortgage Loans and the weighted average
Mortgage Interest Rate of the Mortgage Loans; (iv) the original
and remaining terms to stated maturity of the Mortgage Loans and
the seasoning of the Mortgage Loans; (v) the earliest and latest
origination date and maturity date and the weighted average
original and remaining terms to stated maturity of the Mortgage
Loans; (vi) the loan-to-valuation ratios at origination and
current loan balance-to-original valuation ratios of the Mortgage
Loans; (vii) the geographic distribution of the Mortgaged
Properties underlying the Mortgage Loans; (viii) the minimum
interest rates, margins, adjustment caps, adjustment frequencies,
indices and other similar information applicable to adjustable
rate Mortgage Loans; (ix) the debt service coverage ratios
relating to the Mortgage Loans; (x) information with respect to
the prepayment provisions, if any, of the Mortgage Loans; (xi)
information as to the payment characteristics of the Mortgage
Loans, including, without limitation, balloon payment and other
amortization provisions; and (xii) payment delinquencies, if any,
relating to the Mortgage Loans. If specified in the related
Prospectus Supplement, the Seller may segregate the Mortgage
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Loans in a Mortgage Pool into separate "Mortgage Loan Groups" (as
described in the related Prospectus Supplement) as part of the
structure of the payments of principal and interest on the
Certificates of a Series. In such case, the Seller may disclose
the above-specified information by Mortgage Loan Group. In the
event that the Mortgage Loans consist of financial leases or
Installment Contracts, the related Prospectus Supplement will
provide appropriate specific information analogous to that
described above.
The Seller will file a current report on Form 8-K (the
"Form 8-K") with the Securities and Exchange Commission within 15
days after the initial issuance of each Series of Certificates
(each, a "Closing Date"), as specified in the related Prospectus
Supplement, which will set forth information with respect to the
Mortgage Loans included in the Trust Fund for a Series as of the
related Closing Date. The Form 8-K will be available to the
Certificateholders of the related Series promptly after its
filing.
Underwriting and Interim Servicing Standards Applicable to
the Mortgage Loans
Unless otherwise indicated in the related Prospectus
Supplement, the Mortgage Loans in the Mortgage Pool underlying
the Certificates of a Series will be newly-originated or seasoned
Mortgage Loans and will be purchased or otherwise acquired from
third parties, which third parties may or may not be originators
of such Mortgage Loans and may or may not be affiliates of the
Seller. The origination standards and procedures applicable to
such Mortgage Loans may differ from Series to Series or among the
Mortgage Loans in a given Mortgage Pool, depending on the
identity of the originator or originators. In the case of
seasoned Mortgage Loans, the procedures by which such Mortgage
Loans have been serviced from their origination to the time of
their inclusion in the related Mortgage Pool may also differ from
Series to Series or among the Mortgage Loans in a given Mortgage
Pool.
The related Prospectus Supplement for each Series will
provide information as to the origination standards and
procedures applicable to the Mortgage Loans in the related
Mortgage Pool and, to the extent applicable and material, will
provide information as to the servicing of such Mortgage Loans
prior to their inclusion in the Mortgage Pool.
Assignment of Mortgage Loans
At the time of issuance of the Certificates of each Series,
the Seller will cause the Mortgage Loans (or, in the case of a
structure using a Funding Note, the Funding Note) to be assigned
to the Trustee, together with, as more fully specified in the
related Prospectus Supplement, all payments due on or with
respect to such Mortgage Loans (or Funding Note), other than
principal and interest due on or before the Cut-Off Date and
principal prepayments received on or before the Cut-Off Date. The
Trustee, concurrently with such assignment, will execute and
deliver Certificates evidencing the beneficial ownership
interests in the related Trust Fund to the Seller in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the Agreement for the related
Series (the "Mortgage Loan Schedule"). The Mortgage Loan Schedule
will include, among other things, as to each Mortgage Loan,
information as to its outstanding principal balance as of the
close of business on the Cut-Off Date, as well as information
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respecting the interest rate, the scheduled monthly (or other
periodic) payment of principal and interest as of the Cut-Off
Date and the maturity date of each Note.
In addition, except to the extent otherwise specified in
the related Prospectus Supplement, the Seller will, as to each
Mortgage Loan, deliver to the Trustee: (i) the Note, endorsed to
the order of the Trustee without recourse; (ii) the Mortgage and
an executed assignment thereof in favor of the Trustee or
otherwise as required by the Agreement; (iii) any assumption,
modification or substitution agreements relating to the Mortgage
Loan; (iv) a lender's title insurance policy (or owner's policy
in the case of a financial lease or an Installment Contract),
together with its endorsements, or, in the case of Mortgage Loans
that are not covered by title insurance, an attorney's opinion of
title issued as of the date of origination of the Mortgage Loan;
(v) if the assignment of leases, rents and profits is separate
from the Mortgage, an executed re-assignment of assignment of
leases, rents and profits to the Trustee; (vi) a copy of any
recorded UCC-1 financing statements and related continuation
statements, together with (in the case of such UCC-1 financing
statements which are in effect as of the Closing Date) an
original executed UCC-2 or UCC-3 statement, in a form suitable
for filing, disclosing the assignment to the Trustee of a
security interest in any personal property constituting security
for the repayment of the Mortgage; and (vii) such other documents
as may be described in the Agreement (such documents,
collectively, the "Mortgage Loan File"). Unless otherwise
expressly permitted by the Agreement, all documents included in
the Mortgage Loan File are to be original executed documents;
provided, however, that in instances where the original recorded
Mortgage, Mortgage assignment or any document necessary to assign
the Seller's interest in financial leases or Installment
Contracts to the Trustee, as described in the Agreement, has been
retained by the applicable jurisdiction or has not yet been
returned from recordation, the Seller may deliver a photocopy
thereof certified to be the true and complete copy of the
original thereof submitted for recording, and the Master Servicer
will cause the original of each such document which is
unavailable because it is being or has been submitted for
recordation and has not yet been returned, to be delivered to the
Trustee as soon as available.
The Trustee will hold the Mortgage Loan File for each
Mortgage Loan in trust for the benefit of all Certificateholders.
Pursuant to the Agreement, the Trustee is obligated to review the
Mortgage Loan File for each Mortgage Loan within a specified
number of days after the execution and delivery of the Agreement.
Unless otherwise specified in the related Prospectus Supplement,
if any document in the Mortgage Loan File is found to be
defective in any material respect, the Trustee will promptly
notify the Seller, the originator of the related Mortgage Loan or
such other party as is designated in the related Agreement (the
"Responsible Party") and the Master Servicer. Unless otherwise
specified in the related Prospectus Supplement, if the
Responsible Party cannot cure such defect within the time period
specified in such Prospectus Supplement, the Responsible Party
will be obligated to either substitute the affected Mortgage Loan
with a Substitute Mortgage Loan or Loans, or to repurchase the
related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement at a price specified
therein, expected to be generally equal to the principal balance
thereof as of the date of purchase or, in the case of a Series as
to which an election has been made to treat the related Trust
Fund as a REMIC, at such other price as may be necessary to avoid
a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued interest
at the applicable Mortgage Interest Rate to the first day of the
month following such repurchase, plus the amount of any
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unreimbursed advances made by the Master Servicer in respect of
such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, this substitution or purchase obligation
will constitute the sole remedy available to the Holders of
Certificates or the Trustee for a material defect in a
constituent document.
The related Prospectus Supplement will describe procedures
for the review and holding of Mortgage Loans in the case of a
structure using a Funding Note.
Representations and Warranties
To the extent specified in the related Prospectus
Supplement, the Responsible Party with respect to each Mortgage
Loan will have made certain representations and warranties in
respect of such Mortgage Loan and such representations and
warranties will have been assigned to the Trustee and/or the
Seller will have made certain representations and warranties in
respect of the Mortgage Loans directly to the Trustee. Such
representations and warranties will be set forth in an annex to
the related Prospectus Supplement. Upon the discovery of the
breach of any such representation or warranty in respect of a
Mortgage Loan that materially and adversely affects the interests
of the Certificateholders of the related Series, the Responsible
Party or the Seller, as the case may be, will be obligated either
to cure such breach in all material respects within the time
period specified in such Prospectus Supplement, to replace the
affected Mortgage Loan with a Substitute Mortgage Loan or Loans
or to repurchase such Mortgage Loan at a price specified therein,
expected to be generally equal to the unpaid principal balance
thereof at the date of repurchase or, in the case of a Series of
Certificates as to which the Seller has elected to treat the
related Trust Fund as a REMIC, as defined in the Code, at such
other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the per annum interest
rate applicable for the related Mortgage Loan (the "Mortgage
Rate"), to the first day of the month following such repurchase
and the amount of any unreimbursed advances made by the Master
Servicer in respect of such Mortgage Loan. The Master Servicer
will be required to enforce such obligation of the Responsible
Party or the Seller for the benefit of the Trustee and the
Certificateholders, following the practices it would employ in
its good faith business judgment were it the owner of such
Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement and subject to the ability of the
Responsible Party or the Seller to cure such breach in all
material respects or deliver Substitute Mortgage Loans for
certain Mortgage Loans as described below, such repurchase
obligation will constitute the sole remedy available to the
Certificateholders of such Series for a breach of a
representation or warranty by the Responsible Party or the
Seller.
The proceeds of any repurchase of a Mortgage Loan will be
deposited, subject to certain limitations set forth in the
related Agreement, into the Collection Account.
Within the period of time specified in the related
Prospectus Supplement, following the date of issuance of a Series
of Certificates, the Responsible Party or the Seller, as the case
may be, may deliver to the Trustee Mortgage Loans ("Substitute
Mortgage Loans") in substitution for any one or more of the
Mortgage Loans ("Defective Mortgage Loans") initially included in
the Trust Fund (or in the Mortgage Pool underlying a Funding
Note) but which do not conform in one or more respects to the
description thereof contained in the related Prospectus
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Supplement, as to which a breach of a representation or warranty
is discovered, which breach materially and adversely affects the
interests of the Certificateholders, or as to which a document in
the related Mortgage Loan File is defective in any material
respect. Unless otherwise specified in the related Prospectus
Supplement, the required characteristics of any Substitute
Mortgage Loan will generally include, among other things, that
such Substitute Mortgage Loan on the date of substitution, will
(i) have an outstanding principal balance, after deduction of all
scheduled payments due in the month of substitution, not in
excess of the outstanding principal balance of the Defective
Mortgage Loan (the amount of any shortfall to be distributed to
Certificateholders in the month of substitution), (ii) have a
Mortgage Interest Rate not less than (and not more than 1%
greater than) the Mortgage Interest Rate of the Defective
Mortgage Loan, (iii) have a remaining term to maturity not
greater than (and not more than one year less than) that of the
Defective Mortgage Loan and (iv) comply with all of the
representations and warranties set forth in the Agreement as of
the date of substitution.
If so specified in the related Prospectus Supplement, other
entities may also make representations and warranties with
respect to the Mortgage Loans included in a Mortgage Pool. Unless
otherwise specified in such Prospectus Supplement, such other
entity will have the same obligations with respect to such
representations and warranties as the Responsible Party or the
Seller.
SERVICING OF THE MORTGAGE LOANS
General
The Prospectus Supplement related to a Series will identify
the master servicer (the "Master Servicer") to service and
administer the Mortgage Loans as described below, and will set
forth certain information concerning the Master Servicer. The
Master Servicer will be responsible for servicing the Mortgage
Loans pursuant to the Agreement for the related Series. The
Master Servicer may have other business relationships with the
Seller and its affiliates.
If so specified in the related Prospectus Supplement, the
servicing of certain Mortgage Loans that are in default or
otherwise require special servicing (the "Specially Serviced
Mortgage Loans") will be performed by a special servicer (the
"Special Servicer"). Certain information concerning the Special
Servicer and the standards for determining which Mortgage Loans
will become Specially Serviced Mortgage Loans will be set forth
in such Prospectus Supplement. Subject to the terms of the
related Agreement, the Special Servicer (and not the Master
Servicer) will then be responsible for (a) negotiating
modifications, waivers, amendments and other forbearance
arrangements with the Borrower of any Specially Serviced Mortgage
Loan, subject to the limitations described under
"--Modifications, Waivers and Amendments" below; (b) foreclosing
on such Specially Serviced Mortgage Loan if no suitable
arrangements can be made to cure the default in the manner
specified in the related Prospectus Supplement; and (c)
supervising the management and operation of the related Mortgaged
Property if acquired through foreclosure or a deed in lieu of
foreclosure. The Special Servicer may have other business
relationships with the Seller and its affiliates.
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Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer and the Special Servicer, if any,
may subcontract the servicing of all or a portion of the Mortgage
Loans to one or more sub-servicers. Such sub-servicers may have
other business relationships with the Seller and its affiliates.
Servicing Standards
The Master Servicer and, except when acting at the
direction of any Operating Advisor, the Special Servicer, if any,
will be required to service and administer the Mortgage Loans
solely in the best interests of and for the benefit of the
Certificateholders (as determined by the Master Servicer or the
Special Servicer, if any, as the case may be, in its reasonable
judgment without taking into account differing payment priorities
among the Classes of the related Series of Certificates and any
conflicts of interest involving it), in accordance with the terms
of the Agreement and the Mortgage Loans and, to the extent
consistent with such terms, in the same manner in which, and with
the same care, skill, prudence and diligence with which, it
services and administers similar mortgage loans in other
portfolios, giving due consideration to the customary and usual
standards of practice of prudent institutional commercial
mortgage lenders and loan servicers. If so specified in the
related Prospectus Supplement, the Master Servicer and Special
Servicer, if any, may also be required to service and administer
the Mortgage Loans in the best interest of an insurer or
guarantor or in accordance with the provisions of a related
Funding Note.
Operating Advisor
If so specified in the related Prospectus Supplement, an
advisor (the "Operating Advisor") may be selected to advise,
direct and approve recommendations of the Special Servicer with
respect to certain decisions relating to the servicing of the
Specially Serviced Mortgage Loans. The related Prospectus
Supplement will provide specific information with respect to the
following matters: (i) the duration of the term of the Operating
Advisor; (ii) the method of selection of the Operating Advisor;
(iii) certain decisions as to which the Operating Advisor will
have the power to direct and approve actions of the Special
Servicer (for example, foreclosure of a Mortgaged Property
securing a Specially Serviced Mortgage Loan, modification of a
Specially Serviced Mortgage Loan, extension of the maturity of a
Specially Serviced Mortgage Loan beyond a specified term and
methods of compliance with environmental laws) and (iv) the
information, recommendations and reports to be provided to the
Operating Advisor by the Special Servicer.
Collections and Other Servicing Procedures
The Master Servicer and, with respect to any Specially
Serviced Mortgage Loans, the Special Servicer, if any, will make
efforts to collect all payments called for under the Mortgage
Loans and will, consistent with the related Agreement, follow
such collection procedures as it deems necessary or desirable.
Consistent with the above, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer or Special
Servicer, if any, may, in its discretion, waive any late payment
or assumption charge or penalty interest in connection with any
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late payment or assumption of a Mortgage Loan and, if so
specified in the related Prospectus Supplement, may extend the
due dates for payments due on a Note.
It is expected that the Agreement for each Series will
provide that the Master Servicer establish and maintain an escrow
account (the "Escrow Account") in which the Master Servicer will
be required to deposit amounts received from each Borrower, if
required by the terms of the related Note, for the payment of
taxes, assessments, certain mortgage and hazard insurance
premiums and other comparable items. The Special Servicer, if
any, will be required to remit amounts received for such purposes
on Mortgage Loans serviced by it for deposit in the Escrow
Account and will be entitled to direct the Master Servicer to
make withdrawals from the Escrow Account as may be required for
the servicing of such Mortgage Loans. Withdrawals from the Escrow
Account may be made to effect timely payment of taxes,
assessments, mortgage and hazard insurance premiums and
comparable items, to refund to Borrowers amounts determined to be
overages, to remove amounts deposited therein in error, to pay
interest to Borrowers on balances in the Escrow Account, if
required, to repair or otherwise protect the Mortgaged Properties
and to clear and terminate such account. Unless otherwise set
forth in the related Prospectus Supplement, the Master Servicer
will be entitled to all income on the funds in the Escrow Account
invested in Permitted Investments not required to be paid to
Borrowers under applicable law. The Master Servicer will be
responsible for the administration of the Escrow Account. If
amounts on deposit in the Escrow Account are insufficient to pay
any tax, insurance premium or other similar item when due, such
item will be payable from amounts on deposit in the Collection
Account or otherwise in the manner set forth in the Prospectus
Supplement and Agreement for the related Series.
Insurance
Unless otherwise specified in the related Prospectus
Supplement, the Agreement for each Series will require that the
Master Servicer maintain or require each Borrower to maintain
insurance in accordance with the related Mortgage, which
generally will include a standard fire and hazard insurance
policy with extended coverage. To the extent required by the
related Mortgage, the coverage of each such standard hazard
insurance policy will be in an amount that is not less than the
lesser of 90% of the replacement cost of the improvements
securing such Mortgage Loan or the outstanding principal balance
owing on such Mortgage Loan. Unless otherwise specified in the
related Prospectus Supplement, if a Mortgaged Property was
located at the time of origination of the related Mortgage Loan
in a federally designated special flood hazard area, the Master
Servicer also will maintain or require the related Borrower to
maintain in accordance with the related Mortgage flood insurance
in an amount equal to the lesser of the unpaid principal balance
of the related Mortgage Loan and the maximum amount obtainable
with respect to the Mortgaged Property. To the extent set forth
in the related Prospectus Supplement, the cost of any such
insurance maintained by the Master Servicer will be an expense of
the Trust Fund payable out of the Collection Account. The Master
Servicer or, if so specified in the related Prospectus
Supplement, the Special Servicer, if any, will cause to be
maintained fire and hazard insurance with extended coverage on
each REO Property in an amount specified in the related
Prospectus Supplement and expected to generally be equal to the
greater of (i) an amount necessary to avoid the application of
any coinsurance clause contained in the related insurance policy
and (ii) 90% of the replacement cost of the improvements which
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are a part of such property. Unless otherwise specified in the
related Prospectus Supplement, the cost of any such insurance
with respect to an REO Property will be an expense of the Trust
Fund payable out of amounts on deposit in the related REO Account
or, if such amounts are insufficient, from the Collection
Account. The Master Servicer or, if so specified in the related
Prospectus Supplement, the Special Servicer, if any, will
maintain flood insurance providing substantially the same
coverage as described above on any REO Property which was located
in a federally designated special flood hazard area at the time
the related Mortgage Loan was originated. The related Agreement
may provide that the Master Servicer or the Special Servicer, if
any, as the case may be, may satisfy its obligation to cause
hazard policies to be maintained by maintaining a master, or
single interest, insurance policy insuring against losses on the
Mortgage Loans or REO Properties, as the case may be. The
incremental cost of such insurance allocable to any particular
Mortgage Loan, if not borne by the related Borrower, will be an
expense of the Trust Fund unless otherwise specified by the
related Prospectus Supplement. Alternatively, the Master Servicer
may satisfy its obligation by maintaining, at its expense, a
blanket policy (i.e., not a single interest or master policy)
insuring against losses on the Mortgage Loans or REO Properties,
as the case may be. If such a blanket policy contains a
deductible clause, the Master Servicer or the Special Servicer,
if any, as the case may be, will be obligated to deposit in the
Collection Account all sums which would have been deposited
therein but for such clause.
In general, the standard form of fire and hazard extended
coverage policy will cover physical damage to, or destruction of,
the improvements on the Mortgaged Property caused by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and
civil commotion, subject to the conditions and exclusions
particularized in each policy. Since the standard hazard
insurance policies relating to the Mortgage Loans generally will
be underwritten by different insurers and will cover Mortgaged
Properties located in various jurisdictions, such policies will
not contain identical terms and conditions. The most significant
terms thereof, however, generally will be determined by state law
and conditions. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing
list is merely indicative of certain kinds of uninsured risks and
is not intended to be all-inclusive. Any losses incurred with
respect to Mortgage Loans due to uninsured risks (including
earthquakes, mudflows and floods) or insufficient hazard
insurance proceeds could affect distributions to the
Certificateholders.
The standard hazard insurance policies covering Mortgaged
Properties securing Mortgage Loans typically will contain a
"coinsurance" clause which, in effect, will require the insured
at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged
Property in order to recover the full amount of any partial loss.
If the insured's coverage falls below this specified percentage,
such clause will typically provide that the insurer's liability
in the event of partial loss will not exceed the greater of (i)
the actual cash value (the replacement cost less physical
depreciation) of the structures and other improvements damaged or
destroyed and (ii) such proportion of the loss, without deduction
for depreciation, as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such
dwellings, structures and other improvements.
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In addition, to the extent required by the related
Mortgage, the Master Servicer or Special Servicer, if any, may
require the Borrower to maintain other forms of insurance
including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public
liability insurance, and the related Agreement may require the
Master Servicer or Special Servicer, if any, to maintain public
liability insurance with respect to any REO Properties. Any cost
incurred by the Master Servicer or Special Servicer, if any, in
maintaining any such insurance policy will be added to the amount
owing under the Mortgage Loan where the terms of the Mortgage
Loan so permit; provided, however, that the addition of such cost
-------- -------
will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be
recovered by the Master Servicer and the Special Servicer, if
any, from the Collection Account, with interest thereon, as
provided by the Agreement.
Unless otherwise specified in the related Prospectus
Supplement, no pool insurance policy, special hazard insurance
policy, bankruptcy bond, repurchase bond or guarantee insurance
will be maintained with respect to the Mortgage Loans.
Fidelity Bonds and Errors and Omissions Insurance
Unless otherwise specified in the related Prospectus
Supplement, the Agreement for each Series will require that the
Master Servicer and the Special Servicer, if any, obtain and
maintain in effect a fidelity bond or similar form of insurance
coverage (which may provide blanket coverage) or any combination
thereof insuring against loss occasioned by fraud, theft or other
intentional misconduct of the officers, employees and agents of
the Master Servicer or the Special Servicer, as the case may be.
The related Agreement may allow the Master Servicer and the
Special Servicer, if any, to self-insure against loss occasioned
by the errors and omissions of the officers, employees and agents
of the Master Servicer or Special Servicer, as the case may be,
so long as certain criteria set forth in the Agreement are met.
Servicing Compensation and Payment of Expenses
The Master Servicer's principal compensation for its
activities under the Agreement for each Series will come from the
payment to it or retention by it, with respect to each payment of
interest on a Mortgage Loan, of a "Servicing Fee" (as defined in
the related Prospectus Supplement). The exact amount or method of
calculating such Servicing Fee will be established in the
Prospectus Supplement and Agreement for the related Series. Since
the aggregate unpaid principal balance of the Mortgage Loans will
generally decline over time, the Master Servicer's servicing
compensation will ordinarily decrease as the Mortgage Loans
amortize.
In addition, the Agreement for a Series may provide that
the Master Servicer will be entitled to receive, as additional
compensation, (i) Prepayment Premiums, late fees and certain
other fees collected from Borrowers and (ii) any interest or
other income earned on funds deposited in the Collection Account
(as described under "DESCRIPTION OF THE CERTIFICATES --
Accounts") and, except to the extent such income is required to
be paid to the related Borrowers, the Escrow Account.
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Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will pay the fees and expenses of
the Trustee.
The exact amount or method of calculating the servicing fee
of the Special Servicer, if any, and the source from which such
fee will be paid will be described in the Prospectus Supplement
for the related Series.
In addition to the compensation described above, the Master
Servicer and the Special Servicer, if any (or any other party
specified in the related Prospectus Supplement), may retain, or
be entitled to the reimbursement of, such other amounts and
expenses as are described in the related Prospectus Supplement.
Advances
The related Prospectus Supplement will set forth the
obligations, if any, of the Master Servicer to make any advances
("Advances") with respect to delinquent payments on Mortgage
Loans, payments of taxes, insurance and property protection
expenses or otherwise. Any such Advances will be made in the form
and manner described in the Prospectus Supplement and Agreement
for the related Series. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be obligated to
make such an Advance only to the extent that the Master Servicer
has determined that such Advance will be recoverable. In the
event that the Master Servicer determines that it is required to
make an Advance, it will, on or prior to the related Distribution
Date, deposit in the account specified in the Prospectus
Supplement an amount equal to such Advance. Any funds thus
advanced, including Advances previously made that the Master
Servicer determines are not ultimately recoverable, are
reimbursable to the Master Servicer from amounts in the
Collection Account to the extent and in the manner described in
the related Prospectus Supplement.
If a Borrower makes a principal payment between scheduled
payment dates, the Borrower may be required to pay interest on
the prepayment amount only to the date of prepayment. If and to
the extent described in the related Prospectus Supplement, the
Master Servicer's Servicing Fee may be reduced or the Master
Servicer may be otherwise obligated to advance funds to the
extent necessary to remit interest on any such full or partial
prepayment received from the date of receipt thereof to the next
succeeding scheduled payment date.
Modifications, Waivers and Amendments
If so specified in the related Prospectus Supplement, the
Agreement for each Series will provide that the Master Servicer
may have the discretion, subject to certain conditions set forth
therein, to modify, waive or amend certain of the terms of any
Mortgage Loan without the consent of the Trustee or any
Certificateholder. The extent to which the Master Servicer may
modify, waive or amend any terms of the Mortgage Loans without
such consent will be specified in the related Prospectus
Supplement.
Subject to the terms and conditions set forth in the
Agreement, the Special Servicer, if any, may modify, waive or
amend the terms of any Specially Serviced Mortgage Loan if the
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Special Servicer determines that a material default has occurred
or a payment default has occurred or is reasonably foreseeable.
The Special Servicer, if any, may extend the maturity date of
such Mortgage Loan to a date not later than the date described in
the related Prospectus Supplement. The ability of the Special
Servicer to modify, waive or amend the terms of any Mortgage Loan
may be subject to such additional limitations, including approval
requirements, as are set forth in the related Prospectus
Supplement.
Subject to the terms and conditions set forth in the
Agreement, the Special Servicer, if any, will not agree to any
modification, waiver or amendment of the payment terms of a
Mortgage Loan unless the Special Servicer has determined that
such modification, waiver or amendment is reasonably likely to
produce a greater recovery on a present value basis than
liquidation of the Mortgage Loan or has made such other
determination described in the related Prospectus Supplement.
Prior to agreeing to any such modification, waiver or amendment
of the payment terms of a Mortgage Loan, the Special Servicer, if
any, will give notice thereof in the manner set forth in the
Prospectus Supplement and Agreement for the related Series.
The Prospectus Supplement for a Series may describe other
or different provisions concerning the modification, waiver or
amendment of the terms of the related Mortgage Loans, including,
without limitation, requirements for the approval of an Operating
Advisor.
Evidence of Compliance
The Agreement for each Series will provide that the Master
Servicer and the Special Servicer, if any, at their own expense,
each will cause a firm of independent public accountants to
furnish to the Trustee, annually on or before a date specified in
the Agreement, a statement as to compliance with the Agreement by
the Master Servicer or Special Servicer, as the case may be.
In addition, the Agreement will provide that the Master
Servicer and the Special Servicer, if any, each will deliver to
the Trustee, annually on or before a date specified in the
Agreement, a statement signed by an officer to the effect that,
based on a review of its activities during the preceding calendar
year, to the best of such officer's knowledge, the Master
Servicer or Special Servicer, as the case may be, has fulfilled
its obligations under the Agreement throughout such year or, if
there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and
status thereof, and, in the case of a Series of Certificates as
to which a REMIC or FASIT election has been made, whether the
Master Servicer or the Special Servicer, as the case may be, has
received a challenge from the Internal Revenue Service as to the
status of the Trust Fund as a REMIC or FASIT.
Certain Matters With Respect to the Master Servicer, the Special
Servicer and the Trustee
Unless otherwise specified in the related Prospectus
Supplement, the Agreement for each Series will provide that
neither the Master Servicer nor the Special Servicer, if any, nor
any of their directors, officers, employees or agents 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 Agreement, or for errors in
judgment; provided, however, that neither the Master Servicer nor
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the Special Servicer, if any, nor any such person will be
protected against any breach of representations or warranties
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made by the Master Servicer or the Special Servicer, as the case
may be, in the Agreement, against any specific liability imposed
on the Master Servicer or the Special Servicer, as the case may
be, pursuant to the Agreement, or any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith,
or negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties thereunder. The
Agreement will further provide that the Master Servicer, the
Special Servicer, if any, and any of their directors, officers,
employees or agents will be 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 Agreement or the Certificates, other than any loss,
liability or expense incurred (i) by reason of willful
misfeasance, bad faith or negligence in the performance of their
duties or by reason of reckless disregard of their obligations
and duties thereunder or (ii) in certain other circumstances
specified in the Agreement. Any loss resulting from such
indemnification will reduce amounts distributable to
Certificateholders and, unless otherwise provided in the related
Prospectus Supplement, will be borne pro rata by all
Certificateholders without regard to subordination, if any, of
one Class to another.
Unless otherwise provided in the related Prospectus
Supplement, neither the Master Servicer nor the Special Servicer,
if any, may resign from its obligations and duties under the
Agreement except upon a determination that its performance of its
duties thereunder is no longer permissible under applicable law.
No such resignation of the Master Servicer will become effective
until the Trustee or a successor Master Servicer has assumed the
Master Servicer's obligations and duties under the Agreement. No
such resignation of a Special Servicer will become effective
until the Trustee, the Master Servicer or a successor Special
Servicer has assumed the Special Servicer's obligations and
duties under the Agreement.
The Trustee under each Agreement will be named in the
related Prospectus Supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships
with the Seller, the Master Servicer, the Special Servicer, if
any, and their respective affiliates.
Unless otherwise specified in the related Prospectus
Supplement, the Trustee may resign from its obligations under the
Agreement at any time, in which event a successor Trustee will be
appointed. In addition, the Seller may remove the Trustee if the
Trustee ceases to be eligible to act as Trustee under the
Agreement or if the Trustee becomes insolvent, at which time the
Seller will become obligated to appoint a successor Trustee. The
Trustee also may be removed at any time by the Holders of
Certificates evidencing the Voting Rights specified in the
related Prospectus Supplement. Any resignation and removal of the
Trustee, and the appointment of a successor Trustee, will not
become effective until acceptance of such appointment by the
successor Trustee.
Events of Default
Unless otherwise provided in the related Prospectus
Supplement, events of default (each, an "Event of Default") with
respect to the Master Servicer and the Special Servicer, if any,
under the Agreement for each Series will include: (i) with
respect to the Master Servicer, any failure by the Master
Servicer to deposit in the Collection Account or remit to the
Trustee for deposit in the Distribution Account for distribution
to Certificateholders any payment required to be made by the
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Master Servicer under the terms of the Agreement on the day
required pursuant to the terms of the Agreement; (ii) with
respect to the Special Servicer, if any, any failure by the
Special Servicer to remit to the Master Servicer for deposit in
the Collection Account on the day required any amounts received
by it in respect of a Specially Serviced Mortgage Loan and
required to be so remitted; (iii) with respect to the Master
Servicer and the Special Servicer, if any, any failure on the
part of the Master Servicer or the Special Servicer, as the case
may be, duly to observe or perform in any material respect any
other of the covenants or agreements on the part of the Master
Servicer or the Special Servicer, as the case may be, which
failure continues unremedied for a period of 90 days after
written notice of such failure has been given to the Master
Servicer or the Special Servicer, as the case may be; (iv) with
respect to the Master Servicer or the Special Servicer, if any,
the entering against the Master Servicer or the Special Servicer,
as the case may be, of a decree or order of a court, agency or
supervisory authority for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of its affairs, provided that
any such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; (v) with
respect to the Master Servicer or the Special Servicer, if any,
the consent by the Master Servicer or the Special Servicer, as
the case may be, to the appointment of a conservator or receiver
or liquidator or liquidating committee in any insolvency,
readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to it
or of or relating to all or substantially all of its property;
and (vi) with respect to the Master Servicer or the Special
Servicer, if any, the admission by the Master Servicer or Special
Servicer, as the case may be, in writing of its inability to pay
its debts generally as they become due, the filing by the Master
Servicer or the Special Servicer, as the case may be, of a
petition to take advantage of any applicable insolvency or
reorganization statute or the making of an assignment for the
benefit of its creditors or the voluntary suspension of the
payment of its obligations.
As long as an Event of Default remains unremedied, the
Trustee may, and as long as an Event of Default remains
unremedied or under certain other circumstances, if any,
described in the related Prospectus Supplement at the written
direction of the Holders of Certificates holding at least the
percentage specified in the Prospectus Supplement of all of the
Voting Rights of the Class or Classes specified therein shall, by
written notice to the Master Servicer or Special Servicer, as the
case may be, terminate all of the rights and obligations of the
Master Servicer or the Special Servicer, as the case may be,
whereupon the Trustee or another successor Master Servicer or
Special Servicer appointed by the Trustee will succeed to all
authority and power of the Master Servicer or Special Servicer
under the Agreement and will be entitled to similar compensation
arrangements. "Voting Rights" means the portion of the voting
rights of all Certificates that is allocated to any Certificate
in accordance with the terms of the Agreement.
CREDIT ENHANCEMENT
General
If specified in the related Prospectus Supplement for any
Series, credit enhancement may be provided with respect to one or
more Classes thereof or the related Mortgage Loans (the "Credit
Enhancement"). Credit Enhancement may be in the form of the
subordination of one or more Classes of the Certificates of
such Series, the establishment of one or more reserve funds,
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overcollateralization, a letter of credit, certificate guarantee
insurance policies, the use of cross-support features or another
method of Credit Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing.
Unless otherwise specified in the related Prospectus
Supplement for a Series, the Credit Enhancement will not provide
protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the Certificates and
interest thereon. If losses occur which exceed the amount covered
by Credit Enhancement or which are not covered by the Credit
Enhancement, Certificateholders will bear their allocable share
of deficiencies.
If Credit Enhancement is provided with respect to a Series,
or the related Mortgage Loans, the related Prospectus Supplement
will include a description of (a) the amount payable under such
Credit Enhancement, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under
which the amount payable under such Credit Enhancement may be
reduced and under which such Credit Enhancement may be terminated
or replaced and (d) the material provisions of any agreement
relating to such Credit Enhancement. Additionally, the related
Prospectus Supplement will set forth certain information with
respect to the issuer of any third-party Credit Enhancement,
including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or
licensed to do business, (iii) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the
date specified in such Prospectus Supplement. In addition, if the
Certificateholders of such Series will be materially dependent
upon any provider of Credit Enhancement for timely payment of
interest and/or principal on their Certificates, the related
Prospectus Supplement will include audited financial statements
on a comparative basis for at least the prior two years and any
other appropriate financial information regarding such provider.
Subordinate Certificates
If so specified in the related Prospectus Supplement, one
or more Classes of a Series may be subordinate Certificates. If
so specified in the related Prospectus Supplement, the rights of
the Holders of subordinate Certificates (the "Subordinate
Certificates") to receive distributions of principal and interest
on any Distribution Date will be subordinated to such rights of
the Holders of senior Certificates (the "Senior Certificates") to
the extent specified in the related Prospectus Supplement. The
Agreement may require a trustee that is not the Trustee to be
appointed to act on behalf of Holders of Subordinate
Certificates.
A Series may include one or more Classes of Senior
Certificates entitled to receive cash flows remaining after
distributions are made to all other Senior Certificates of such
Series. Such right to receive payments will effectively be
subordinate to the rights of other Holders of Senior
Certificates. A Series also may include one or more Classes of
Subordinate Certificates entitled to receive cash flows remaining
after distributions are made to other Subordinate Certificates of
such Series. If so specified in the related Prospectus
Supplement, the subordination of a Class may apply only in the
event of (or may be limited to) certain types of losses not
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covered by insurance policies or other credit support, such as
losses arising from damage to property securing a Mortgage Loan
not covered by standard hazard insurance policies.
The related Prospectus Supplement will set forth
information concerning the amount of subordination of a Class or
Classes of Subordinate Certificates in a Series, the
circumstances in which such subordination will be applicable, the
manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any related Reserve
Fund and the conditions under which amounts in any applicable
Reserve Fund will be used to make distributions to Holders of
Senior Certificates and/or to Holders of Subordinate Certificates
or be released from the applicable Trust Fund.
Cross-Support Features
If the Mortgage Pool for a Series is divided into separate
Mortgage Loan Groups, each backing a separate Class or Classes of
a Series, credit support may be provided by a cross-support
feature which requires that distributions be made on Senior
Certificates backed by one Mortgage Loan Group prior to
distributions on Subordinate Certificates backed by another
Mortgage Loan Group within the Trust Fund. The related Prospectus
Supplement for a Series which includes a cross-support feature
will describe the manner and conditions for applying such
cross-support feature.
Letter of Credit
If specified in the related Prospectus Supplement, a letter
of credit with respect to a Series of Certificates will be issued
by the bank or financial institution specified in such Prospectus
Supplement (the "Letter of Credit Bank"). Under the letter of
credit, the Letter of Credit Bank will be obligated to honor
drawings thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the applicable Cut-Off
Date or of one or more Classes of Certificates (the "Letter of
Credit Percentage"). If so specified in the related Prospectus
Supplement, the letter of credit may permit drawings in the event
of losses not covered by insurance policies or other credit
support, such as losses arising from damage not covered by
standard hazard insurance policies. The amount available under
the letter of credit will, in all cases, be reduced to the extent
of the unreimbursed payments thereunder. The obligations of the
Letter of Credit Bank under the letter of credit for any Series
of Certificates will expire at the earlier of the date specified
in the related Prospectus Supplement or the termination of the
Trust Fund. A copy of the letter of credit for a Series, if any,
will be filed with the Commission as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the applicable Series.
Certificate Guarantee Insurance
If so specified in the related Prospectus Supplement,
certificate guarantee insurance, if any, with respect to a Series
of Certificates will be provided by one or more insurance
companies. Such certificate guarantee insurance will guarantee,
with respect to one or more Classes of Certificates of the
applicable Series, timely distributions of interest and principal
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to the extent set forth in or determined in the manner specified
in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the certificate guarantee
insurance will also guarantee against any payment made to a
Certificateholder which is subsequently covered as a "voidable
preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance policy for a Series, if any, will
be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the applicable Series.
Reserve Funds
If specified in the related Prospectus Supplement, one or
more reserve funds (each, a "Reserve Fund") may be established
with respect to a Series, in which cash, a letter of credit,
Permitted Investments or a combination thereof, in the amounts,
if any, specified in the related Prospectus Supplement will be
deposited. The Reserve Funds for a Series may also be funded over
time by depositing therein a specified amount of the
distributions received on the applicable Mortgage Loans if
specified in the related Prospectus Supplement. The Seller may
pledge the Reserve Funds to a separate collateral agent specified
in the related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series,
together with the reinvestment income thereon, if any, will be
applied by the Trustee for the purposes, in the manner, and to
the extent specified in the related Prospectus Supplement. A
Reserve Fund may be provided to increase the likelihood of timely
payments of principal of, and interest on, the Certificates, if
required as a condition to the rating of such Series by each
Rating Agency. If so specified in the related Prospectus
Supplement, Reserve Funds may be established to provide limited
protection, in an amount satisfactory to each Rating Agency,
against certain types of losses not covered by insurance policies
or other credit support, such as losses arising from damage not
covered by standard hazard insurance policies. Reserve Funds also
may be established for other purposes and in such amounts as will
be specified in the related Prospectus Supplement. Following each
Distribution Date amounts in any 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 and will not be available for
further application by the Trustee.
Moneys deposited in any Reserve Fund will be invested in
Permitted Investments at the direction of the Seller, except as
otherwise specified in the related Prospectus Supplement. 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. If specified in the related Prospectus Supplement,
such income or other gain may be payable to the Master Servicer
as additional servicing compensation, and any loss resulting from
such investment will be borne by the Master Servicer. 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,
but the right of the Trustee to make draws on the Reserve Fund
will be an asset of the Trust Fund.
Additional information concerning any Reserve Fund will be
set forth in the related Prospectus Supplement, including the
initial balance of such Reserve Fund, the balance required to be
maintained in the Reserve Fund, the manner in which such required
balance will decrease over time, the manner of funding such
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Reserve Fund, the purpose for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a
Series of Certificates, the Trust Fund will enter into or obtain
an assignment of a swap agreement pursuant to which the Trust
Fund will have the right to receive, and may have the obligation
to make, certain payments of interest (or other payments) as set
forth or determined as described therein. The Prospectus
Supplement relating to a Series of Certificates having the
benefit of an interest rate swap agreement will describe the
material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market
and credit risk, the effect of counterparty defaults and other
risks, if any. The Prospectus Supplement relating to such Series
of Certificates also will set forth certain information relating
to the corporate status, ownership and credit quality of the
counterparty or counterparties to such swap agreement. In
addition, if the Certificateholders of such Series will be
materially dependent upon any counterparty for timely payment of
interest and/or principal on their Certificates, the related
Prospectus Supplement will include audited financial statements
on a comparative basis for at least the prior two years and any
other appropriate financial information regarding such
counterparty. A swap agreement may include one or more of the
following types of arrangements, or another arrangement described
in the related Prospectus Supplement.
Interest Rate Swap. In an interest rate swap, the Trust
Fund will exchange the stream of interest payments on the
Mortgage Loans for another stream of interest payments based on a
notional amount, which may be equal to the principal amount of
the Mortgage Loans as it declines over time.
Interest Rate Caps. In an interest rate cap, the Trust Fund
or the swap counterparty, in exchange for a fee, will agree to
compensate the other if a particular interest rate index rises
above a rate specified in the swap agreement. The fee for the cap
may be a single up-front payment to or from the Trust Fund, or a
series of payments over time.
Interest Rate Floors. In an interest rate floor, the Trust
Fund or the swap counterparty, in exchange for a fee, will agree
to compensate the other if a particular interest rate index falls
below a rate or level specified in the swap agreement. As with
interest rate caps, the fee may be a single up-front payment or
it may be paid periodically.
Interest Rate Collars. An interest rate collar is a
combination of an interest rate cap and an interest rate floor.
One party agrees to compensate the other if a particular interest
rate index rises above the cap and, in exchange, will be
compensated if the interest rate index falls below the floor.
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YIELD CONSIDERATIONS
General
The yield to maturity on any Class of Offered Certificates
will depend upon, among other things, the price at which such
Certificates are purchased, the amount and timing of any
delinquencies and losses incurred by such Class, the rate and
timing of payments of principal on the Mortgage Loans, and the
amount and timing of recoveries and Insurance Proceeds from REO
Mortgage Loans and related REO Properties, which, in turn, will
be affected by the amortization schedules of the Mortgage Loans,
the timing of principal payments (particularly Balloon Payments)
on the related Mortgage Loans (including delay in such payments
resulting from modifications and extensions), the rate of
principal prepayments, including prepayments by Borrowers and
prepayments resulting from defaults, repurchases arising in
connection with certain breaches of the representations and
warranties made in the Agreement and the exercise of the right of
optional termination of the Trust Fund. Generally, prepayments on
the Mortgage Loans will tend to shorten the weighted average
lives of each Class of Certificates, whereas delays in
liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to lengthen
the weighted average lives of each Class of Certificates. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS -- Enforceability of
Certain Provisions" for a description of certain provisions of
each Agreement and statutory, regulatory and judicial
developments that may affect the prepayment experience and
maturity assumptions on the Mortgage Loans.
Prepayment and Maturity Assumptions
The related Prospectus Supplement may indicate that the
related Mortgage Loans may be prepaid in full or in part at any
time, generally without prepayment premium. Alternatively, a
Trust Fund may include Mortgage Loans that have significant
restrictions on the ability of a Borrower to prepay without
incurring a prepayment premium or to prepay at all. As described
above, the prepayment experience of the Mortgage Loans will
affect the weighted average life of the Offered Certificates. A
number of factors may influence prepayments on multifamily and
commercial loans, including enforceability of due-on-sale
clauses, prevailing mortgage market interest rates and the
availability of mortgage funds, changes in tax laws (including
depreciation benefits for income-producing properties), changes
in Borrowers' net equity in the Mortgaged Properties, servicing
decisions, prevailing general economic conditions and the
relative economic vitality of the areas in which the Mortgaged
Properties are located, the terms of the Mortgage Loans (for
example, the existence of due-on-sale clauses), the quality of
management of any income-producing Mortgaged Properties and, in
the case of Mortgaged Properties held for investment, the
availability of other opportunities for investment. A number of
factors may discourage prepayments on multifamily loans and
commercial loans, including the existence of any lockout or
prepayment premium provisions in the underlying Note. A lockout
provision prevents prepayment within a certain time period after
origination. A prepayment premium imposes an additional charge on
a borrower who wishes to prepay. Some of the Mortgage Loans may
have substantial principal balances due at their stated
maturities ("Balloon Payments"). Balloon Payments involve a
greater degree of risk than fully amortizing loans because the
ability of the Borrower to make a Balloon Payment typically will
depend upon its ability either to refinance the loan or to sell
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the related Mortgaged Property. The ability of a Borrower to
accomplish either of these goals will be affected by a number of
factors, including the level of available mortgage rates at the
time of the attempted sale or refinancing, the Borrower's equity
in the related Mortgaged Property, the financial condition of the
Borrower and operating history of the related Mortgaged Property,
tax laws, prevailing economic conditions and the availability of
credit for commercial real estate projects generally. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS -- Enforceability of
Certain Provisions."
If the purchaser of a Certificate offered at a discount
calculates its anticipated yield to maturity based on an assumed
rate of distributions of principal that is faster than that
actually experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of
distributions of principal that is slower than that actually
experienced on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. In either case, the effect
of voluntary and involuntary prepayments of the Mortgage Loans on
the yield on one or more Classes of the Certificates of such
Series in the related Trust Fund may be mitigated or exacerbated
by any provisions for sequential or selective distribution of
principal to such Classes.
The timing of changes in the rate of principal payments on
the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of distributions of
principal is consistent with an investor's expectation. In
general, the earlier a principal payment is received on the
Mortgage Loans and distributed on a Certificate, the greater the
effect on such investor's yield to maturity. The effect of an
investor's yield of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during a
given period may not be offset by a subsequent like decrease (or
increase) in the rate of principal payments.
The weighted average life of a Certificate refers to the
average amount of time that will elapse from the date of issuance
of the Certificate until each dollar of principal is repaid to
the Certificateholders. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal on
the Mortgage Loans is paid, which may be in the form of scheduled
amortization or prepayments. Prepayments on mortgage loans are
commonly measured relative to a prepayment standard or model. The
model used in any Prospectus Supplement, unless otherwise
indicated therein, represents an assumed constant rate of
prepayment each month relative to the then outstanding principal
balance of a pool of new mortgage loans.
There can be no assurance that the Mortgage Loans will
prepay at any rate mentioned in any Prospectus Supplement. In
general, if prevailing interest rates fall below the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment can
be expected to increase.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain
legal aspects of mortgage loans which are general in nature.
Because many of the legal aspects of mortgage loans are governed
by the laws of the jurisdictions where the related mortgaged
properties are located (which laws may vary substantially), the
following summaries do not purport to be complete, to reflect the
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laws of any particular jurisdiction, to reflect all the laws
applicable to any particular Mortgage Loan or to encompass the
laws of all jurisdictions in which the properties securing the
Mortgage Loans are situated. In the event that the Trust Fund for
a given Series includes Mortgage Loans having material
characteristics other than as described below, the related
Prospectus Supplement will set forth additional legal aspects
relating thereto.
Mortgages and Deeds of Trust Generally
The Mortgage Loans (other than financial leases and
Installment Contracts) included in the Mortgage Pool for a Series
will consist of loans secured by either mortgages or deeds of
trust or other similar security instruments. There are two
parties to a mortgage, the mortgagor, who is the borrower and
owner of the mortgaged property, and the mortgagee, who is the
lender. In a mortgage transaction, the mortgagor delivers to the
mortgagee a note, bond or other written evidence of indebtedness
and a mortgage. A mortgage creates a lien upon the real property
encumbered by the mortgage as security for the obligation
evidenced by the note, bond or other evidence of indebtedness.
Although a deed of trust is similar to a mortgage, a deed of
trust has three parties, the borrower-property owner called the
trustor (similar to a mortgagor), a lender called the beneficiary
(similar to a mortgagee), and a third-party grantee called the
trustee. Under a deed of trust, the borrower irrevocably grants
the property to the trustee, until the debt is paid, in trust for
the benefit of the beneficiary to secure payment of the
obligation generally with a power of sale. The trustee's
authority under a deed of trust and the mortgagee's authority
under a mortgage are governed by applicable law, the express
provisions of the deed of trust or mortgage, and, in some cases,
in deed of trust transactions, the directions of the beneficiary.
The real property covered by a mortgage is most often the
fee estate in land and improvements. However, a mortgage may
encumber other interests in real property such as a tenant's
interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires
special provisions in the instrument creating such interest or in
the mortgage to protect the mortgagee against termination of such
interest before the mortgage is paid. Certain representations and
warranties in the related Agreement will be made with respect to
the Mortgage Loans which are secured by an interest in a
leasehold estate.
Priority of the lien on mortgaged property created by
mortgages and deeds of trust depends on their terms and,
generally, on the order of filing with a state, county or
municipal office, although such priority may in some states be
altered by the existence of leases in place with respect to the
mortgaged property and by the mortgagee's or beneficiary's knowledge
of unrecorded liens or encumbrances against the mortgaged
property. However, filing or recording does not establish
priority over certain mechanic's liens or governmental claims for
real estate taxes and assessments or, in some states, for
reimbursement of remediation costs of certain environmental
conditions. See " --Environmental Risks." In addition, the Code
provides priority to certain tax liens over the lien of the
mortgage.
Installment Contracts
The Mortgage Loans included in the Mortgage Pool for a
Series may also consist of Installment Contracts. Under an
Installment Contract the seller (hereinafter referred to in this
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Section as the "lender") retains legal title to the property and
enters into an agreement with the purchaser (hereinafter referred
to in this Section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such contract.
Only after full performance by the borrower of the contract is
the lender obligated to convey title to the real estate to the
purchaser. As with mortgage or deed of trust financing, during
the effective period of the Installment Contract, the borrower
generally is responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an
Installment Contract varies on a state-by-state basis depending
upon the extent to which state courts are willing, or able
pursuant to state statute, to enforce the contract strictly
according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the
borrower loses his or her right to occupy the property, the
entire indebtedness is accelerated, and the buyer's equitable
interest in the property is forfeited. The lender in such a
situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in
order if the borrower has filed the Installment Contract in local
land records and an ejectment action may be necessary to recover
possession. In a few states, particularly in cases of borrower
default during the early years of an Installment Contract, the
courts will permit ejectment of the buyer and a forfeiture of his
or her interest in the property. However, most state legislatures
have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences
of forfeiture. Under such statutes, a judicial or nonjudicial
foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace
period during which the contract may be reinstated upon full
payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states,
courts in equity may permit a borrower with significant
investment in the property under an Installment Contract for the
sale of real estate to share in the proceeds of sale of the
property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and
clear title under an Installment Contract for the sale of real
estate in a given state are simpler and less time-consuming and
costly than are the procedures for foreclosing and obtaining
clear title to a mortgaged property.
Financial Leases
The Mortgage Loans included in the Mortgage Pool for a
Series also may consist of financial leases. Under a financial
lease on real property, the lessor retains legal title to the
leased property and enters into an agreement with the lessee
(hereinafter referred to in this Section as the "lessee") under
which the lessee makes lease payments approximately equal to the
principal and interest payments that would be required on a
mortgage note for a loan covering the same property. Title to the
real estate typically is conveyed to the lessee at the end of the
lease term for a price approximately equal to the remaining
unfinanced equity, determined by reference to the unpaid
principal amount, market value, or another method specified in
the related agreement. As with Installment Contracts, the lessee
generally is responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property during the
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lease term. The related Prospectus Supplement will describe the
specific legal incidents of any financial leases that are
included in the Mortgage Pool for a Series.
Rights of Mortgagees or Beneficiaries
The form of the mortgage or deed of trust used by many
institutional lenders confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any
condemnation proceedings, and to apply such proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in
such order as the mortgagee or beneficiary may determine. Thus,
in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property
is taken by condemnation, the mortgagee or beneficiary under the
senior mortgage or deed of trust will have the prior right to
collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by
the senior mortgage or deed of trust. Proceeds in excess of the
amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed,
if any. The laws of certain states may limit the ability of
mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be
allowed to use the proceeds of hazard insurance to repair the
damage unless the security of the mortgagee or beneficiary has
been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation
of the real property security only to the extent that its
security is impaired.
The form of mortgage or deed of trust used by many
institutional lenders typically contains a "future advance"
clause, which provides, in essence, that additional amounts
advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or
deed of trust. While such a clause is valid under the laws of
most states, the priority of any advance made under the clause
depends, in some states, on whether the advance was an "
obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts
initially made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of
the mortgage or deed of trust and the date of the future advance,
and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust
and other liens at the time of the advance. Where the mortgagee
or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or
deeds of trust and other liens, the advance may be subordinate to
such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under a "future advance" clause
rests, in many other states, on state law giving priority to all
advances made under the related loan agreement up to a "credit
limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the
mortgage or deed of trust used by many institutional lenders
obligates the mortgagor or trustor to pay before delinquency all
taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear
prior to the mortgage or deed of trust, to provide and maintain
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fire insurance on the property, to maintain and repair the
property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee or beneficiary
under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under the mortgage or
deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or
beneficiary on behalf of the trustor. All sums so expended by the
mortgagee or beneficiary become part of the indebtedness secured
by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many
institutional lenders typically requires the mortgagor or trustor
to obtain the consent of the mortgagee or beneficiary in respect
of actions affecting the mortgaged property, including, without
limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged
property, and management and leasing agreements for the mortgaged
property. Tenants will often refuse to execute a lease unless the
mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in
the event of a foreclosure. A senior mortgagee or beneficiary may
refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result that the value of the security for
the junior mortgage or deed of trust is diminished. For example,
a senior mortgagee or beneficiary may decide not to approve a
lease or to refuse to grant to a tenant a non-disturbance
agreement. If, as a result, the lease is not executed, the value
of the mortgaged property may be diminished.
Foreclosure
Foreclosure of a mortgage is generally accomplished by
judicial action initiated by the service of legal pleadings upon
all necessary parties having an interest in the real property.
Delays in completion of foreclosure may occasionally result from
difficulties in locating such necessary parties. When the
mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming.
A judicial foreclosure may be subject to most of the delays and
expenses of other litigation, sometimes requiring up to several
years to complete. At the completion of the judicial foreclosure
proceedings, if the mortgagee prevails, the court ordinarily
issues a judgment of foreclosure and appoints a referee or other
designated official to conduct the sale of the property. Such
sales are made in accordance with procedures which vary from
state to state. The purchaser at such sale acquires the estate or
interest in real property covered by the mortgage. If the
mortgage covered the tenant's interest in a lease and leasehold
estate, the purchaser will acquire such tenant's interest subject
to the tenant's obligations under the lease to pay rent and
perform other covenants contained therein.
In a majority of cases, foreclosure of a deed of trust is
accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust and /or applicable statutory
requirements which authorizes the trustee, generally following a
request from the beneficiary/ lender, to sell the property at
public sale upon any default by the borrower under the terms of
the note or deed of trust. A number of states may also require
that a lender provide notice of acceleration of a note to the
borrower. Notice requirements under a trustee's sale vary from
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state to state. In some states, prior to the trustee's sale the
trustee must record a notice of default and send a copy to the
borrower- trustor, to any person who has recorded a request for a
copy of a notice of default and notice of sale and to any
successor in interest to the trustor. In addition, the trustee
must provide notice in some states to any other person having an
interest in the real property, including any junior lienholders,
and to certain other persons connected with the deed of trust. In
some states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears
plus the costs and expenses (in some states, limited to
reasonable costs and expenses) incurred in enforcing the
obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, which
may be recovered by a lender. If the deed of trust is not
reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in
one or more newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent
to all parties having an interest in the real property.
In case of foreclosure under either a mortgage or a
deed of trust, the sale by the referee or other designated
official or by the trustee is often a public sale. However,
because of the difficulty a potential buyer at the sale might
have in determining the exact status of title to the property
subject to the lien of the mortgage or deed of trust and the
redemption rights that may exist (see "--Rights of Redemption"
below), and because the physical condition and financial
performance of the property may have deteriorated during the
foreclosure proceedings and/or for a variety of other reasons, a
third party may be unwilling to purchase the property at the
foreclosure sale. Some states require that the lender disclose to
potential bidders at a trustee's sale all known facts materially
affecting the value of the property. Such disclosure may have an
adverse effect on the trustee's ability to sell the property or
the sale price thereof. Potential buyers may further question the
prudence of purchasing property at a foreclosure sale as a result
of the 1980 decision of the United States Court of Appeals for
the Fifth Circuit in Durrett v. Washington National Insurance
Company and other decisions that have followed the reasoning of
Durrett with respect to fraudulent conveyances under applicable
bankruptcy law. In Durrett and its progeny, the Fifth Circuit and
other courts held that the transfer of real property pursuant to
a non-collusive, regularly conducted foreclosure sale was subject
to the fraudulent transfer provisions of the applicable
bankruptcy laws, including the requirement that the price paid
for the property constitute "fair consideration." The reasoning
and result of Durrett and its progeny in respect of the federal
bankruptcy code, as amended from time to time (11 U.S.C.) (the
"Bankruptcy Code") was rejected, however, by the United States
Supreme Court in May 1994. The case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law
which has provisions similar to those construed in Durrett. For
these and other reasons, it is common for the lender to purchase
the property from the trustee, referee or other designated
official for an amount equal to the lesser of the fair market
value of such property and the outstanding principal amount of
the indebtedness secured by the mortgage or deed of trust,
together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the lender
equals the full amount of such debt, interest and expenses, the
mortgagee's debt will be extinguished. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a
redemption period, if applicable, the lender will assume the
burdens of ownership, including paying operating expenses and
real estate taxes and making repairs. The lender is then
obligated as an owner until it can arrange a sale of the property
to a third party. Frequently, the lender employs a third
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party management company to manage and operate the property. The
costs of operating and maintaining commercial property may be
significant and may be greater than the income derived from that
property. The costs of management and operation of those
mortgaged properties which are hotels, motels or nursing or
convalescent homes or hospitals may be particularly significant
because of the expertise, knowledge and, especially with respect
to nursing or convalescent homes or hospitals, regulatory
compliance, required to run such operations and the effect which
foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the
quality of such operations. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission
in connection with the sale 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, a lender commonly incurs substantial legal fees and
court costs in acquiring a mortgaged property through contested
foreclosure and/or bankruptcy proceedings. Furthermore, an
increasing number of states require that any environmental
hazards be eliminated before a property may be resold. In
addition, a lender may be responsible under federal or state law
for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "--Environmental Risks" below.
As a result, a lender could realize an overall loss on a mortgage
loan even if the related 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 mortgage loan, plus accrued interest.
In foreclosure proceedings, some courts have applied
general equitable principles. These equitable principles are
generally designed to relieve the borrower from the legal effect
of the borrower's defaults under the loan documents. Examples of
judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive
actions to determine the causes 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 judgment and have required that lenders reinstate loans
or recast payment schedules in order to accommodate borrowers who
are suffering from temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose
if the default under the mortgage instrument is not monetary,
such as the borrower's failing to maintain adequately the
property or the borrower's executing a second mortgage or deed of
trust affecting the property. Finally, some courts have been
faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or
mortgages receive notices in addition to the
statutorily-prescribed minimum notice. For the most part, these
cases have upheld the notice provisions as being reasonable or
have found that the sale by a trustee under a deed of trust, or
under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to
the borrower. There may, however, be state transfer taxes due and
payable upon obtaining such properties at foreclosure. Such taxes
could be substantial.
Under the REMIC provisions of the Code (if applicable)
and the related Agreement, the Master Servicer or Special
Servicer, if any, may be required to hire an independent
contractor to operate any REO Property. The costs of such
operation may be significantly greater than the costs of direct
operation by the Master Servicer or Special Servicer, if any.
Under Section 856(e)(3) of the Code, property acquired by
foreclosure generally must not be held beyond the close
of the third taxable year after the taxable year in which
the acquisition occurs. With respect
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to a Series of Certificates for which an election is
made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held for more
than the time period permitted by Section 856(e)(3) of the Code
if the Trustee receives (i) an extension from the Internal
Revenue Service or (ii) an opinion of counsel to the effect that
holding such property for such period is permissible under the
applicable REMIC provisions.
State Law Limitations on Lenders
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 from the foreclosure sale. In some states, redemption
may occur only upon payment of the entire principal balance of
the loan, accrued interest and expenses of foreclosure. In some
states, redemption may be authorized even if the former borrower
pays only a portion of the sums due. The effect of these types of
statutory rights of redemption is to diminish the ability of the
lender to sell the foreclosed property. Such rights of redemption
would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of
ownership until the redemption period has run. See "--Rights of
Redemption" below.
Certain states have imposed statutory prohibitions against
or limitations on recourse to the borrower. For example, some
state statutes limit the right of the beneficiary or mortgagee to
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 in most
cases 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 require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage
by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower on the debt
without first exhausting such security. In some states, the
lender, if it first pursues judgment through a personal action
against the borrower on the debt, may be deemed to have elected a
remedy and may thereafter be precluded from exercising remedies
with respect to the security. Consequently, the practical effect
of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than
bringing personal action against the borrower. Other statutory
provisions limit any deficiency judgment against the former
borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low bids or the absence of bids at the judicial sale.
See "--Anti-Deficiency Legislation; Bankruptcy Laws" below.
Environmental Risks
Real property pledged as security to a lender may be
subject to potential environmental risks. Of particular concern
may be those mortgaged properties which are, or have been, the
site of manufacturing, industrial or disposal activity. Such
environmental risks may give rise to a diminution in value of
property securing any Mortgage Loan or, in certain circumstances
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as more fully described below, liability for cleanup costs or
other remedial actions, which liability could exceed the value of
such property or the principal balance of the related Mortgage
Loan. In certain circumstances, a lender may choose not to
foreclose on contaminated property rather than risk incurring
liability for remedial actions.
Under the laws of certain states, failure to perform any
remedial action required or demanded by the state of any
condition or circumstance that (i) may pose an imminent or
substantial endangerment to the public health or welfare or the
environment, (ii) may result in a release or threatened release
of any hazardous material, or (iii) may give rise to any
environmental claim or demand (each such condition or
circumstance, an "Environmental Condition") may, in certain
circumstances, give rise to a lien on the property to ensure the
reimbursement of remedial costs incurred by the state. In several
states, such lien has priority over the lien of an existing
mortgage against such property. In any case, the value of a
Mortgaged Property as collateral for a Mortgage Loan could be
adversely affected by the existence of an Environmental
Condition.
The state of the law is currently unclear as to whether and
under what circumstances cleanup costs, or the obligation to take
remedial actions, can be imposed on a secured lender such as the
Trust Fund with respect to each Series. Under the laws of some
states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), a lender may be liable as an "owner or operator" for
costs of addressing releases or threatened releases of hazardous
substances on a mortgaged property if such lender or its agents
or employees have participated in the management of the
operations of the borrower, even though the environmental damage
or threat was caused by a prior owner or other third party.
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" (the "secured creditor exemption").
Notwithstanding the secured creditor exemption, a lender
may be held liable under CERCLA as an owner or operator, if such
lender or its employees or agents participate in management of
the property. Judicial decisions interpreting the secured
creditor exemption had varied widely, and one decision, United
States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990),
cert. denied, 498 U.S. 1046 (1991), had indicated that a lender's
mere power to affect and influence a borrower's operations might
be sufficient to subject the lender to CERCLA liability. However,
on September 30, 1996, the Asset Conservation, Lender Liability,
and Deposit Insurance Protection Act of 1996 (the "Lender
Liability Act") became law. The Lender Liability Act clarifies
the secured creditor exemption to impose liability only on a
secured lender who exercises control over operational aspects of
the facility and thus is "participating in management." A number
of environmentally related activities before the loan is made and
during its pendency, as well as "workout" steps to protect a
security interest, are identified as permissible to protect a
security interest without triggering liability. The Lender
Liability Act also identifies the circumstances in which
foreclosure and post-foreclosure activities will not trigger
CERCLA liability.
The Lender Liability Act also amends the federal Solid
Waste Disposal Act to limit the liability of lenders holding a
security interest for costs of cleaning up contamination for
underground storage tanks. However, the Lender Liability Act has
no effect on other federal or state environmental laws similar to
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CERCLA that may impose liability on lenders and other persons,
and not all of those laws provide for a secured creditor
exemption. Liability under many of these laws 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
the 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 a property securing a loan.
Except as otherwise specified in the related Prospectus
Supplement, at the time the Mortgage Loans were originated, it is
possible that no environmental assessment or a very limited
environmental assessment of the Mortgaged Properties was
conducted.
The related Agreement will provide that the Master Servicer
or the Special Servicer, if any, acting on behalf of the Trust
Fund, may not acquire title to, or possession of, a Mortgaged
Property underlying a Mortgage Loan, take over its operation or
take any other action that might subject a given Trust Fund to
liability under CERCLA or comparable laws unless the Master
Servicer or Special Servicer, if any, has previously determined,
based upon a phase I assessment (as described below) or other
specified environmental assessment prepared by a person who
regularly conducts such environmental assessments, that the
Mortgaged Property is in compliance with applicable environmental
laws and that there are no circumstances relating to use,
management or disposal of any hazardous materials for which
investigation, monitoring, containment, clean-up or remediation
could be required under applicable environmental laws, or that it
would be in the best economic interest of a given Trust Fund to
take such actions as are necessary to bring the Mortgaged
Property into compliance therewith or as may be required under
such laws. A phase I assessment generally involves identification
of recognized environmental conditions based on records review,
site reconnaissance and interviews, but does not involve more
intrusive investigation such as sampling or testing of materials.
This requirement effectively precludes enforcement of the
security for the related Note until a satisfactory environmental
assessment is obtained or any required remedial action is taken,
reducing the likelihood that a given Trust Fund will become
liable for any Environmental Condition affecting a Mortgaged
Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that
any environmental assessment obtained by the Master Servicer will
detect all possible Environmental Conditions or that the other
requirements of the Agreement, even if fully observed by the
Master Servicer and the Special Servicer, if any, will in fact
insulate a given Trust Fund from liability for Environmental
Conditions.
If a lender is or becomes liable for clean-up costs, it may
bring an action for contribution against the current owners or
operators, the owners or operators at the time of on-site
disposal activity or any other party who contributed to the
environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action
against the Borrower may be adversely affected by the limitations
on recourse in the loan documents. Similarly, in some states
anti-deficiency legislation and other statutes requiring the
lender to exhaust its security before bringing a personal action
against the borrower-trustor (see "--Anti-Deficiency Legislation;
Bankruptcy Laws" below) may curtail the lender's ability to
recover from its borrower the environmental clean-up and other
related costs and liabilities incurred by the lender. Shortfalls
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occurring as the result of imposition of any clean-up costs will
be addressed in the Prospectus Supplement and Agreement for the
related Series.
Rights of Redemption
In some states, after foreclosure sale pursuant to a
deed of trust or a mortgage, the borrower and certain foreclosed
junior lienors are given a specified period in which to redeem
the property from the foreclosure sale. In some states,
redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect
of a right of redemption is to diminish the ability of the lender
to sell the foreclosed property. The right of redemption may
defeat the title of any purchaser at a foreclosure sale or any
purchaser from the lender subsequent to a foreclosure sale or
sale under a deed of trust. Certain states permit a lender to
avoid a post-sale redemption by waiving its right to a deficiency
judgment. Consequently, the practical effect of the
post-foreclosure redemption right is often to force the lender to
retain the property and pay the expenses of ownership until the
redemption period has run. Whether the lender has any rights to
recover these expenses from a borrower who redeems the property
depends on the applicable state statute. The related Prospectus
Supplement will contain a description of any statutes that
prohibit recovery of such expenses from a borrower in states
where a substantial number of the Mortgaged Properties for a
particular Series are located. In some states, there is no right
to redeem property after a trustee's sale under a deed of trust.
Borrowers under Installment Contracts generally do not have
the benefits of redemption periods such as may exist in the same
jurisdiction for mortgage loans. Where redemption statutes do
exist under state laws for Installment Contracts, the redemption
period is usually far shorter than for mortgages.
Junior Mortgages; Rights of Senior Mortgagees
The Mortgage Pool for a Series may include Mortgage Loans
secured by mortgages or deeds of trust some of which are junior
to other mortgages or deeds of trust, some of which may be held
by other lenders or institutional investors. The rights of the
Trust Fund (and therefore the Certificateholders), as mortgagee
under a junior mortgage or beneficiary under a junior deed of
trust, are subordinate to those of the mortgagee under the senior
mortgage or beneficiary under the senior deed of trust, including
the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property
securing the Mortgage Loan to be sold upon default of the
borrower or trustor, thereby extinguishing the junior mortgagee's
or junior beneficiary's lien unless the junior mortgagee or
junior beneficiary asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the
defaulted senior mortgage or deed of trust. As discussed more
fully below, a junior mortgagee or junior beneficiary may satisfy
a defaulted senior loan in full and, in some states, may cure
such default and loan. In most states, no notice of default is
required to be given to a junior mortgagee or junior beneficiary,
and junior mortgagees or junior beneficiaries are seldom given
notice of defaults on senior mortgages. However, in order for a
foreclosure action in some states to be effective against a
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junior mortgagee or junior beneficiary, the junior mortgagee or
junior beneficiary must be named in any foreclosure action, thus
giving notice to junior lienors.
Anti-Deficiency Legislation; Bankruptcy Laws
Some of the Mortgage Loans included in the Mortgage Pool
for a Series will be nonrecourse loans as to which, in the event
of default by a Borrower, recourse may be had only against the
specific property pledged to secure the related Mortgage Loan and
not against the Borrower's other assets. Even if recourse is
available pursuant to the terms of the Mortgage Loan against the
Borrower's assets in addition to the Mortgaged Property, certain
states have imposed statutory prohibitions which impose
prohibitions against or limitations on such recourse. For
example, some state statutes limit the right of the beneficiary
or mortgagee to 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
in most cases 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 require the beneficiary or mortgagee
to exhaust the security afforded under a deed of trust or
mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. In
certain 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 these states, the lender,
following judgment on such personal action, may be deemed to have
elected a remedy and may be precluded from exercising remedies
with respect to the security. Consequently, the practical effect
of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than
bringing a personal action against the borrower. Other statutory
provisions limit any deficiency judgment against the former
borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low bids or the absence of bids at the judicial sale.
Numerous statutory provisions, including the Bankruptcy
Code and state laws affording relief to debtors, may interfere
with and delay the ability of the secured mortgage lender to
obtain payment of the loan, 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) 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
proceeding. The delay and 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, including, without limitation, any junior
mortgagee or beneficiary, may stay the senior lender from taking
action to foreclose out such junior lien. Certain of the
Mortgaged Properties may have a junior "wraparound" mortgage or
deed of trust encumbering such Mortgaged Property. In general
terms, a "wraparound" mortgage is a junior mortgage where the
full amount of the mortgage is increased by an amount equal to
the principal balance of the senior mortgage and where the junior
lender agrees to pay the senior mortgage out of the payments
received from the mortgagor under the "wraparound" mortgage. As
with other junior mortgages, the filing of a petition under the
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Bankruptcy Code by or on behalf of such a "wraparound" mortgagee
may stay the senior lender from taking action to foreclose upon
such junior "wraparound" mortgage.
Under the Bankruptcy Code, provided certain substantive
and procedural safeguards for the lender are met, the amount and
terms of a mortgage or deed of trust secured by property of the
debtor may be modified under certain circumstances. The
outstanding amount of the loan secured by the real property may
be reduced to the then current value of the property (with a
corresponding partial reduction of the amount of the 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 monthly payment, which reduction may result from a
reduction in the rate of interest and/or the alteration of the
repayment schedule (with or without affecting the unpaid
principal balance of the loan), and/or an extension (or
reduction) of the final maturity date. In addition, the lender's
lien may be transferred to other collateral and/or be limited in
amount to the value of the lender's interest in the collateral as
of the date of bankruptcy or as of the date of the confirmation of
the plan. In all cases, to the extent the value of the security
exceeds the debt, the secured creditor is entitled to the value
of its security and post-petition interest, plus reasonable
atttorneys' fees and costs to the extent provided in the mortgage
or deed of trust and allowed by the bankruptcy court. Some courts
with federal bankruptcy jurisdiction have approved plans, based
on the particular facts of the reorganization case, that effected
the curing of a mortgage loan default by paying arrearages over a
number of years. Also, under the Bankruptcy Code, a bankruptcy
court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even
though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court (provided
no sale of the property had yet occurred) prior to the filing of
the debtor's petition. This may be done even if the full amount
due under the original loan is never repaid. Other types of
significant modifications to the terms of the mortgage may be
acceptable to the bankruptcy court, often depending on the
particular facts and circumstances of the specific case.
Federal bankruptcy law may also interfere with or affect the
ability of the secured mortgage lender to enforce an assignment
by a mortgagor of rents and leases related to the mortgaged
property if the related mortgagor is in a bankruptcy proceeding.
Under Section 362 of the Bankruptcy Code, the mortgagee will be
stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may
result in significant delays in the receipt of the rents. Rents
may also escape an assignment thereof (i) if the assignment is
not fully perfected under state law prior to commencement of the
bankruptcy proceeding, (ii) to the extent such rents are used by
the borrower to maintain the mortgaged property, or for other
court authorized expenses, or (iii) to the extent other
collateral may be substituted for the rents.
To the extent a mortgagor's ability to make payment on a
mortgage loan is dependent on payments under a lease of the
related property, such ability may be impaired by the
commencement of a bankruptcy proceeding 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, federal bankruptcy law generally provides that
a trustee or debtor in possession in a bankruptcy or
reorganization case under the Bankruptcy Code may, subject to
approval of the court, (a) assume the lease and retain it or
assign it to a third party or (b) reject the lease. If the lease
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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, however, as the lessor may be forced to continue
under the lease with a lessee that is a poor credit risk or an
unfamiliar tenant if the lease was assigned, and any assurances
provided to the lessor may, in fact, be inadequate. Furthermore,
there is likely to be a period of time between the date upon
which a lessee files a bankruptcy petition and the date upon
which the lease is assumed or rejected. Although the lessee is
obligated to make all lease payments currently with respect to
the post-petition period, there is a risk that such payments will
not be made due to the lessee's poor financial condition. 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 and the mortgagor must relet the mortgaged property
before the flow of lease payments will recommence. In addition,
pursuant to Section 502(b) (6) of the Bankruptcy Code, a lessor's
damages for lease rejection are limited.
In a bankruptcy or similar proceeding, action may be taken
seeking the recovery as a preferential transfer of any payments
made by the mortgagor under the related Mortgage Loan to the
Trust Fund. Payments on long-term debt may be protected from
recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course
of business. Whether any particular payment would be protected
depends upon the facts specific to a particular transaction.
Bankruptcy courts, in the exercise of their equitable
powers, also have the authority to order that the assets and
liabilities of a related entity be consolidated with those of an
entity before it pursuant to the federal doctrine of "substantive
consolidation" or to the (predominantly state law) doctrine of
"piercing the corporate veil." Thus, property ostensibly the
property of one entity may be determined to be the property of a
different entity in bankruptcy, the automatic stay applicable to
the second entity may be extended to the first entity and the
rights of creditors of the first entity may be impaired in the
fashion set forth above regarding ordinary bankruptcy principles.
The application of any of these doctrines to a Borrower under a
Mortgage Loan in the context of the bankruptcy of one or more of
its affiliates could adversely affect the rights of the holders.
Statutory Liabilities
The Internal Revenue Code of 1986, as amended, provides
priority to certain tax liens over the lien of the mortgage. In
addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act, and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.
Enforceability of Certain Provisions
Prepayment Provisions
Courts generally enforce claims requiring prepayment fees
unless enforcement would be unconscionable. However, the laws of
certain states may render prepayment fees unenforceable after a
mortgage loan has been outstanding for a certain number of years,
or may limit the amount of any prepayment fee to a specified
percentage of the original principal amount of the mortgage loan,
to a specified percentage of the outstanding principal balance of
a mortgage loan, or to a fixed number of months' interest on the
prepaid amount. In certain states, prepayment fees payable on
default or other involuntary acceleration of a mortgage loan may
not be enforceable against the mortgagor. Some state statutory
provisions may also treat certain prepayment fees as usurious if
in excess of statutory limits. See "--Applicability of Usury
Laws." Some of the Mortgage Loans included in the Mortgage Pool
for a Series may not require the payment of specified fees as a
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condition to prepayment or such requirements have expired, and to
the extent some Mortgage Loans do require such fees, such fees
may not necessarily deter Borrowers from prepaying their Mortgage
Loans.
Due-on-Sale Provisions
The enforceability of due-on-sale clauses has been the
subject of legislation or litigation in many states, and in some
cases, typically involving single family residential mortgage
transactions, their enforceability has been limited or denied. In
any event, in situations relating primarily to residential
properties, the Garn-St Germain Depository Institutions Act of
1982 (the "Garn-St Germain Act") preempts state constitutional,
statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain exceptions. As
a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their
authority to regulate the enforceability of such clauses with
respect to mortgage loans that were (i) originated or assumed
during the "window period" under the Garn-St Germain Act, which
ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings
institutions and federal credit unions. FHLMC has taken the
position in its published mortgage servicing standards that, out
of a total of eleven "window period states," five states
(Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted
statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to
certain categories of window period loans. Also, the Garn-St
Germain Act does "encourage" lenders to permit assumption of
loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rates.
Unless otherwise specified in the related Prospectus
Supplement, the Agreement for each Series will provide that if
any Mortgage Loan contains a provision in the nature of a
"due-on-sale" clause, which by its terms provides that: (i) such
Mortgage Loan shall (or may at the mortgagee's option) become due
and payable upon the sale or other transfer of an interest in the
related Mortgaged Property; or (ii) such Mortgage Loan may not be
assumed without the consent of the related mortgagee in
connection with any such sale or other transfer, then, for so
long as such Mortgage Loan is included in the Trust Fund, the
Master Servicer, on behalf of the Trustee, shall take such
actions as it deems to be in the best interest of the
Certificateholders in accordance with the servicing standard set
forth in the Agreement, and may waive or enforce any due-on-sale
clause contained in the related Note or Mortgage.
In addition, under federal bankruptcy law, due-on-sale
clauses may not be enforceable in bankruptcy proceedings and may,
under certain circumstances, be eliminated in any modified
mortgage resulting from such bankruptcy proceeding.
Acceleration on Default
Some of the Mortgage Loans included in the Mortgage Pool
for a Series will include a "debt acceleration" clause, which
permits the lender to accelerate the full debt upon a monetary or
nonmonetary default of the borrower. State courts generally will
enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate
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notices. The equity courts of any state, however, may refuse to
foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances
would render the acceleration unconscionable. Furthermore, in
some states, the borrower may avoid foreclosure and reinstate an
accelerated loan by paying only the defaulted amounts and the
costs and attorneys' fees incurred by the lender in collecting
such defaulted payments.
Forms of notes, mortgages and deeds of trust used by
lenders may contain provisions obligating the borrower to pay a
late charge if payments are not timely made. 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.
Upon foreclosure, courts have applied general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under
the loan documents. Examples of judicial remedies that have been
fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes 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 judgment and have
required that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have
limited the right of the lender to foreclose if the default under
the mortgage instrument is not monetary, such as the borrower's
failing to maintain adequately the property or the borrower's
executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that
borrowers under deeds of trust or mortgages receive notices in
addition to the statutorily-prescribed minimum. For the most
part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed
of trust, or by a mortgagee under a mortgage having a power of
sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
State courts also are known to apply various legal and
equitable principles to avoid enforcement of the forfeiture
provisions of Installment Contracts. For example, a lender's
practice of accepting late payments from the borrower may be
deemed a waiver of the forfeiture clause. State courts also may
impose equitable grace periods for payment of arrearages or
otherwise permit reinstatement of the contract following a
default. Not infrequently, if a borrower under an Installment
Contract has significant equity in the property, equitable
principles will be applied to reform or reinstate the contract or
to permit the borrower to share the proceeds upon a foreclosure
sale of the property if the sale price exceeds the debt.
Soldiers' and Sailors' Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), an individual
Borrower who enters military service after the origination of
such Borrower's Mortgage Loan (including a Borrower who is in
reserve status at the time of the origination of the Mortgage
Loan and is later called to active duty) 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. Any
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shortfall in interest collections resulting from the application
of the Relief Act, to the extent not covered by any applicable
credit enhancements, could result in losses to the Holders of the
Certificates. The Relief Act applies to mortgagors 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 mortgagors who enter military service (including
reservists who are later called to active duty) after origination
of the related Mortgage Loan, no information can be provided as
to the number of Mortgage Loans that may be affected by the
Relief Act. Some of the Mortgaged Properties relating to Mortgage
Loans included in the Mortgage Pool for a Series may be owned by
Borrowers who are individuals currently in the military. In
addition, the Relief Act imposes limitations which would impair
the ability of the Master 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
months thereafter. Thus, in the event that such a Mortgage Loan
goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely
fashion.
Forfeitures in Drug and RICO Proceedings
Federal law permits the government to seize real property
that has been purchased with the proceeds of certain crimes
(including drug trafficking, racketeering, money laundering, and
fraud affecting financial institutions), and real property that
has been used to facilitate certain crimes (including drug
trafficking and money laundering). Forfeitures of real property
usually are accomplished through criminal or civil judicial
proceedings. In a criminal proceeding, forfeiture is imposed as a
form of punishment following conviction of the property owner.
Under certain circumstances, the government may even seize the
defendant's real property before a conviction. In a civil
forfeiture, the government brings an action against the real
property, rather than the wrongdoer, based on the legal fiction
that the property itself has been tainted by crime.
The government must publish notice of the forfeiture
proceeding and may give direct notice to all parties known to
have an alleged interest in the property, including holders of
mortgage loans. A mortgage lender may avoid forfeiture of its
interest in the property if it can establish that: (i) its
mortgage was executed and recorded before commission of the crime
upon which the forfeiture is based, or (ii) the lender did not
know of or consent to the underlying unlawful conduct. The U.S.
Department of Justice has adopted an expedited settlement policy
designed to resolve the claims of lienholders holding mortgages
against properties that are subject to forfeiture.
Applicability of Usury Laws
State and federal usury laws limit the interest that
lenders are entitled to receive on a mortgage loan. In
determining whether a given transaction is usurious, courts may
include charges in the form of "points" and "fees" as "interest,"
but may exclude payments in the form of "reimbursement of
foreclosure expenses" or other charges found to be distinct from
"interest." If, however, the amount charged for the use of the
money loaned is found to exceed a statutorily established maximum
rate, the form employed and the degree of overcharge are both
immaterial. Statutes differ in their provision as to the
consequences of a usurious loan. One group of statutes requires
the lender to forfeit the interest above the applicable limit or
imposes a specified penalty. Under this statutory scheme, the
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borrower may have the recorded mortgage or deed of trust
cancelled upon paying its debt with lawful interest, or the
lender may foreclose, but only for the debt plus lawful interest.
A second group of statutes is more severe. A violation of this
type of usury law results in the invalidation of the transaction,
thereby permitting the borrower to have the recorded mortgage or
deed of trust cancelled without any payment and prohibiting the
lender from foreclosing.
Under the Agreement, a representation and warranty will be
made (or the benefit of such a representation and warranty will
be assigned to the Trust Fund) to the effect that the Mortgage
Loans included in a given Trust Fund complied at origination with
applicable laws, including usury laws. Unless otherwise provided
in the related Prospectus Supplement, if this representation and
warranty is breached with respect to any Mortgage Loan in a
manner that materially and adversely affects the interests of
Certificateholders and is not cured within the period of time
specified in the related Prospectus Supplement, a Substitute
Mortgage Loan will be substituted for such Mortgage Loan or such
Mortgage Loan will be repurchased in accordance with the
applicable Agreement. See "THE MORTGAGE POOLS--Representations
and Warranties."
The Agreement for each Series will provide that the Master
Servicer not charge interest in excess of that permitted under
any applicable state and federal usury laws, notwithstanding that
the applicable Note may provide for a higher rate.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate
mortgage loans, originated by non-federally chartered lenders
have historically been subjected to a variety of restrictions.
Such restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were
alleviated substantially as a result of the enactment of Title
VIII of the Garn-St Germain Act ("Title VIII"). Title VIII
provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks,
state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the
National Credit Union Administration (the "NCUA") with respect to
origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors,
including state-chartered savings and loan associations,
state-chartered savings banks and mortgage banking companies, may
originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board (now
the Office of Thrift Supervision) with respect to origination of
alternative mortgage instruments by federal savings and loan
associations. Title VIII provides that any state may reject
applicability of the provision of Title VIII by adopting, prior
to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states
have taken such action.
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Leases and Rents
Some of the Mortgage Loans included in the Mortgage
Pool for a Series may be secured by an assignment of leases and
rents, either through a separate document of assignment or as
incorporated in the related mortgage. Under such assignments, the
borrower under the mortgage loan typically assigns its right,
title and interest as landlord under each lease and the income
derived therefrom to the lender, while retaining a license to
collect the rents for so long as there is no default under the
mortgage loan. In the event the borrower defaults, the license
terminates and the lender may be entitled to collect rents. The
manner of perfecting the lender's interest in rents may depend on
whether the borrower's assignment was absolute or one granted as
security for the loan. Failure to properly perfect the lender's
interest in rents may result in the loss of a substantial pool of
funds which could otherwise serve as a source of repayment for
the loan. Some state laws may require that to perfect its
interest in rents, the lender must take possession of the
property and /or obtain judicial appointment of a receiver before
becoming entitled to collect the rents. Lenders that actually
take possession of the property, however, may incur potentially
substantial risks attendant to being a mortgagee in possession.
Such risks include liability for environmental clean-up costs and
other risks inherent to property ownership. In addition, if
bankruptcy or similar proceedings are commenced by or in respect
of the borrower, the lender's ability to collect the rents may be
adversely affected. In the event of borrower default, the amount
of rent the lender is able to collect from the tenants can
significantly affect the value of the lender's security interest.
Secondary Financing; Due-on-Encumbrance Provisions
Some of the Mortgage Loans included in the Mortgage Pool
for a Series may not restrict secondary financing, thereby
permitting the Borrower to use the Mortgaged Property as security
for one or more additional loans. Some of the Mortgage Loans may
preclude secondary financing (often by permitting the first
lender to accelerate the maturity of its loan if the Borrower
further encumbers the Mortgaged Property) or may require the
consent of the senior lender to any junior or substitute
financing; however, such provisions may be unenforceable in
certain jurisdictions under certain circumstances. Unless
otherwise specified in the related Prospectus Supplement, the
Agreement for each Series will provide that if any Mortgage Loan
contains a provision in the nature of a "due-on-encumbrance"
clause, which by its terms: (i) provides that such Mortgage Loan
shall (or may at the mortgagee's option) become due and payable
upon the creation of any lien or other encumbrance on the related
Mortgaged Property; or (ii) requires the consent of the related
mortgagee to the creation of any such lien or other encumbrance
on the related Mortgaged Property, then for so long as such
Mortgage Loan is included in a given Trust Fund, the Master
Servicer or, if such Mortgage Loan is a Specially Serviced
Mortgage Loan, the Special Servicer, if any, on behalf of such
Trust Fund, shall exercise (or decline to exercise) any right it
may have as the mortgagee of record with respect to such Mortgage
Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to the creation of any such lien or other
encumbrance, in a manner consistent with the servicing standard
set forth in the Agreement.
Where the Borrower encumbers the 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. Second, acts of the senior
lender which prejudice the junior lender or impair the junior
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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 an existing junior lender is prejudiced 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, delay and in certain circumstances even prevent
the taking of action by the senior lender. Fourth, the bankruptcy
of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with
various federal, state and local statutes and regulations.
Failure to comply (together with an inability to remedy any such
failure) could result in material diminution in the value of a
Mortgaged Property which could, together with the possibility of
limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a
failure to realize the full principal amount of the related
Mortgage Loan.
Type of Mortgaged Property
The lender may be subject to additional risk depending upon
the type and use of the Mortgaged Property in question. For
instance, Mortgaged Properties which are hospitals, nursing homes
or convalescent homes may present special risks to lenders in
large part due to significant governmental regulation of the
operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned
by the Borrower under a condominium form of ownership are subject
to the declaration, by-laws and other rules and regulations of
the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk to the lender in
that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be
terminable by the franchisor, manager or operator; and (ii) the
transferability of the hotel's operating, liquor and other
licenses to the entity acquiring the hotel either through
purchase or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are
multifamily residential properties or cooperatively owned
multifamily properties may be subject to rent control laws, which
could impact the future cash flows of such properties.
Americans With Disabilities Act
Under Title III of the Americans with Disabilities Act of
1990 and rules promulgated thereunder (collectively, the "ADA"),
in order to protect individuals with disabilities, public
accommodations (such as hotels, restaurants, shopping centers,
hospitals, schools and social service center establishments) must
remove architectural and communication barriers which are
structural in nature from existing places of public accommodation
to the extent "readily achievable." In addition, under the ADA,
alterations to a place of public accommodation or a commercial
facility are to be made so that, to the maximum extent feasible,
such altered portions are readily accessible to and usable by
disabled individuals. The "readily achievable" standard takes
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into account, among other factors, the financial resources of the
affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the borrower
in its capacity as owner or landlord, the ADA may also impose
such requirements on a foreclosing lender who succeeds to the
interest of the Borrower as owner or landlord. Furthermore, since
the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing
lender who is financially more capable than the Borrower of
complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Borrower is
subject.
FEDERAL INCOME TAX CONSEQUENCES
General
The following generally describes the anticipated material
federal income tax consequences of purchasing, owning and
disposing of Certificates. It does not address special rules
which may apply to particular types of investors. The authorities
on which this discussion is based are subject to change or
differing interpretations, and any such change or interpretation
could apply retroactively. Investors should consult their own tax
advisors regarding the Certificates.
For purposes of this discussion, unless otherwise
specified, the term "Mortgage Loans" will be used to refer to
Mortgage Loans and Installment Contracts, and the term "Owner"
will refer to the beneficial owner of a Certificate. In the event
that the Mortgage Pool for any Series of Certificates consists of
financial leases or the Trust Fund enters into a Swap Agreement,
the related Prospectus Supplement will describe any additional or
different federal income tax consequences of purchasing, owning
and disposing of such Certificates.
REMIC Elections
Under the Internal Revenue Code of 1986, as amended (the
"Code"), an election may be made to treat the Trust Fund related
to each Series of Certificates (or segregated pools of assets
within the Trust Fund) as a "real estate mortgage investment
conduit" ("REMIC") within the meaning of Section 860D(a) of the
Code. If one or more REMIC elections are made, the Certificates
of any Class will be either "regular interests" in a REMIC within
the meaning of Section 860G(a)(1) of the Code ("Regular
Certificates") or "residual interests" in a REMIC within the
meaning of Section 860G(a)(2) of the Code ("Residual
Certificates"). The Prospectus Supplement for each Series of
Certificates will indicate whether an election will be made to
treat the Trust Fund as one or more REMICs, and if so, which
Certificates will be Regular Certificates and which will be
Residual Certificates.
If a REMIC election is made, the Trust Fund, or each
portion thereof that is treated as a separate REMIC, will be
referred to as a "REMIC Pool". If the Trust Fund is comprised of
two REMIC Pools, one will be an "Upper-Tier REMIC" and one a
"Lower-Tier REMIC". The assets of the Lower-Tier REMIC will
consist of the Mortgage Loans and related Trust Fund assets. The
assets of the Upper-Tier REMIC will consist of all of the regular
interests issued by the Lower-Tier REMIC.
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The discussion below under the heading "REMIC Certificates"
considers Series for which a REMIC election will be made. Series
for which no such election will be made are addressed under
"Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a Series of
Certificates for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of
Certificates for which a REMIC election is made, Cleary,
Gottlieb, Steen & Hamilton or another law firm identified in the
related Prospectus Supplement, counsel to the Seller, will
deliver its opinion generally to the effect that, with respect to
each such Series of Certificates, under then existing law and
assuming compliance by the Seller, the Master Servicer, the
Special Servicer, if any, and the Trustee for such Series with
all of the provisions of the related Agreement (and such other
agreements and representations as may be referred to in such
opinion), each REMIC Pool will be a REMIC, and the Certificates
of such Series will be treated as either Regular Certificates or
Residual Certificates. This opinion will be filed as an Exhibit
to the Form 8-K relating to such Series of Certificates.
Status of Certificates.
The Certificates will be:
- ASSETS DESCRIBED IN CODE SECTION 7701(A)(19)(C); AND
- "REAL ESTATE ASSETS" UNDER CODE SECTION 856(C)(5)(A),
to the extent the assets of the related REMIC Pool are
so treated. Interest on the Regular Certificates will be
"interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that the income of the REMIC
Pool is so treated. If at all times 95% or more of the assets or
income of the REMIC Pool qualifies under the foregoing Code
sections, the Certificates (and income thereon) will so qualify
in their entirety. The Regular Certificates will also qualify as
"permitted assets" under Section 860L (c) of the Code.
The rules described in the preceding paragraph will be
applied to a Trust Fund consisting of two REMIC Pools as if the
Trust Fund were a single REMIC holding the assets of the
Lower-Tier REMIC.
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Income from Regular Certificates.
General. Except as otherwise provided in this tax
discussion, Regular Certificates will be taxed as newly
originated debt instruments for federal income tax purposes.
Interest, original issue discount and market discount accrued on
a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method
of accounting, which may result in the inclusion of amounts in
income that are not currently distributed in cash.
On January 27, 1994 the Internal Revenue Service adopted
regulations applying the original issue discount rules of the
Code (the "OID Regulations"). Except as otherwise noted, the
discussion below is based on the OID Regulations.
Original Issue Discount. Certain Regular Certificates may
have "original issue discount." An Owner must include original
issue discount in income as it accrues, without regard to the
timing of payments.
The total amount of original issue discount on a Regular
Certificate is the excess of its "stated redemption price at
maturity" over its "issue price." The issue price for any Regular
Certificate is the price (including any accrued interest) at
which a substantial portion of the Class of Certificates
including such Regular Certificate are first sold to the public.
In general, the stated redemption price at maturity is the sum of
all payments made on the Regular Certificate, other than payments
of interest that (i) are actually payable at least annually over
the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of
fixed and variable rates). The stated redemption price at
maturity of a Regular Certificate always includes its original
principal amount, but generally does not include distributions of
stated interest, except in the case of accrual certificates, and,
as discussed below, Interest Only Certificates. An "Interest Only
Certificate" is a Certificate entitled to receive distributions
of some or all of the interest on the Mortgage Loans or other
assets in a REMIC Pool and that has either a notional or nominal
principal amount. Special rules for Regular Certificates that
provide for interest based on a variable rate are discussed below
in "Income from Regular Certificates-Variable Rate Regular
Certificates".
With respect to an Interest Only Certificate, the stated
redemption price at maturity is likely to be the sum of all
payments thereon, determined in accordance with the Prepayment
Assumption (as defined below). In that event, Interest Only
Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with
some principal amount, the stated redemption price at maturity
might be determined under the general rules described in the
preceding paragraph. If, applying those rules, the stated
redemption price at maturity were considered to equal the
principal amount of such Certificate, then the rules described
below under "Premium" would apply. The Prepayment Assumption is
the assumed rate of prepayment of the Mortgage Loans used in
pricing the Regular Certificates. The Prepayment Assumption will
be set forth in the related Prospectus Supplement.
Under a de minimis rule, original issue discount on a
Regular Certificate will be considered zero if it is less than
0.25% of the Certificate's stated redemption price at maturity
multiplied by the Certificate's weighted average maturity. The
weighted average maturity of a Regular Certificate is computed
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based on the number of full years (i.e., rounding down partial
years) each distribution of principal (or other amount included
in the stated redemption price at maturity) is scheduled to be
outstanding. The schedule of such distributions likely should be
determined in accordance with the Prepayment Assumption.
The Owner of a Regular Certificate generally must include in
income the original issue discount that accrues for each day on
which the Owner holds such Certificate, including the date of
purchase, but excluding the date of disposition. The original
issue discount accruing in any period equals:
PV End + Dist - PV Beg
Where:
PV End = present value of all remaining distributions to be made
as of the end of the period;
Dist = distributions made during the period includable in the
stated redemption price at maturity; and
PV Beg = present value of all remaining distributions as of the
beginning of the period.
The present value of the remaining distributions is calculated
based on (i) the original yield to maturity of the Regular
Certificate, (ii) events (including actual prepayments) that have
occurred prior to the end of the period and (iii) the Prepayment
Assumption. For these purposes, the original yield to maturity of
a Regular Certificate will be calculated based on its issue
price, assuming that the Certificate will be prepaid in all
periods in accordance with the Prepayment Assumption, and with
compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly Distribution
Dates, original issue discount would be computed under the
formula generally for the one-month periods (or shorter initial
period) ending on each Distribution Date. The original issue
discount accruing during any accrual period is divided by the
number of days in the period to determine the daily portion of
original issue discount for each day.
The daily portions of original issue discount generally
will increase if prepayments on the underlying Mortgage Loans
exceed the Prepayment Assumption and decrease if prepayments are
slower than the Prepayment Assumption (changes in the rate of
prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities
of the Classes of Regular Certificates of a Series change, any
increase or decrease in the present value of the remaining
payments to be made on any such Class will affect the computation
of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is
negative for any period, the Owner generally will not be allowed
a current deduction for the negative amount but instead will be
entitled to offset such amount only against future positive
original issue discount from such Certificate. However, while not
free from doubt, such an Owner may be entitled to deduct
"negative original issue discount" to the extent the Owner's
adjusted basis (as defined in "Sale or Exchange of Certificates"
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below) in the Certificate remaining after such deduction is not
less than the principal amount of the Certificate.
Acquisition Premium. If an Owner of a Regular Certificate
acquires such Certificate at a price greater than its "adjusted
issue price," but less than its remaining stated redemption price
at maturity, the daily portion for any day (as computed above) is
reduced by an amount equal to the product of (i) such daily
portion and (ii) a fraction, the numerator of which is the amount
by which the price exceeds the adjusted issue price and the
denominator of which is the sum of the daily portions for such
Regular Certificate for all days on and after the date of
purchase. The adjusted issue price of a Regular Certificate on
any given day is its issue price, increased by all original issue
discount that has accrued on such Certificate and reduced by the
amount of all previous distributions on such Certificate of
amounts included in its stated redemption price at maturity.
Market Discount. A Regular Certificate may have market
discount (as defined in the Code). Market discount equals the
excess of the adjusted issue price of a Certificate over the
Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of
principal or other amounts included in its stated redemption
price at maturity, equal to the lesser of (a) the excess of the
amount of those distributions over the amount, if any, of accrued
original issue discount on the Certificate or (b) the portion of
the market discount that has accrued and not previously been
included in income. Also, such Owner must treat gain from the
disposition of the Certificate as ordinary income to the extent
of any accrued, but unrecognized, market discount. Alternatively,
an Owner may elect in any taxable year to include market discount
in income currently as it accrues on all market discount
instruments acquired by the Owner in that year or thereafter. An
Owner may revoke such an election only with the consent of the
Internal Revenue Service.
In general terms, market discount on a Regular Certificate
may be treated, at the Owner's election, as accruing either (a)
on the basis of a constant yield (similar to the method described
above for accruing original issue discount) or (b) alternatively,
either (i) in the case of a Regular Certificate issued without
original issue discount, in the ratio of stated interest
distributable in the relevant period to the total stated interest
remaining to be distributed from the beginning of such period
(computed taking into account the Prepayment Assumption) or (ii)
in the case of a Regular Certificate issued with original issue
discount, in the ratio of the amount of original issue discount
accruing in the relevant period to the total remaining original
issue discount at the beginning of such period. An election to
accrue market discount on a Regular Certificate on a constant
yield basis is irrevocable with respect to that Certificate.
An Owner may be required to defer a portion of the
deduction for interest expense on any indebtedness that the Owner
incurs or maintains in order to purchase or carry a Regular
Certificate that has market discount. The deferred amount would
not exceed the market discount that has accrued but not been
taken into income. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which
the related market discount income is recognized.
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Market discount with respect to a Regular Certificate will
be considered to be zero if such market discount is de minimis
under a rule similar to that described above in the fourth
paragraph under "Original Issue Discount". Owners should consult
their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election
with respect to market discount.
Discount on a Regular Certificate that is neither original
issue discount nor market discount, as defined above, must be
allocated ratably among the principal payments on the Certificate
and included in income (as gain from the sale or exchange of the
Certificate) as the related principal payments are made (whether
as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an accrual
certificate or, as discussed above under "Original Issue
Discount", an Interest Only Certificate, purchased at a cost (net
of accrued interest) greater than its principal amount generally
is considered to be purchased at a premium. The Owner may elect
under Code Section 171 to amortize such premium under the
constant yield method, using the Prepayment Assumption. To the
extent the amortized premium is allocable to interest income from
the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by
an Owner would generally apply to all its debt instruments and
may not be revoked without the consent of the Internal Revenue
Service.
Special Election to Apply OID Rules. In lieu of the rules
described above with respect to de minimis discount, acquisition
premium, market discount and premium, an Owner of a Regular
Certificate may elect to accrue such discount, or adjust for such
premium, by applying the principles of the OID rules described
above. An election made by a taxpayer with respect to one
obligation can affect other obligations it holds. Owners should
consult with their tax advisors regarding the merits of making
this election.
Variable Rate Regular Certificates. The Regular
Certificates may provide for interest that varies based on an
interest rate index. The OID Regulations provide special rules
for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain
technical requirements to qualify as a VRDI, which are outlined
in the next paragraph. Under the regulations, income on a VRDI is
calculated by (1) creating a hypothetical debt instrument that
pays fixed interest at rates equivalent to the variable interest,
(2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the income accruing
in any accrual period by the difference between the assumed fixed
interest amount and the actual amount for the period. In general,
where a variable rate on a debt instrument is based on an
interest rate index (such as LIBOR), a fixed rate equivalent to a
variable rate is determined based on the value of the index as of
the issue date of the debt instrument. In cases where rates are
reset at different intervals over the life of a VRDI, adjustments
are made to ensure that the equivalent fixed rate for each
accrual period is based on the same reset interval.
A debt instrument must meet a number of requirements in
order to qualify as a VRDI. A VRDI cannot be issued at a premium
above its principal amount that exceeds a specified percentage of
its principal amount (15%, or if less 1.5% times its weighted
average life). As a result, Interest Only Certificates will never
be VRDIs. Also, a debt instrument that pays interest based on a
multiple of an interest rate index is not a VRDI if the multiple
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is less than 0.65 or greater than 1.35, unless, in general,
interest is paid based on a single formula that lasts over the
life of the instrument. A debt instrument is not a VRDI if it is
subject to caps and floors, unless they remain the same over the
life of the instrument or are not expected to change
significantly the yield on the instrument. Variable rate Regular
Certificates other than Interest Only Certificates may or may not
qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does
not qualify as a VRDI, it will be treated under the OID
Regulations as a contingent payment debt instrument. The Internal
Revenue Service issued final regulations addressing contingent
payment debt instruments, but such regulations are not applicable
by their terms to REMIC regular interests. Because no guidance
has been provided with regard to types of variable rate interests
other than VRDIs, until further guidance with regard to such
variable rate Regular Certificates is forthcoming, one method of
calculating income on such a Regular Certificate that appears to
be reasonable would be to apply the principles governing VRDIs
outlined above.
Subordinated Certificates. Certain Series of Certificates
may contain one or more Classes of Subordinated Certificates. In
the event there are defaults or delinquencies on the related
Mortgage Loans, amounts that otherwise would be distributed on a
Class of Subordinated Certificates may instead be distributed on
other, more senior Classes of Certificates. Since Owners of
Regular Certificates are required to report income under an
accrual method, Owners of Subordinated Certificates will be
required to report income without giving effect to delays and
reductions in distributions on such Certificates attributable to
defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible.
As a result, the amount of income reported by an Owner of a
Subordinated Certificate in any period could significantly exceed
the amount of cash distributed to such Owner in that period. The
Owner eventually will be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the
aggregate amount of distributions on the Subordinated Certificate
is reduced as a result of defaults and delinquencies on the
Mortgage Loans. Such a loss could in some circumstances be a
capital loss. Also, the timing and amount of such losses or
reductions in income are uncertain. Owners of Subordinated
Certificates should consult their tax advisors on these points.
Income from Residual Certificates.
Taxation of REMIC Income. Generally, Owners of Residual
Certificates in a REMIC Pool ("Residual Owners") must report
ordinary income or loss equal to their pro rata shares (based on
the portion of all Residual Certificates they own) of the taxable
income or net loss of the REMIC. Such income must be reported
regardless of the timing or amounts of distributions on the
Residual Certificates.
The taxable income of a REMIC Pool is generally determined
under the accrual method of accounting in the same manner as the
taxable income of an individual taxpayer. Taxable income is
generally gross income, including interest and original issue
discount income, if any, on the assets of the REMIC Pool and
income from the amortization of any premium on Regular
Certificates, minus deductions. Market discount (as defined in
the Code) with respect to Mortgage Loans held by a REMIC Pool is
recognized in the same fashion as if it were original issue
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discount. Deductions include interest and original issue discount
expense on the Regular Certificates, reasonable servicing fees
attributable to the REMIC Pool, other administrative expenses and
amortization of any premium on assets of the REMIC Pool. As
previously discussed, the timing of recognition of "negative
original issue discount," if any, on a Regular Certificate is
uncertain; as a result, the timing of recognition of the
corresponding income to the REMIC Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a
Lower-Tier REMIC, the regular interests issued by the Lower-Tier
REMIC to the Upper- Tier REMIC will be treated as a single debt
instrument for purposes of the original issue discount
provisions. A determination that these regular interests can not
be treated as a single debt instrument would have a material
adverse effect on the Owners of Residual Certificates issued by
the Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual
Certificate. Taxable income of the REMIC Pool, however, will not
include cash received by the REMIC Pool that represents a
recovery of the REMIC Pool's initial basis in its assets, and
such basis will include the issue price of the Residual
Certificates (assuming the issue price is positive). Such
recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificate over
its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic
life of the Residual Certificate. The issue price of a Residual
Certificate is the price at which a substantial portion of the
Class of Certificates including the Residual Certificate are
first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of
taxable income or net loss attributable to the REMIC Pool as an
original Owner. No adjustments are made to reflect the purchase
price.
Losses. A Residual Owner that is allocated a net loss of
the REMIC Pool may not deduct such loss currently to the extent
it exceeds the Owner's adjusted basis (as defined in "Sale or
Exchange of Certificates" below) in its Residual Certificate. A
Residual Owner that is a U.S. person (as defined below in
"Taxation of Certain Foreign Investors"), however, may carry over
any disallowed loss to offset any taxable income generated by the
same REMIC Pool.
Excess Inclusions. A portion of the taxable income
allocated to a Residual Certificate is subject to special tax
rules. That portion, referred to as an "excess inclusion," is
calculated for each calendar quarter and equals the excess of
such taxable income for the quarter over the daily accruals for
the quarter. The daily accruals equal the product of (i) 120% of
the federal long-term rate under Code Section 1274(d) for the
month which includes the Closing Date (determined on the basis of
quarterly compounding and properly adjusted for the length of the
quarter) and (ii) the adjusted issue price of the Certificate at
the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue
price of the Certificate, increased by the amount of daily
accruals on the Certificate for all prior quarters, and decreased
(but not below zero) by any prior distributions on the
Certificate. If the aggregate value of the Residual Certificates
is not considered to be "significant," then to the extent
provided in Treasury regulations, a Residual Owner's entire share
of REMIC taxable income will be treated as an excess inclusion.
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The regulations that have been adopted under Code Sections 860A
through 86OG (the "REMIC Regulations") do not contain such a
rule.
Excess inclusions generally may not be offset by unrelated
losses or loss carryforwards or carrybacks of a Residual Owner.
In addition, for all taxable years beginning after August 20,
1996, and unless a Residual Owner elects otherwise for all other
taxable years, the alternate minimum taxable income of a Residual
Owner for a taxable year may not be less than the Residual
Owner's excess inclusions for the taxable year and excess
inclusions are disregarded when calculating a Residual Owner's
alternate minimum tax net operating loss deduction.
Excess inclusions are treated as unrelated business taxable
income for an organization subject to the tax on unrelated
business income. In addition, under Treasury regulations yet to
be issued, if a real estate investment trust, regulated
investment company or certain other pass-through entities are
Residual Owners, a portion of the distributions made by such
entities may be treated as excess inclusions.
Distributions. Distributions on a Residual Certificate
(whether at their scheduled times or as a result of prepayments)
generally will not result in any taxable income or loss to the
Residual Owner. If the amount of any distribution exceeds a
Residual Owner's adjusted basis in its Residual Certificate,
however, the Residual Owner will recognize gain (treated as gain
from the sale or exchange of its Residual Certificate) to the
extent of such excess. See "Sale or Exchange of Certificates"
below.
Prohibited Transactions; Special Taxes. Net income
recognized by a REMIC Pool from "prohibited transactions" is
subject to a 100% tax and is disregarded in calculating the REMIC
Pool's taxable income. In addition, a REMIC Pool is subject to
federal income tax at the highest corporate rate on "net income
from foreclosure property" (which has a technical definition). A
100% tax also applies to certain contributions to a REMIC Pool
made after it is formed. It is not anticipated that any REMIC
Pool will (i) engage in prohibited transactions in which it
recognizes a significant amount of net income, (ii) receive
contributions of property that are subject to tax, or (iii)
derive a significant amount of net income from foreclosure
property that is subject to tax.
Negative Value Residual Certificates. The federal income
tax treatment of any consideration paid to a transferee on a
transfer of a Residual Certificate is unclear. Such a transferee
should consult its tax advisor. The preamble to the REMIC
Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
In addition, on December 23, 1996, the Internal Revenue
Service released final regulations under Code Section 475 (the
"Mark to Market Regulations") relating to the requirement that a
dealer mark certain securities to market. The Mark to Market
Regulations provide that a residual interest is not a "security"
for the purposes of Section 475 of the Code, and thus is not
subject to the mark to market rules.
THE METHOD OF TAXATION OF RESIDUAL CERTIFICATES DESCRIBED
IN THIS SECTION CAN PRODUCE A SIGNIFICANTLY LESS FAVORABLE
AFTER-TAX RETURN FOR A RESIDUAL CERTIFICATE THAN WOULD BE THE
CASE IF THE CERTIFICATE WERE TAXABLE AS A DEBT INSTRUMENT. ALSO,
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A RESIDUAL OWNER'S RETURN MAY BE ADVERSELY AFFECTED BY THE EXCESS
INCLUSIONS RULES DESCRIBED ABOVE. IN CERTAIN PERIODS, TAXABLE
INCOME AND THE RESULTING TAX LIABILITY FOR A RESIDUAL OWNER MAY
EXCEED ANY DISTRIBUTIONS IT RECEIVES. IN ADDITION, A SUBSTANTIAL
TAX MAY BE IMPOSED ON CERTAIN TRANSFERORS OF A RESIDUAL
CERTIFICATE AND CERTAIN RESIDUAL OWNERS THAT ARE "PASS-THRU"
ENTITIES. SEE "TRANSFERS OF RESIDUAL CERTIFICATES" BELOW.
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS BEFORE PURCHASING A
RESIDUAL CERTIFICATE.
Sale or Exchange of Certificates.
An Owner generally will recognize gain or loss upon sale or
exchange of a Regular or Residual Certificate equal to the
difference between the amount realized and the Owner's adjusted
basis in the Certificate. The adjusted basis in a Certificate
generally will equal the cost of the Certificate, increased by
income previously recognized, and reduced (but not below zero) by
previous distributions, and by any amortized premium in the case
of a Regular Certificate, or net losses allowed as a deduction in
the case of a Residual Certificate.
Except as described below, any gain or loss on the sale or
exchange of a Certificate held as a capital asset will be capital
gain or loss and will be long-term or short-term depending on
whether the Certificate has been held for more than one year.
Such gain or loss will be ordinary income or loss (i) for a bank
or thrift institution, and (ii) in the case of a Regular
Certificate, (a) to the extent of any accrued, but unrecognized,
market discount, or (b) to the extent income recognized by the
Owner is less than the income that would have been recognized if
the yield on such Certificate were 110% of the applicable federal
rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination
of the REMIC Pool equal to the amount of the Owner's remaining
adjusted basis in its Residual Certificates. Whether the
termination will be treated as a sale or exchange (resulting in a
capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale
rules of Code Section 1091 will apply to dispositions of a
Residual Certificate where the seller of the interest, during the
period beginning six months before the sale or disposition of the
interest and ending six months after such sale or disposition,
acquires (or enters into any other transaction that results in
the application of Code Section 1091) any REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a
residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an
Owner that is a non-U.S. person (as defined below), and that has
no connection with the United States other than owning the
Certificate, will not be subject to U.S. withholding or income
tax with respect to the Certificate provided such Owner (i) is
not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the
Owner and stating, among other things, that the Owner is a
non-U.S. person and provided further, with respect to interest
income from a Regular Certificate (including original issue
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discount), that such interest is not "contingent". If these
conditions are not met, a 30% withholding tax will apply to
interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is
effectively connected with the conduct of a trade or business
within the United States by such Owner. In the latter case, such
Owner will be subject to United States federal income tax with
respect to all income from the Certificate at regular rates then
applicable to U.S. taxpayers (and in the case of a corporation,
possibly also the branch profits tax).
The term "non-U.S. person" means any person other than a
U.S. person. A U.S. person is 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, an estate that is subject to U.S.
federal income tax regardless of the source of its income or a
trust if (i) a U.S. court is able to exercise primary supervision
over the trust's administration and (ii) one or more U.S.
persons have the authority to control all of the trust's
substantial decisions.
Residual Certificates. A Residual Owner that is a non-U.S.
person, and that has no connection with the United States other
than owning a Residual Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate (other
than with respect to excess inclusions) provided that (i) the
conditions described in the second preceding paragraph with
respect to Regular Certificates are met and (ii) in the case of a
Residual Certificate in a REMIC Pool holding Mortgage Loans, the
Mortgage Loans were originated after July 18, 1984. Excess
inclusions are subject to a 30% withholding tax in all events
(notwithstanding any contrary tax treaty provisions) when
distributed to the Residual Owner (or when the Residual
Certificate is disposed of). The Code grants the Treasury
Department authority to issue regulations requiring excess
inclusions to be taken into account earlier if necessary to
prevent avoidance of tax. The REMIC Regulations do not contain
such a rule. The preamble thereto states that the Internal
Revenue Service is considering issuing regulations concerning
withholding on distributions to foreign holders of residual
interests to satisfy accrued tax liability due to excess
inclusions.
With respect to a Residual Certificate that has been held
at any time by a non-U.S. person, the Trustee (or its agent) will
be entitled to withhold (and to pay to the Internal Revenue
Service) any portion of any payment on such Residual Certificate
that the Trustee reasonably determines is required to be
withheld. If the Trustee (or its agent) reasonably determines
that a more accurate determination of the amount required to be
withheld from a distribution can be made within a reasonable
period after the scheduled date for such distribution, it may
hold such distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to transfers
of Residual Certificates to and from non-U.S. persons are
discussed in the next section.
Transfers of Residual Certificates.
Special tax rules and restrictions apply to transfers of
Residual Certificates to disqualified organizations or foreign
investors, and to transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with the
REMIC rules of the Code, the Agreement will provide that no legal
or beneficial interest in a Residual Certificate may be
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transferred to, or registered in the name of, any person unless
(i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that,
among other items, such transferee is not a "disqualified
organization" (as defined below), is not purchasing a Residual
Certificate as an agent for a disqualified organization (i.e., as
a broker, nominee, or other middleman) and is not an entity (a
"Book-Entry Nominee") that holds REMIC residual securities as
nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of
participating organizations and (ii) the transferor states in
writing to the Trustee that it has no actual knowledge that such
affidavit is false.
If despite these restrictions a Residual Certificate is
transferred to a disqualified organization, the transfer may
result in a tax equal to the product of (i) the present value of
the total anticipated future excess inclusions with respect to
such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the
transferor, except that if the transfer is through an agent for a
disqualified organization, the agent is liable for the tax. A
transferor is not liable for such tax 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 the affidavit
is false.
A disqualified organization may hold an interest in a REMIC
Certificate through a "pass-thru entity" (as defined below). In
that event, the pass-thru entity is subject to tax (at the
highest corporate marginal federal income tax rate) on excess
inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity
receives affidavits from record holders of interests in the
entity stating that they are not disqualified organizations and
the entity does not have actual knowledge that the affidavits are
false.
For these purposes, (i) "disqualified organization" means
the United States, any state or political subdivision thereof,
any foreign government, any international organization, any
agency or instrumentality of any of the foregoing, certain
organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations
operating on a cooperative basis, and (ii) "pass-thru entity"
means any regulated investment company, real estate investment
trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as
may be provided in Treasury regulations, any person holding an
interest in a pass-thru entity as a nominee for another will,
with respect to that interest, be treated as a pass-thru entity.
Certain additional rules apply to "electing large
partnerships." If an electing large partnership holds a Residual
Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for the purposes of
the tax on pass-thru entities described above. The exception to
such tax which is described above with respect to pass-thru
entities that collect affidavits from their record holders is not
available to electing large partnerships.
Foreign Investors. Under the REMIC Regulations, a
transfer of a Residual Certificate to a non-U.S. person that will
not hold the Certificate in connection with a U.S. trade or
business will be disregarded for all federal tax purposes if the
Certificate has "tax avoidance potential." A Residual Certificate
has tax avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to
the transferee residual interest holder an amount that will equal
at least 30 percent of the excess inclusion, and
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(ii) each such amount will be distributed at or after the
time at which the excess inclusion accrues and not later than the
close of the calendar year following the calendar year of
accrual.
A transferor has such reasonable expectation if the above test
would be met assuming that the REMIC's Mortgage Loans will prepay
at each rate between 50 percent and 200 percent of the Prepayment
Assumption.
The REMIC Regulations also provide that a transfer of a
Residual Certificate from a non-U.S. person to a U.S. person (or
to a non-U.S. person that will hold the Certificate in connection
with a U.S. trade or business) is disregarded if the transfer has
"the effect of allowing the transferor to avoid tax on accrued
excess inclusions."
In light of these provisions, the Agreement provides that a
Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. person, unless (i) such person
holds the Certificate in connection with the conduct of a trade
or business within the United States and furnishes the transferor
and the Trustee with an effective Internal Revenue Service Form
4224, or (ii) the transferee delivers to both the transferor and
the Trustee an opinion of nationally recognized tax counsel to
the effect that such transfer is in accordance with the
requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for
federal income tax purposes.
Noneconomic Residual Certificates. Under the REMIC
Regulations, a transfer of a "noneconomic" Residual Certificate
will be disregarded for all federal income tax purposes if a
significant purpose of the transfer is to impede the assessment
or collection of tax. Such a purpose exists if the transferor, at
the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC. A transferor is
presumed to lack such knowledge if:
(i) the transferor conducted, at the time of the transfer,
a reasonable investigation of the financial condition of the
transferee and found that the transferee had historically paid
its debts as they came due and found no significant evidence to
indicate that the transferee will not continue to pay its debts
as they become due, and
(ii) the transferee represents to the transferor that it
understands that, as the holder of the noneconomic residual
interest, it may incur tax liabilities in excess of any cash
flows generated by the interest and that it intends to pay taxes
associated with holding the residual interest as they become due.
A Residual Certificate (including a Certificate with significant
value at issuance) is noneconomic unless, at the time of the
transfer, (i) the present value of the expected future
distributions on the Certificate at least equals the product of
the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which
the transfer occurs, and (ii) the transferor reasonably expects
that the transferee will receive distributions on the
Certificate, at or after the time at which taxes accrue, in an
amount sufficient to pay the taxes.
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The Agreement will provide that no legal or beneficial
interest in a Residual Certificate may be transferred to, or
registered in the name of, any person unless the transferor
represents to the Trustee that it has conducted the investigation
of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the
Trustee the transferee representations described in the preceding
paragraph, and agrees that it will not transfer the Certificate
to any person unless that person agrees to comply with the same
restrictions on future transfers.
Servicing Compensation and Other REMIC Pool Expenses.
Under Code Section 67, an individual, estate or trust is
allowed certain itemized deductions only to the extent that such
deductions, in the aggregate, exceed 2% of the Owner's adjusted
gross income, and such a person is not allowed such deductions to
any extent in computing its alternative minimum tax liability.
Under Treasury regulations, if such a person is an Owner of a
REMIC Certificate, the REMIC Pool is required to allocate to such
a person its share of the servicing fees and administrative
expenses paid by a REMIC together with an equal amount of income.
Those fees and expenses are deductible as an offset to the
additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of
Regular Certificates with staggered maturities, fees and expenses
of the REMIC Pool would be allocated entirely to the Owners of
Residual Certificates. However, if the REMIC Pool were a
"single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately
among the Regular and Residual Certificates.
Reporting and Administrative Matters.
Annual reports will be made to the Internal Revenue
Service, and to Holders of record of Regular Certificates, and
Owners of Regular Certificates holding through a broker, nominee
or other middleman, that are not excepted from the reporting
requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount,
information regarding the percentage of the REMIC Pool's assets
meeting the qualified assets tests described above under "Status
of Certificates" and, where relevant, allocated amounts of
servicing fees and other Code Section 67 expenses. Holders not
receiving such reports may obtain such information from the
related REMIC by contacting the person designated in IRS
Publication 938. Quarterly reports will be made to Residual
Holders showing their allocable shares of income or loss from the
REMIC Pool, excess inclusions, and Code Section 67 expenses.
The Trustee or its agent will sign and file federal income
tax returns for each REMIC Pool. To the extent allowable and if
so specified in the related Prospectus Supplement, the Seller
will act as the tax matters person for each REMIC Pool. Each
Owner of a Residual Certificate, by the acceptance of its
Residual Certificate, agrees that the Seller will act as the
Owner's agent in the performance of any duties required of the
Owner in the event that the Owner is the tax matters person.
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An Owner of a Residual Certificate is required to treat
items on its federal income tax return consistently with the
treatment of the items on the REMIC Pool's return, unless the
Owner owns 100% of the Residual Certificate for the entire
calendar year or the Owner either files a statement identifying
the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The
Internal Revenue Service may assess a deficiency resulting from a
failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. Any
person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to
be provided in Treasury regulations, the name and address of such
other person and other information.
Non-REMIC Certificates.
If no REMIC election is made, the Trust Fund may either
elect to be treated as a "financial asset securitization
investment trust" ("FASIT") or qualify as a grantor trust. The
Prospectus Supplement for either Series of Certificates for which
no REMIC election is made will address the material federal
income tax consequences of an investment in such Certificates.
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described
in "FEDERAL INCOME TAX CONSEQUENCES," potential investors should
consider the state income tax consequences of the acquisition,
ownership, and disposition of the Certificates. State income tax
law may differ substantially from the corresponding federal law,
and this discussion does not purport to describe any aspect of
the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various
state tax consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain requirements on employee
benefit plans subject to ERISA ("ERISA Plans") and prohibits
certain transactions between ERISA Plans and persons who are
parties in interest (as defined under ERISA) ("parties in
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interest") with respect to such Plans. The Code prohibits a
similar set of transactions between certain plans ("Code Plans,"
and together with ERISA Plans, "Plans") and persons who are
disqualified persons (as defined in the Code) with respect to
Code Plans.
Investments by ERISA Plans and entities the assets of which
are deemed to include plan assets are subject to ERISA's general
fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that investments
be made in accordance with the documents governing the ERISA
Plan. Before investing in a Certificate, an ERISA Plan fiduciary
should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should
especially consider the sensitivity of the investments to the
rate of principal payments (including prepayments) on the
Mortgage Loans, as discussed in the Prospectus Supplement related
to a Series.
Prohibited Transactions
Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to
ERISA Plans and Code Plans from engaging in certain transactions
involving such Plans and their assets unless a statutory or
administrative exemption applies to the transaction. Section 4975
of the Code and Sections 502(i) and 502(l) of ERISA provide for
the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited
transactions. The Depositor, the Master Servicer, the Special
Servicer, if any, the Trustee or certain affiliates thereof might
be considered or might become parties in interest or disqualified
persons with respect to an ERISA Plan or a Code Plan. If so, the
acquisition or holding of Certificates by or on behalf of such
Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and/or the Code unless
an administrative exemption described below or some other
exemption is available.
Special caution should be exercised before the assets of a
Plan are used to purchase a Certificate if, with respect to such
assets, the Depositor, the Master Servicer, the Special Servicer,
if any, the Trustee or an affiliate thereof either: (a) has
investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to
give, or regularly gives investment advice with respect to such
assets for a fee and pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment
decisions with respect to such assets and that such advice will
be based on the particular investment needs of the Plan.
Further, if the assets included in a Trust Fund were deemed
to constitute "plan assets," it is possible that an ERISA Plan's
investment in the Certificates might be deemed to constitute a
delegation, under ERISA, of the duty to manage plan assets by the
fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Fund might be
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deemed to constitute prohibited transactions under ERISA and/or
the Code. Neither ERISA nor the Code defines the term "plan
assets."
The U.S. Department of Labor (the "Department") has issued
regulations (the "Regulations") concerning whether or not a
Plan's assets would be deemed to include an interest in the
underlying assets of an entity (such as the Trust Fund) for
purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited
transaction provisions of ERISA and the Code, if the Plan
acquires an "equity interest" (such as a Certificate) in such an
entity.
Certain exceptions are provided in the Regulations
whereby an investing Plan's assets would be deemed merely to
include its interest in the Certificates instead of being deemed
to include an interest in the assets of the Trust Fund. However,
it cannot be predicted in advance nor can there be a continuing
assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the
Regulations. For example, one of the exceptions in the
Regulations states that the underlying assets of an entity will
not be considered "plan assets" if less than 25% of the value of
all classes of equity interests are held by "benefit plan
investors," which are defined as ERISA Plans, Code Plans,
employee benefit plans not subject to ERISA (for example,
governmental plans) and entities whose underlying assets include
plan assets by reason of a Plan's investment therein, but this
exemption is tested immediately after each acquisition of an
equity interest in the entity whether upon initial issuance or in
the secondary market.
Pursuant to the Regulations, if the assets of the Trust
Fund were deemed to be plan assets by reason of a Plan's
investment in any Certificates, such plan assets would include an
undivided interest in the Mortgage Loans, the mortgages
underlying the Mortgage Loans and any other assets held in the
Trust Fund. Therefore, because the Mortgage Loans and other
assets held in the Trust Fund may be deemed to be the assets of
each Plan that purchases Certificates, in the absence of an
exemption, the purchase, sale or holding of Certificates of any
Series or Class by a Plan might result in a prohibited
transaction and the imposition of civil penalties or excise
taxes. The Department has issued administrative exemptions from
application of certain prohibited transaction restrictions of
ERISA and the Code to several underwriters of mortgage-backed
securities (each, an "Underwriter's Exemption"). Such an
Underwriter's Exemption can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering
with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such
an Underwriter's Exemption might be applicable to a Series of
Certificates, the related Prospectus Supplement will refer to
such possibility.
Unrelated Business Taxable Income -- Residual Interests
The purchase of a Certificate evidencing an interest in the
Residual Interest in a Series that is treated as a REMIC by any
person, including any employee benefit plan that is exempt from
federal income tax under Code Section 501(a), including most
varieties of ERISA Plans, may give rise to "unrelated business
taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of an interest in a Residual
Interest, a prospective transferee may be required to provide an
affidavit to a transferor that it is not, nor is it purchasing an
interest in a Residual Interest on behalf of, a "Disqualified
Organization," which term as defined above includes certain
tax-exempt entities not subject to Code Section 511, such
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as certain governmental plans, as discussed above under "FEDERAL
INCOME TAX CONSEQUENCES--Income from Residual Certificates" and
"--Transfers of Residual Certificates."
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES
IMPOSED UPON PERSONS INVOLVED IN PROHIBITED TRANSACTIONS, IT IS
PARTICULARLY IMPORTANT THAT INDIVIDUALS RESPONSIBLE FOR
INVESTMENT DECISIONS WITH RESPECT TO ERISA PLANS AND CODE PLANS
CONSULT WITH THEIR COUNSEL REGARDING THE CONSEQUENCES UNDER ERISA
AND/OR THE CODE OF THEIR ACQUISITIONS AND OWNERSHIP OF
CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A
REPRESENTATION BY THE SELLER OR THE APPLICABLE UNDERWRITER THAT
THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR PLAN,
OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY
PARTICULAR PLAN.
LEGAL INVESTMENT
The Secondary Mortgage Market Enhancement Act
The Prospectus Supplement for each Series will identify
those Classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). The
appropriate characterization of those Offered Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA
Certificates") under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to
purchase such Certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose
investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what
extent the Non-SMMEA Certificates constitute legal investments
for them.
A Class or Classes of Certificates of a Series will
constitute "mortgage related securities" ("SMMEA Certificates")
for so long as they (i) are rated in one of the two highest
rating categories by at least one nationally recognized
statistical rating organization and (ii) are part of a Series
evidencing interests in a Trust Fund consisting of loans
originated by certain types of originators as specified in SMMEA.
As "mortgage related securities," the SMMEA Certificates will
constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities
(including, but not limited to, state-chartered savings banks,
commercial banks, savings and loan associations and insurance
companies, as well as trustees and state government employee
retirement systems) created pursuant to or existing under the
laws of the United States or of any state (including the District
of Columbia and Puerto Rico) 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. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or
mixed residential and commercial properties, in most cases by
requiring the affected investors to rely solely upon existing
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state law, and not SMMEA. Pursuant to Section 347 of
the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related
security" to include, in relevant part, Certificates satisfying
the rating and qualified originator requirements for "mortgage
related securities," but evidencing interests in a Trust Fund
consisting, in whole or in part, of first liens on one or more
parcels of real estate upon which are located one or more
commercial structures, states are authorized to enact
legislation, on or before September 23, 2001, specifically
referring to Section 347 and prohibiting or restricting the
purchase, holding or investment by state-regulated entities in
such types of Certificates. Accordingly, investors affected by
any such state legislation, when and if enacted, will be
authorized to invest in SMMEA Certificates only to the extent
provided in such legislation. Section 347 also provides that the
enactment by a state of any such legislative restrictions shall
not affect the validity of any contractual commitment to
purchase, hold or invest that was made, and shall not require the
sale or disposition of any securities acquired, prior to such
state 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 in 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. ss. 24
(Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe. In this
connection, effective December 31, 1996, the Office of the
Comptroller of the Currency (the "OCC") has amended 12 C.F.R.
Part 1 to authorize national banks to purchase and sell for their
own account, without limitation as to a percentage of the bank's
capital and surplus (but subject to compliance with certain
general standards concerning "safety and soundness" and retention
of credit information in 12 C.F.R. Section 1.5), certain "Type IV
securities," defined in 12 C.F.R. Section 1.2(l) to include,
among other things, certain "commercial mortgage-related
securities" and "residential mortgage-related securities." As so
defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, "mortgage
related security" within the meaning of SMMEA, provided that, in
the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of
interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more
commercial structures are located and that is fully secured by
interests in a pool of loans to numerous obligors." In the
absence of any rule or administrative interpretation by the OCC
defining the term "numerous obligors," no representation is made
as to whether any Class of Certificates will qualify as
"commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. Federal credit
unions should review the National Credit Union Administration
("NCUA") Letters to Credit Unions Nos. 96, 139 and 169, regarding
investments in mortgage related securities. The NCUA has adopted
rules which prohibit federal credit unions or corporate credit
unions from investing in certain mortgage related securities
(including securities such as certain Series, Classes or
subclasses of Certificates), except under limited circumstances.
All depository institutions considering an investment in
the Certificates should review the "Supervisory Policy Statement
on Securities Activities" dated February 3, 1992, as revised
April 15, 1994 (the "Policy Statement") of the Federal Financial
Institutions Examination Council. The Policy Statement, which has
been adopted by the Board of Governors of the Federal Reserve
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System, the FDIC, the OCC, the Office of Thrift
Supervision and the NCUA, prohibits depository institutions from
investing in certain "high-risk mortgage securities" (including
Securities such as certain Series, Classes or subclasses of the
Certificates), except under limited circumstances, and sets forth
certain investment practices deemed to be unsuitable for
regulated institutions. In October 1997, these five federal
regulators, acting jointly through the Federal Financial
Institutions Examination Council, solicited public comment on a
proposal to rescind the specific restrictions of the Policy
Statement and substitute a proposed new policy statement on
investment securities and derivatives activities, containing
broader guidance on managing risks of investment activities,
including mortgage related securities. There can be no assurance
as to whether or when these regulators may take such action or,
if so, how this might affect a depository institution's ability
to invest in any Certificates.
Institutions whose investment activities are subject to
regulation by federal or state authorities should review rules,
policies and guidelines adopted from time to time by such
authorities before purchasing any Certificates, as certain
Series, Classes or subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of
SMMEA).
The foregoing does not take into consideration the
applicability of statutes, rules, regulations, orders, guidelines
or agreements generally governing investments made by a
particular investor, including, but not limited to, "prudent
investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are
not "interest-bearing" or "income-paying," and, with regard to
any Certificates issued in book-entry form, provisions which may
restrict or prohibit investments in securities which are issued
in book-entry form.
INVESTORS SHOULD CONSULT WITH THEIR OWN LEGAL ADVISORS IN
DETERMINING WHETHER, AND TO WHAT EXTENT, THE CERTIFICATES
CONSTITUTE LEGAL INVESTMENTS FOR SUCH INVESTORS.
Except as to the status of SMMEA Certificates identified in
the Prospectus Supplement for a Series as "mortgage related
securities" under SMMEA, no representation is made as to the
proper characterization of the Certificates for legal investment
or financial institution regulatory purposes or other purposes,
or as to the ability of particular investors to purchase
Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may
adversely affect the liquidity of the Certificates.
The Appraisal Regulations
Pursuant to Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), the Board of
Governors of the Federal Reserve System, the OCC, the Federal
Deposit Insurance Corporation and the Office of Thrift
Supervision have adopted regulations (the "Appraisal
Regulations") applicable to bank holding companies and their
non-bank subsidiaries, state-chartered banks that are members of
the Federal Reserve System, national banks, state-chartered banks
that are not members of the Federal Reserve System and savings
associations, respectively. The Appraisal Regulations, which are
substantially similar, although not identical, for each agency,
generally require the affected institutions and entities to
obtain appraisals performed by state-certified or state-licensed
appraisers (each, a "FIRREA Appraisal") in connection with a wide
range of real estate-related transactions, including the purchase
of interests in loans secured by real estate in the form of
mortgage-backed securities, unless an exemption applies. With
respect to purchases of mortgage-backed securities, the Appraisal
Regulations provide for an exemption from the requirement of
obtaining new FIRREA Appraisals for the properties securing the
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underlying loans so long as at the time of origination each such
loan was the subject of either a FIRREA Appraisal, or, if a
FIRREA Appraisal was not required, met the appraisal requirements
of the appropriate regulator.
No assurance can be given that each of the underlying
Mortgage Loans in a Mortgage Pool will have been the subject of a
FIRREA Appraisal or, if a FIRREA Appraisal was not required, an
appraisal that conformed to the requirements of the appropriate
regulator at origination. To the extent available, information
will be provided in the Prospectus Supplement with respect to
appraisals on the Mortgage Loans underlying each Series of
Certificates. However, such information may not be available on
every Mortgage Loan. Prospective investors that may be subject to
the Appraisal Regulations are advised to consult with their legal
advisors and/or the appropriate regulators with respect to the
effect of such regulations on their ability to invest in a
particular Series of Certificates.
PLAN OF DISTRIBUTION
The Certificates offered hereby and by means of the related
Prospectus Supplements will be offered through one or more of the
methods described below. The Prospectus Supplement with respect
to each such Series of Certificates will describe the method of
offering of such Series of Certificates, including the initial
public offering or purchase price of each Class of Certificates
or the method by which such price will be determined and the net
proceeds to the Seller of such sale.
The Offered Certificates will be offered through the
following methods from time to time and offerings may be made
concurrently through more than one of these methods or an
offering of a particular Series of Certificates may be made
through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public
reoffering by underwriters specified in the applicable Prospectus
Supplement;
2. By placements by the Seller with investors through
dealers; and
3. By direct placements by the Seller with investors.
Unless otherwise specified in the related Prospectus
Supplement, if underwriters are used in a sale of any Offered
Certificates, 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 a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of
commitment thereof. Firm commitment underwriting and public
reoffering by underwriters may be done through underwriting
syndicates or through one or more firms acting alone. The
specific managing underwriter or underwriters, if any, with
respect to the offer and sale of the Offered Certificates of a
particular Series will be set forth on the cover of the related
Prospectus Supplement and the members of the underwriting
syndicate, if any, will be named in such Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Offered
Certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the
underwriting agreement, by Goldman, Sachs & Co. acting as
underwriter with other underwriters, if any, named therein. The
Seller is an affiliate of Goldman, Sachs & Co. See 'The Seller'
herein. The Prospectus Supplement will describe any discounts
and commissions to be allowed or paid by the Seller to the
underwriters, any other items constituting underwriting
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compensation and any discounts and commissions to be allowed or
paid to the dealers. The obligations of the underwriters will be
subject to certain conditions precedent. The underwriters with
respect to a sale of any Class of Certificates will be obligated
to purchase all such Certificates if any are purchased. The
Seller and, if specified in the Prospectus Supplement, a selling
Certificateholder will agree to indemnify the underwriters
against certain civil liabilities, including liabilities under
the Act or will contribute to payments required to be made in
respect thereof.
In the ordinary course of business, Goldman, Sachs & Co., or
its affiliates, and the Seller may engage in various securities
and financing transactions, including repurchase agreements to
provide interim financing of the Seller's mortgage loans pending
the sale of such mortgage loans or interests therein, including
the Certificates.
If specified in the Prospectus Supplement relating to a
Series of Certificates, a holder of one or more Classes of
Offered Certificates that is required to deliver a prospectus in
connection with the offer and sale thereof may offer and sell,
pursuant to this Prospectus and a related Prospectus Supplement,
such Classes directly, through one or more underwriters to be
designated at the time of the offering of such Certificates or
through dealers acting as agent and/or principal. The specific
managing underwriter or underwriters, if any, with respect to any
such offer and sale of Certificates by unaffiliated parties will
be set forth on the cover of the Prospectus Supplement applicable
to such Certificates and the members of the underwriting
syndicate, if any, will be named in such Prospectus Supplement,
and the Prospectus Supplement will describe any discounts and
commissions to be allowed or paid by such unaffiliated parties to
the underwriters, any other items constituting underwriting
compensation and any discounts and commissions to be allowed or
paid to any dealers participating in such offering. Any offerings
described in this paragraph may be restricted in the manner
specified in such Prospectus Supplement. Such transactions may be
effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. The underwriters and
dealers participating in such selling Certificateholder's
offering of such Certificates may receive compensation in the
form of underwriting discounts or commissions from such selling
Certificateholder, and such dealers may receive commissions from
the investors purchasing such Certificates for whom they may act
as agent (which discounts or commissions will not exceed those
customary in those types of transactions involved). Any dealer
that participates in the distribution of such Certificates may be
deemed to be an "underwriter" within the meaning of the Act, and
any commissions and discounts received by such dealer and any
profit on the resale of such Certificates by such dealer might be
deemed to be underwriting discounts and commissions under the
Act.
If the Certificates of a Series are offered other than
through underwriters, the related Prospectus Supplement will
contain information regarding the nature of such offering and any
agreements to be entered into between the Seller and dealers
and/or the Seller and the purchasers of such Certificates.
Purchasers of Certificates, including dealers, may, depending on
the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Act in connection with
reoffers and sales by them of Certificates. Holders of
Certificates should consult with their legal advisors in this
regard prior to any such reoffer or sale.
The place and time of delivery for each Series of
Certificates offered hereby and by means of the related
Prospectus Supplement will be set forth in the Prospectus
Supplement with respect to such series.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered
hereby will be passed upon for the Seller by Cleary, Gottlieb,
Steen & Hamilton or by other counsel identified in the related
Prospectus Supplement.
79
<PAGE>
No dealer, salesman or other
person has been authorized to give
any information or to make any
representations in connection
with this offering other than
those contained in this Prospectus
Supplement and the Prospectus
and, if given or made, such
information or representation
must not be relied upon as having -----------------------
been authorized. This Prospectus
Supplement and the Prospectus do
not constitute an offer to sell
or a solicitation of an offer to GS MORTGAGE SECURITIES
buy any of the Securities in any CORPORATION II
state to any person to whom it Seller
is unlawful to make such offer.
The delivery of this Prospectus
Supplement and the Prospectus at
any time does not imply that
information herein or therein
is correct as of any time
subsequent to the date hereof
or thereof.
-------------
Commercial Mortgage
INDEX Pass-Through Certificates,
PROSPECTUS SUPPLEMENT Series 199_-_
Page
Summary of Terms ............. S-3
Risk Factors.....................S-15
Description of the Mortgage
Pool and the Underlying
Mortgaged Properties...........S-20
The Originator...................S-33
Description of the Certificates..S-33
Servicing of the Mortgage Loans..S-43
[Credit Enhancement..............S-49] Goldman, Sachs & Co.
Yield, Prepayment and Maturity
Considerations.................S-49
The Agreement....................S-57
Certain Legal Aspects of the
Mortgage Loans.................S-60
Federal Income Tax Consequences..S-61
ERISA Considerations.............S-62
Legal Investment Considerations..S-62
Use of Proceeds..................S-62
Plan of Distribution.............S-62
Legal Matters....................S-63
Ratings..........................S-63
Mortgage Loan Schedule........Annex A
Representations and
Warranties..................Annex B
PROSPECTUS
Prospectus Supplement.............. 2
Additional Information............. 3
Incorporation of Certain
Information by Reference......... 4
Risk Factors ...................... 4
The Seller......................... 8
Use of Proceeds ................... 8
Description of the Certificates.... 9
The Mortgage Pools.................19
Servicing of the Mortgage Loans....24
Credit Enhancement ................32
Swap Agreement.....................36
Yield Considerations ..............36
Certain Legal Aspects of the
Mortgage Loans.....................38
Federal Income Tax Consequences....58
State Tax Considerations ..........72
ERISA Considerations ..............72
Legal Investment...................75
Plan of Distribution...............78
Legal Matters .....................80
2
<PAGE>
**********************************************************************
* Information contained herein is subject to completion or *
* amendment. A registration statement relating to these securities *
* has been filed with the Securities and Exchange Commission. These *
* securities may not be sold nor may offers to buy be accepted *
* prior to the time the registration statement becomes effective. *
* This prospectus shall not constitute an offer to sell or the *
* soliciation of an offer to buy nor shall there be any sale of *
* these securities in any State in which such offer, solicitation *
* or sale would be unlawful prior to registration or qualification *
* under the securities laws of any such State. *
**********************************************************************
[Alternate Prospectus Cover]
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 25, 1997
- -----------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------
GS MORTGAGE SECURITIES CORPORATION II
Seller
Commercial Mortgage Pass-Through
Certificates (Issuable in Series)
GS Mortgage Securities Corporation II (the "Seller")
from time to time will offer Commercial Mortgage Pass-Through
Certificates (the "Offered Certificates") in series (each, a
"Series") by means of this Prospectus and a separate Prospectus
Supplement for each Series. If specified in the related
Prospectus Supplement, a Series may include one or more Classes
of certificates (together with the Offered Certificates, the
"Certificates") not offered by means of this Prospectus. The
Certificates of each Series will evidence beneficial ownership
interests in a trust fund (each, a "Trust Fund") to be
established by the Seller. The Certificates of a Series may be
divided into two or more Classes which may have different
interest rates and which may receive principal payments in
differing proportions and at different times. In addition, rights
of the holders of certain Classes to receive principal and
interest may be subordinated to those of other Classes.
Each Trust Fund will consist primarily of a pool
(each, a "Mortgage Pool") of (i) one or more mortgage loans
secured by first, second or more junior liens on commercial real
estate properties, multifamily residential properties and/or
mixed residential/commercial properties, and related property and
interests, or (ii) certain financial leases and similar
arrangements equivalent to such mortgage loans as described
herein and in the related Prospectus Supplement (the "Mortgage
Loans"), conveyed to such Trust Fund by the Seller, and other
assets, including any reserve funds established with respect to a
Series, insurance policies on the Mortgage Loans, letters of
credit, certificate guarantee insurance policies or other credit
enhancements described in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the Mortgage
Loans included in a Mortgage Pool may also include participation
interests in such types of mortgage loans and installment
contracts for the sale of such types of properties. The Mortgage
Loans will have fixed or adjustable interest rates. Some Mortgage
Loans will fully amortize over their remaining terms to maturity
and others will provide for balloon payments at maturity. Unless
otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will be non-recourse obligations of the
mortgagors. The Mortgage Loans will be either seasoned or newly
originated Mortgage Loans acquired by the Seller from third
parties, which third parties may or may not be the originators of
such Mortgage Loans and may or may not be affiliates of the
Seller. Information regarding each Series of Certificates,
including interest and principal payment provisions for each
Class of Offered Certificates, as well as information regarding
the size, composition and other characteristics of the Mortgage
Pool relating to such Series, will be furnished in the related
Prospectus Supplement. The Mortgage Loans, other than, if so
specified in the related Prospectus Supplement, Specially
Serviced Mortgage Loans, will be serviced by a Master Servicer
identified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, Mortgage Loans that become
<PAGE>
Specially Serviced Mortgage Loans (as described in such
Prospectus Supplement) will be serviced by a Special Servicer
identified therein.
The Certificates will not represent an obligation of
or an interest in the Seller or any affiliate thereof. Unless
otherwise specified in the related Prospectus Supplement, the
Certificates will not be insured or guaranteed by any
governmental agency or instrumentality. Unless otherwise
specified in the related Prospectus Supplement, the Mortgage
Loans will not be insured or guaranteed by any governmental
agency or instrumentality or any insurer.
The Seller, as specified in the related Prospectus
Supplement, may elect to treat all or a specified portion of the
related Trust Fund as one or more "real estate mortgage
investment conduits" (each, a "REMIC") for federal income tax
purposes. If such an election is made, each Class of Certificates
of a Series will be either "regular interests" or "residual
interests", as specified in the related Prospectus Supplement. If
no such election is made, the Trust Fund, as specified in the
related Prospectus Supplement, may elect to be treated as a
financial asset securitization investment trust ("FASIT"), or if
no such election is made, will be classified as a grantor trust
for federal income tax purposes. See "FEDERAL INCOME TAX
CONSEQUENCES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS
FOR ALL INVESTORS. IN PARTICULAR, NO INVESTOR SHOULD PURCHASE
CERTIFICATES OF ANY CLASS UNLESS THE INVESTOR UNDERSTANDS AND IS
ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET RISKS
ASSOCIATED WITH THAT CLASS.
THE RISKS ASSOCIATED WITH THE OFFERED CERTIFICATES MAY
MAKE THEM UNSUITABLE FOR SOME INVESTORS. SEE "RISK FACTORS" ON
PAGE 4 HEREIN. THE OFFERED CERTIFICATES ARE COMPLEX SECURITIES
AND IT IS IMPORTANT THAT EACH INVESTOR IN ANY CLASS OF OFFERED
CERTIFICATES POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT
ADVISOR, THE EXPERTISE NECESSARY TO EVALUATE THE INFORMATION
CONTAINED AND INCORPORATED IN THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT IN THE CONTEXT OF THAT INVESTOR'S FINANCIAL
SITUATION.
THE YIELD OF EACH CLASS OF OFFERED CERTIFICATES WILL
DEPEND UPON, AMONG OTHER THINGS, ITS PURCHASE PRICE, ITS
SENSITIVITY TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS, DEFAULTS AND LIQUIDATIONS) ON THE
MORTGAGE LOANS AND THE ACTUAL CHARACTERISTICS OF THE MORTGAGE
LOANS. MORTGAGE LOAN PREPAYMENT RATES ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. INVESTORS SHOULD CONSIDER THE
ASSOCIATED RISKS, INCLUDING:
- FAST MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE
THE YIELDS OF THE OFFERED CERTIFICATES, INCLUDING
ANY INTEREST-ONLY CLASSES, PURCHASED AT A PREMIUM
OVER THEIR PRINCIPAL AMOUNTS.
2
<PAGE>
- SLOW MORTGAGE LOAN PREPAYMENT RATES CAN REDUCE
THE YIELDS OF OFFERED CERTIFICATES, INCLUDING ANY
PRINCIPAL-ONLY CLASSES, PURCHASED AT A DISCOUNT
TO THEIR PRINCIPAL AMOUNTS.
- SMALL DIFFERENCES IN THE ACTUAL CHARACTERISTICS
OF THE MORTGAGE LOANS CAN AFFECT THE WEIGHTED
AVERAGE LIVES AND YIELDS OF THE OFFERED
CERTIFICATES.
SEE "RISK FACTORS" AND "YIELD CONSIDERATIONS" IN THIS
PROSPECTUS AND "RISK FACTORS" AND "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" IN THE RELATED PROSPECTUS SUPPLEMENT.
------------
This Prospectus is to be used by Goldman, Sachs & Co.
in connection with offers and sales of the Offered Certificates
related to certain market-making transactions, at prices related
to prevailing market prices at the time of sale. The Seller will
not receive any proceeds from such transactions. Goldman, Sachs &
Co. may act as principal or as agent in such transactions. See
"PLAN OF DISTRIBUTION" herein and in the related Prospectus
Supplement.
This Prospectus may not be used to consummate sales of
the Offered Certificates unless accompanied by a Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS _______ __, 199_.
3
<PAGE>
[Alternative Plan of Distribution Section]
PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman, Sachs & Co. in
connection with offers and sales of the Offered Certificates in
certain market-making transactions at prices related to
prevailing market prices at the time of sale. The Seller will not
receive any proceeds from such transactions. Goldman, Sachs & Co.
may act as principal or agent in such transactions.
4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection
with the issuance and distribution of the securities being
registered, other than underwriting compensation, are as set
forth below. All such expenses, except for the filing fee, are
estimated.
SEC Registration Fee (actual)..... $ 304
Trustee's Fees and Expenses....... *
Legal Fees and Expenses........... *
Accounting Fees and Expenses...... *
Printing and Engraving............ *
Rating Agency Fees................ *
Miscellaneous..................... *
-----------
Total...................... $ *
- -------------
* To be completed by amendment.
Item 15. Indemnification of Directors and Officers.
The Certificate of Incorporation, as amended, of GS
Mortgage Securities Corporation II (the "Seller") provides that a
director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except to the extent that such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Law as currently in effect
or as may be amended. In addition, the Bylaws of the Seller
provide that the Seller shall indemnify to the full extent
permitted by law any person made or threatened to be made a party
to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a
director, officer or employee of the Seller or serves or served,
at the request of the Seller, any other enterprise as a director,
officer or employee.
II-1
<PAGE>
Item 16. Exhibits.
*1.1 -- Form of Underwriting Agreement
*3.1 -- Certificate of Incorporation of
GS Mortgage Securities Corporation II,
as amended
*3.2 -- Bylaws of GS Mortgage Securities Corporation II
*4.1 -- Form of Pooling and Servicing Agreement
**5.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
as to legality
**8.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
as to tax matters
**23.1 -- Form of Consent of Cleary, Gottlieb, Steen
& Hamilton (incorporated in Exhibits 5.1 and 8.1)
24.1 -- Power of Attorney (See page II-4 herein)
- --------------
* Filed as an exhibit to the Seller's Registration Statement
(No. 33-99774) on Form S-3 and incorporated herein by reference.
** To be filed by amendment.
Item 17. Undertakings.
A. 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 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.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(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 the Registration Statement or any
material change to such information in the Registration
Statement.
II-2
<PAGE>
(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.
C. Undertaking pursuant to Item 512(b) of Regulation S-K.
The undersigned registrant hereby undertakes 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.
II-3
<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 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
New York, New York, on November 25, 1997.
GS MORTGAGE SECURITIES CORPORATION II
By: /s/ Marvin J. Kabatznick
---------------------------------
Marvin J. Kabatznick
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Marvin J.
Kabatznick and P. Sheridan Schechner and each of them, his true
and lawful attorneys-in fact and agents, with full power of
substitution and resubstitution, for and in his name, place and
stead, in any and all capacities to sign any or all amendments
(including post-effective amendments) to this Registration
Statement and any or all other documents in connection therewith,
and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, 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 to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed below by the
following persons in the capacities indicated on November 25,
1997.
Signature Title
/s/ Marvin J. Kabatznick Chief Executive Officer and Director
- ------------------------------
Marvin J. Kabatznick
/s/ Douglas W. Gester Vice President and Chief
- ------------------------------ Financial Officer
Douglas W. Gester
/s/ P. Sheridan Schechner Vice President
- ------------------------------ and Director
P. Sheridan Schechner
/s/ Douglas C. Fuge Treasurer
- ------------------------------
Douglas C. Fuge
/s/ David A. Viniar Director
- ------------------------------
David A. Viniar
/s/ Michael B. Rogers Secretary
- ------------------------------
Michael B. Rogers
/s/ Steven T. Mnuchin Director
- ------------------------------
Steven T. Mnuchin
II-4
<PAGE>
EXHIBIT INDEX
Exhibits Description
-------- -----------
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of
GS Mortgage Securities Corporation II,
as amended.
*3.2 -- Bylaws of GS Mortgage Securities Corporation II.
*4.1 -- Form of Pooling and Servicing Agreement.
**5.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
as to legality.
**8.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
as to tax matters.
**23.1 -- Form of Consent of Cleary, Gottlieb, Steen
& Hamilton (included as part of Exhibits 5.1
and 8.1).
24.1 -- Power of Attorney (See page II-4 herein).
- --------------
* Filed as an exhibit to the Seller's Registration Statement
(No. 33-99774) on Form S-3 and incorporated herein by reference.
** To be filed by amendment.
II-5
