<PAGE> 1
Pursuant to Rule 424(b)(5)
Registration No. 333-4554
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL
PROSPECTUS SUPPLEMENT AND THE RELATED PROSPECTUS IS DELIVERED. THIS
PROSPECTUS SUPPLEMENT AND THE RELATED PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION DATED JUNE 10, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 10, 1996)
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
Depositor
$344,922,000
Mortgage Pass-Through Certificates, Series 1996-C3
The Series 1996-C3 Mortgage Pass-Through Certificates (the "Certificates") will
include the following ten classes of Certificates, designated as the Class A1,
Class A1X, Class A2, Class A2X, Class B, Class BX, Class C, Class CX, Class D
and Class E Certificates (the "Offered Certificates"). In addition to the
Offered Certificates, the Certificates will also include the Class F, Class G,
Class NR, Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby.
(continued on following page)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN
OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
PRIMARY SERVICERS, J.P. MORGAN & CO. INCORPORATED, THE TRUSTEE, THE UNDERWRITER
OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL SERVICER,
THE PRIMARY SERVICERS, J.P. MORGAN & CO. INCORPORATED, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR AFFILIATES.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE CAPTION
"RISK FACTORS" AFTER THE SECTION CAPTIONED "SUMMARY OF PROSPECTUS SUPPLEMENT"
HEREIN AND AFTER THE SECTION CAPTIONED "SUMMARY OF PROSPECTUS" IN THE PROSPECTUS
BEFORE PURCHASING ANY OFFERED CERTIFICATES.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL
CLASS BALANCE PASS-THROUGH RATE (1)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Class A1 $160,000,000 %
- ---------------------------------------------------------------------------------------------------------------------------
Class A1X $0 Weighted Average Pass-Through Rate(2)
- ---------------------------------------------------------------------------------------------------------------------------
Class A2 $112,731,000 %
- ---------------------------------------------------------------------------------------------------------------------------
Class A2X $0 Weighted Average Pass-Through Rate(2)
- ---------------------------------------------------------------------------------------------------------------------------
Class B $24,064,000 Weighted Average Pass-Through Rate
- ---------------------------------------------------------------------------------------------------------------------------
Class BX $0 %(2)
- ---------------------------------------------------------------------------------------------------------------------------
Class C $26,069,000 Weighted Average Pass-Through Rate
- ---------------------------------------------------------------------------------------------------------------------------
Class CX $0 %(2)
- ---------------------------------------------------------------------------------------------------------------------------
Class D $14,037,000 Weighted Average Pass-Through Rate
- ---------------------------------------------------------------------------------------------------------------------------
Class E $8,021,000 Weighted Average Pass-Through Rate
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In addition to distributions of interest and/or principal, holders of the
Certificates will be entitled to receive a portion of any Prepayment
Premiums as described herein.
(2) Based on the related Notional Amount as described herein.
There is currently no secondary market for the Offered Certificates. J.P. Morgan
Securities Inc. (the "Underwriter") currently expects to make a secondary market
in the Offered Certificates, but has no obligation to do so. There can be no
assurance that such a market will develop or, if it does develop, that it will
continue. See "Plan of Distribution" herein.
The Offered Certificates will be purchased by the Underwriter in the manner
described under "Plan of Distribution," from the Depositor and will be offered
by the Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates will be % of the
initial aggregate principal balance thereof as of June 1, 1996 (the "Cut-off
Date") plus accrued interest from the Cut-off Date. J.P Morgan Securities Inc.
will pay the expenses of the Depositor in connection with the purchase of the
Mortgage Loans and the issuance of the Certificates.
The Offered Certificates are offered by the Underwriter when, as and if issued
and accepted by the Underwriter and subject to its right to reject orders in
whole or in part. It is expected that the Offered Certificates will be delivered
in book-entry form through the facilities of The Depository Trust Company on or
about June 27, 1996, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
June , 1996
<PAGE> 2
(continued from previous page)
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "Trust Fund") to be established by J.P. Morgan
Commercial Mortgage Finance Corp. (the "Depositor"). The Trust Fund will consist
primarily of a pool (the "Mortgage Pool") of fixed rate mortgage loans and a
34.3911814% participation interest (the "Crown Participation") in the fixed rate
Crown Hotel Notes (as defined herein) with original terms to maturity of not
more than 300 months (such mortgage loans and the Crown Participation are
referred to collectively herein as the "Mortgage Loans"), secured by first liens
on fee simple or leasehold interests in multifamily, retail, hotel, office,
industrial, and other commercial properties. The Mortgage Loans were originated
by several institutions identified herein (collectively, the "Originators"),
acquired by an affiliate of the Depositor and will be sold to the Depositor on
or prior to the date of initial issuance of the Certificates.
Distributions on the Certificates will be made, to the extent of available
funds, on the 25th day of each month or, if any such day is not a business day,
on the next succeeding business day, beginning in July 1996 (each, a
"Distribution Date"). As more fully described herein, distributions allocable to
interest, if any, on the Offered Certificates on each Distribution Date will be
based on the then applicable pass-through rate (the "Pass-Through Rate") and the
aggregate principal balance (the "Class Balance") (or the related notional
balance (the "Notional Amount") in the case of the Class A1X, Class A2X, Class
BX and Class CX Certificates (each such class, the "Interest Only
Certificates")) of such class outstanding immediately prior to such Distribution
Date. The Pass-Through Rates applicable to the Class A1, Class A2, Class BX and
Class CX Certificates will be as set forth above. The Pass-Through Rates for the
Class A1X, Class A2X, Class B, Class C, Class D and Class E Certificates will be
variable and will be calculated as set forth herein. Distributions in respect of
principal, if any, of the Certificates will be made as described herein under
"Description of the Certificates -- Distributions" and "-- Priority of
Distributions".
The Class A1, Class A2, Class A1X and Class A2X Certificates will evidence
approximately an initial 68% undivided interest in the Trust Fund. The Class B
and Class BX Certificates will evidence approximately an initial 6% undivided
interest in the Trust Fund. The Class C and Class CX Certificates will evidence
approximately an initial 6.5% undivided interest in the Trust Fund. The Class D
Certificates will evidence approximately an initial 3.5% undivided interest in
the Trust Fund. The Class E Certificates will evidence approximately an initial
2% undivided interest in the Trust Fund.
It is a condition of the issuance of the Class A1 and Class A2 Certificates
that they be rated "AAA" by Fitch Investors Service, L.P. ("Fitch") and Standard
& Poor's Ratings Services ("Standard & Poor's"). It is a condition of the
issuance of the Class A1X and Class A2X Certificates that they be rated "AAA" by
Fitch and "AAAr" by Standard & Poor's. It is a condition of the issuance of the
Class B Certificates that they be rated not lower than "AA" by Fitch and
Standard & Poor's. It is a condition of the issuance of the Class BX
Certificates that they be rated not lower than "AA" by Fitch and "AAr" by
Standard & Poor's. It is a condition of the issuance of the Class C Certificates
that they be rated not lower than "A-" by Standard & Poor's and "A" by Fitch. It
is a condition of the issuance of the Class CX Certificates that they be rated
not lower than "A" by Fitch and "A-r" by Standard & Poor's. It is a condition of
the issuance of the Class D Certificates that they be rated not lower than "BBB"
by Fitch and Standard & Poor's. It is a condition of the issuance of the Class E
Certificates that they be rated not lower than "BBB-" by Fitch and Standard &
Poor's. The ratings by Fitch on the Interest Only Certificates do not address
any prepayment or loss scenarios with respect to the Mortgage Loans or the
likelihood of receipt of Prepayment Premiums. See "Rating" herein.
Banc One Management and Consulting Corporation will act as master servicer
(in such capacity, the "Master Servicer") and as special servicer (in such
capacity, the "Special Servicer") of the Mortgage Loans. The obligations of the
Master Servicer and the Special Servicer with respect to the Certificates will
be limited to their contractual servicing obligations and the obligation under
certain circumstances to make P&I Advances (as defined herein) to the
Certificateholders. See "Servicing." It is possible that the Special Servicer or
one or more of its affiliates may purchase a portion of the Class NR
Certificates.
(continued on following page)
ii
<PAGE> 3
(continued from previous page)
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made in connection with the Trust Fund for
federal income tax purposes. The Certificates, other than the Class R-I, Class
R-II and Class R-III Certificates, will constitute "regular interests" in the
related REMIC and the Class R-I, Class R-II and Class R-III Certificates will
constitute the sole class of "residual interest" in the related REMIC. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), as further described herein. The interests of beneficial owners of the
Offered Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for the
Offered Certificates only under the limited circumstances described herein. See
"Description of the Certificates -- Book-Entry Registration of the Offered
Certificates" herein.
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS. THE YIELD TO MATURITY ON EACH CLASS OF
OFFERED CERTIFICATES WILL BE SENSITIVE TO LOSSES DUE TO DEFAULTS ON THE MORTGAGE
LOANS (AND THE TIMING THEREOF), TO THE EXTENT THAT SUCH LOSSES ARE NOT COVERED
BY ANY CLASS OF CERTIFICATES HAVING A LOWER PAYMENT PRIORITY, AS DESCRIBED
HEREIN. THE YIELD TO INVESTORS ON THE INTEREST ONLY CERTIFICATES WILL BE
SENSITIVE TO THE RATE AND TIMING OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON
THE MORTGAGE LOANS. THE RATES OF PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE
MORTGAGE LOANS MAY FLUCTUATE SIGNIFICANTLY OVER TIME. AN EXTREMELY RAPID RATE OF
PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS COULD RESULT IN THE
FAILURE OF INVESTORS IN THE INTEREST ONLY CERTIFICATES TO RECOVER THEIR INITIAL
INVESTMENTS. SEE "SUMMARY -- SPECIAL PREPAYMENT CONSIDERATIONS" AND "-- SPECIAL
YIELD CONSIDERATIONS", AND "CERTAIN YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, DATED JUNE 10, 1996 AND ATTACHED HERETO. PURCHASERS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE
CERTIFICATES OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
iii
<PAGE> 4
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus and if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or the Underwriter. This Prospectus Supplement and the
accompanying Prospectus shall not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation in such jurisdiction. The delivery of this Prospectus Supplement
and the accompanying Prospectus at any time does not imply that the information
herein or therein is correct as of any time subsequent to the date hereof.
UNTIL SEPTEMBER , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT 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.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary of Prospectus Supplement..... S-1
Risk Factors......................... S-13
Description of the Mortgage Pool..... S-20
Description of the Certificates...... S-40
Certain Prepayment, Maturity and
Yield Considerations............... S-47
Servicing............................ S-52
Description of the Pooling and
Servicing Agreement................ S-55
Use of Proceeds...................... S-58
Certain Federal Income Tax
Consequences....................... S-58
State Tax Considerations............. S-59
ERISA Considerations................. S-59
Legal Investment..................... S-60
Plan of Distribution................. S-61
Legal Matters........................ S-61
Rating............................... S-61
Index of Principal Definitions....... S-63
Annex A: Certain Characteristics of
the Mortgage Loans................. A-1
Annex B: Form of Monthly Report...... B-1
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement................ 3
Available Information................ 3
Incorporation of Certain Information
by Reference....................... 4
Summary of Prospectus................ 5
Risk Factors......................... 12
Description of the Trust Funds....... 19
Use of Proceeds...................... 25
Yield Considerations................. 25
The Depositor........................ 29
Description of the Certificates...... 29
Description of the Agreements........ 37
Description of Credit Support........ 52
Certain Legal Aspects of Mortgage
Loans and the Leases............... 54
Certain Federal Income Tax
Consequences....................... 69
State Tax Considerations............. 93
ERISA Considerations................. 94
Legal Investment..................... 96
Plan of Distribution................. 97
Legal Matters........................ 98
Financial Information................ 98
Rating............................... 98
Index of Principal Definitions....... 99
</TABLE>
iv
<PAGE> 5
SUMMARY OF PROSPECTUS SUPPLEMENT
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. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement or in the Prospectus. See "Index
of Principal Definitions" herein and in the Prospectus.
Title of Certificates...... Mortgage Pass-Through Certificates, Series 1996-C3
(the "Certificates").
Depositor.................. J.P. Morgan Commercial Mortgage Finance Corp., a
Delaware corporation, an indirect wholly-owned
limited purpose finance subsidiary of J.P. Morgan &
Co. Incorporated and an affiliate of the
Underwriter. See "The Depositor" in the Prospectus.
Originators................ 47.5%, 16.9%, 15.2%, 11.2%, 5.7% and 3.6% of the
Mortgage Loans by outstanding principal balance as
of the Cut-off Date (as defined herein) were
originated, respectively, by: AMRESCO Capital
Corporation, a Texas corporation; Home Savings of
America, FSB, a federally chartered savings bank;
Banc One Commercial Loan Origination Corporation,
an Ohio corporation; John Hancock Real Estate
Finance, Inc., a Delaware corporation; Midlantic
Bank, N.A., a national banking association; and
Norwest Bank Minnesota, National Association, a
national association.
Master Servicer............ Banc One Management and Consulting Corporation, an
Ohio corporation ("BOMCC"). See "Servicing -- The
Master Servicer" herein.
Primary Servicers.......... The Primary Servicers are AMRESCO Management, Inc.,
with respect to each Mortgage Loan originated by
its affiliate, AMRESCO Capital Corporation, GMAC
Commercial Mortgage Corporation ("GMACCM") with
respect to all but one of the Mortgage Loans
originated by Home Savings of America, FSB, and
BOMCC with respect to all other Mortgage Loans. See
"Servicing -- Primary Servicers" herein.
Special Servicer........... BOMCC, the Master Servicer and one of the Primary
Servicers, will be the Special Servicer with
respect to all the Mortgage Loans.
Trustee.................... State Street Bank and Trust Company, a
Massachusetts banking corporation.
Custodian.................. State Street Bank and Trust Company, a
Massachusetts banking corporation, in its capacity
as custodian for the Trustee.
Cut-off Date............... June 1, 1996.
Delivery Date.............. On or about June 27, 1996.
Distribution Dates......... Distributions on the Certificates will be made by
the Trustee, to the extent of available funds, on
the 25th day of each month or, if any such 25th day
is not a business day, on the next succeeding
business day, beginning in July 1996 (each, a
"Distribution Date"), to the holders of record as
of the close of business on the last business day
of the month preceding the month of each such
distribution (each, a "Record Date").
Notwithstanding the above, the final distribution
on any Certificate will be made after due notice by
the Trustee of the pendency of such distribution
and only upon presentation and surrender of such
Certificates at the location to be specified in
such notice.
S-1
<PAGE> 6
Rated Final Distribution
Date....................... April 25, 2028, which is the second anniversary of
the date at which all the Mortgage Loans have zero
balances, assuming no prepayments and that the
Mortgage Loans which are Balloon Mortgage Loans
fully amortize according to their amortization
schedule and no Balloon Payment is made.
Registration of the Offered
Certificates............... The Offered Certificates (the "DTC Registered
Certificates") will be represented by one or more
global certificates registered in the name of Cede
& Co., as nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in the DTC
Registered Certificates (any such person, a
"Beneficial Owner") will be entitled to receive a
Certificate of such class in fully registered,
certificated form (a "Definitive Certificate"),
except under the limited circumstances described in
the Prospectus under "Description of the
Certificates -- Book-Entry Registration and
Definitive Certificates". Instead, DTC will effect
payments and transfers in respect of the DTC
Registered Certificates by means of its electronic
recordkeeping services, acting through certain
participating organizations ("Participants"). This
may result in certain delays in receipt of payments
by an investor and may restrict an investor's
ability to pledge its securities. Unless and until
Definitive Certificates are issued, the rights of
Beneficial Owners may only be exercised through DTC
and its Participants and will be subject to
procedures established thereby, except as otherwise
specified herein. See "Description of the
Certificates -- General" herein and "Description of
the Certificates -- Book-Entry Registration and
Definitive Certificates" in the Prospectus.
Denominations.............. The DTC Registered Certificates will be issuable on
the book-entry records of DTC and its Participants
in denominations of (except in the case of the
Interest Only Certificates) $100,000 and integral
multiples of $1 in excess thereof. The Interest
Only Certificates will be issuable in denominations
of $100,000 Notional Amount and integral multiples
of $1 Notional Amount.
The Mortgage Pool.......... The Trust Fund will consist of a pool (the
"Mortgage Pool") of 103 fixed rate mortgage loans
and a 34.3911814% participation interest in 21
fixed rate Crown Hotel Notes (together, the
"Mortgage Loans") secured by first liens on fee
simple or leasehold interests in multifamily,
retail, hotel, office, industrial, and other
commercial properties (the "Mortgaged Properties")
located in 27 states. See "Risk Factors -- Ground
Leases and Other Leasehold Interests."The Mortgage
Loans were originated for sale to Morgan Guaranty
Trust Company of New York ("MGT"), and were
underwritten generally in conformity with certain
guidelines established by MGT. See "Description of
the Mortgage Pool -- General." The Mortgage Loans
will be acquired by the Depositor from MGT on or
before the Delivery Date. See "Description of the
Mortgage Pool -- Underwriting Guidelines" herein.
The term Mortgage Loans shall include the Crown
Participation (as defined herein), and references
herein to, and any calculation based on, the
principal balance of the Crown Participation or the
Crown Hotel Notes shall include only the percentage
interest in the Crown Hotel Notes represented by
the Crown Participation, unless otherwise expressly
stated. See "Description of the Mortgage Pool." The
Mortgage Loans will have an aggregate principal
balance as of the Cut-off Date of $401,075,989 and
individual principal balances as
S-2
<PAGE> 7
of the Cut-off Date of at least $476,982 but not
more than $25,000,000 with an average principal
balance of approximately $3,856,500. The Mortgage
Loans will have terms to maturity from the Cut-off
Date of not more than 298 months, and a weighted
average remaining term to maturity of approximately
122 months as of the Cut-off Date. The Mortgage
Loans will bear interest at Mortgage Interest Rates
of at least 7.500% per annum but not more than
10.125% per annum, with a weighted average Mortgage
Interest Rate of approximately 8.452% per annum as
of the Cut-off Date. The Mortgage Loans provide for
scheduled payments of principal and/or interest
("Monthly Payments") to be due on the first day of
each month (the "Due Date").
Approximately 92.3% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off
Date provide for monthly payments of principal
based on an amortization schedule longer, and in
some cases significantly longer, than the remaining
term of such Mortgage Loan (each, a "Balloon
Mortgage Loan"), thereby leaving a substantial
outstanding principal amount due and payable (the
"Balloon Payment") on its maturity date, unless
prepaid prior thereto.
Each Mortgage Loan either prohibits voluntary
prepayments during a certain number of years
following the origination thereof and/or allows the
borrower thereunder (the "Mortgagor") to prepay the
principal balance thereof in whole or in part
during a certain number of years following the
origination if accompanied by payment of a premium
(the "Prepayment Premium"). See Annex A hereto and
the table entitled "Prepayment Lock-out/Prepayment
Premium Analysis" under "Description of the
Mortgage Pool -- Certain Characteristics of the
Mortgage Loans" herein. Any Prepayment Premium
collected on a Mortgage Loan will be distributed to
the holders of the Certificates as described
herein. See "Special Prepayment Considerations"
below, "Description of the
Certificates -- Distributions -- Interest
Distributions on the Certificates" and "Certain
Yield, Prepayment and Maturity Considerations"
herein and "Yield Considerations" in the
Prospectus.
In connection with its acquisition of the Mortgage
Loans, the Depositor will obtain certain
representations from MGT. MGT will covenant with
the Depositor to cure any breach of such
representations and warranties or to repurchase any
Mortgage Loan in connection with which there has
been a breach of a representation or warranty which
materially and adversely affects the interest of
the Certificateholders in such Mortgage Loan. The
Depositor will assign such representations and
warranties and covenants to the Trustee under the
Pooling and Servicing Agreement (as defined below).
The sole remedy available to the Trustee or the
Certificateholders is the obligation of MGT to cure
any such breach or repurchase any such Mortgage
Loan.
For a further description of the Mortgage Loans,
see "Description of the Mortgage Pool" herein.
The Offered Certificates... The Certificates will be issued pursuant to a
pooling and servicing agreement, to be dated as of
the Cut-off Date, among the Depositor, the Master
Servicer, the Special Servicer and the Trustee (the
"Pooling and Servicing Agreement"). The Offered
Certificates will have the initial
S-3
<PAGE> 8
Class Balances set forth on the cover hereof. The
Interest Only Certificates will not have Class
Balances.
Pass-Through Rate on the
Certificates............... The Pass-Through Rates on the Class A1, Class A2,
Class BX and
Class CX are fixed and are set forth on the cover
hereof. The Pass-Through Rates on the Class A1X,
Class A2X, Class B and Class C Certificates will be
equal to the weighted average of the Remittance
Rates in effect from time to time on the Mortgage
Loans minus the Pass-Through Rates on the Class A1,
Class A2, Class BX and Class CX Certificates,
respectively. The Pass-Through Rates on the Class D
and Class E Certificates will equal the weighted
average of the Remittance Rates in effect from time
to time on the Mortgage Loans. The Remittance Rate
in effect for any Mortgage Loan as of any date of
determination is equal to the excess of the
Mortgage Interest Rate thereon (without giving
effect to any modification or reduction thereof
following the Cut-off Date) over the sum of the
related Servicing Fee Rate (as defined herein) and
the fee payable to the Trustee. The Mortgage
Interest Rate for each of the Mortgage Loans which
provide for the computation of interest other than
on the basis of a 360-day year consisting of twelve
30-day months (a "30/360 basis") (that is the basis
on which interest on the Certificates accrues) will
be adjusted to reflect that difference.
Interest Distributions on
the Certificates........... Subject to the distribution of the Principal
Distribution Amount to the
Holders of classes of Certificates of a higher
priority as described under "Priority of
Distributions" below, Holders of each class of
Offered Certificates will be entitled to receive on
each Distribution Date in the order described
herein, to the extent of the Available Distribution
Amount (as defined herein) for such Distribution
Date (net of any interest accrued on any Collateral
Value Adjustment subsequently recovered and any Net
Prepayment Premium (both, as defined herein)) (the
"Adjusted Available Distribution Amount"),
distributions allocable to interest in an amount
(the "Interest Distribution Amount") equal to the
interest accrued during the period from and
including the first day of the month preceding the
month of the Distribution Date (or from the Cut-off
Date, in the case of the initial Distribution Date)
to and including the last day of the month
preceding the month of the Distribution Date (based
on a 360-day year consisting of twelve 30-day
months) on the related Class Balance (or the
related Notional Amount, in the case of the
Interest Only Certificates) immediately prior to
such Distribution Date at the then-applicable
Pass-Through Rate (the "Interest Accrual Amount")
less such class' pro rata share, by Interest
Accrual Amount, of any interest shortfall not
related to a Mortgagor delinquency or default, such
as Prepayment Interest Shortfalls to the extent not
offset as described herein, and shortfalls
associated with exemptions provided by the Relief
Act (as defined in the Prospectus). The Notional
Amount of the Class A1X Certificates will equal the
Class Balance of the Class A1 Certificates. The
Notional Amount of the Class A2X Certificates will
equal the Class Balance of the Class A2
Certificates. The Notional Amount of the Class BX
will equal the Class Balance of the Class B
Certificates. The Notional Amount of the Class CX
will equal the Class Balance of the Class C
Certificates. A Notional Amount does not
S-4
<PAGE> 9
entitle the Interest Only Certificates to any
distributions of principal. If the Adjusted
Available Distribution Amount for any Distribution
Date is less than the Interest Distribution Amount
for such Distribution Date, the shortfall will be
part of the Interest Distribution Amount
distributable to holders of Offered Certificates on
subsequent Distribution Dates, to the extent of
available funds.
In addition to the related Interest Distribution
Amount, the Interest Only Certificates will receive
75% of any Net Prepayment Premium and the remaining
Offered Certificates will receive 25% of any Net
Prepayment Premium, as more fully described herein,
to the extent not necessary to reimburse the Master
Servicer for reductions in its compensation due to
Prepayment Interest Shortfalls. See "Special
Prepayment Considerations" below and "Description
of the Certificates -- Distributions -- Interest
Distributions on the Certificates" herein.
The Available Distribution Amount for any
Distribution Date generally includes: (i) scheduled
payments on the Mortgage Loans due on or prior to
the related Due Date immediately preceding, and
collected as of, the related Determination Date (to
the extent not distributed on previous Distribution
Dates) and unscheduled payments and other
collections on the Mortgage Loans collected during
the related Remittance Period, net of amounts
payable or reimbursable to the related Primary
Servicer, the Master Servicer or the Special
Servicer therefrom and (ii) any P&I Advances made
by the Master Servicer, the Special Servicer, or
the related Primary Servicer for the related
Distribution Date. The "Determination Date" for any
Distribution Date is the 10th business day
preceding such Distribution Date. The "Remittance
Period" for any Distribution Date is the period
beginning after a Determination Date in the
immediately preceding month (or the Cut-off Date,
in the case of the first Distribution Date) through
the related Determination Date. See "Description of
the Certificates -- Distributions -- Interest
Distributions on the Certificates" herein.
Principal Distributions on
the Certificates........... Holders of the Certificates will be entitled to
receive on each Distribution Date in reduction of
the related Class Balance in the order described
herein until the related Class Balance is reduced
to zero, to the extent of the balance of the
Adjusted Available Distribution Amount remaining
after the payment of the Interest Distribution
Amount for such Distribution Date for the classes
of Certificates with the highest priority of
payment for interest payments (as described under
"Priority of Distributions" below) distributions in
respect of principal in an amount (the "Principal
Distribution Amount") equal to the aggregate of (i)
all scheduled payments of principal (other than
Balloon Payments) due on the Mortgage Loans on the
related Due Date whether or not received and all
scheduled Balloon Payments received, (ii) if the
scheduled Balloon Payment is not received, with
respect to any Balloon Mortgage Loans on and after
the Maturity Date thereof, the principal payment
that would need to be received in the related month
in order to fully amortize such Balloon Mortgage
Loan with level monthly payments by the end of the
term used to derive scheduled payments of principal
due prior to the related Maturity Date, (iii) to
the extent not previously advanced, any unscheduled
principal recoveries received during the related
Remittance
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<PAGE> 10
Period in respect of the Mortgage Loans, whether in
the form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts received
as a result of the purchase of any Mortgage Loan
out of the Trust Fund to the extent not required to
be otherwise applied pursuant to the terms of the
related Mortgage Loan and (iv) any other portion of
the Adjusted Available Distribution Amount
remaining undistributed after payment of any
interest payable on the Certificates, including any
Prepayment Interest Excess (as defined herein) not
offset by any Prepayment Interest Shortfall
occurring during the related Remittance Period or
otherwise required to reimburse the Master
Servicer, as described herein, and interest
distributions on the Mortgage Loans, in excess of
interest distributions on the Certificates,
resulting from the application of the amounts
described in this clause (iv) to principal
distributions on the Certificates. See "Description
of the Certificates -- Distributions -- Principal
Distributions on the Offered Certificates" herein.
The Interest Only Certificates do not have a Class
Balance and are therefore not entitled to any
principal distributions.
Priority of
Distributions.............. The Adjusted Available Distribution Amount for any
Distribution Date will be applied (a) first, to
distributions of interest on the classes of
Certificates outstanding with highest priority for
interest payment (as described below), (b) second,
to distributions of the Principal Distribution
Amount to the classes of Certificates then entitled
to distributions of principal as described below,
and (c) third, to distributions of interest on each
class of Certificates other than the classes
described in clause (a) above, in the order of
priority described below; provided that on any
Distribution Date on which the Class Balance of a
class of Certificates is reduced to zero pursuant
to clause (b) above, interest distributions
pursuant to clause (a) above will be made to the
class of Certificates outstanding with the next
highest priority for interest payments prior to
making distributions of the Principal Distribution
Amount thereto pursuant to clause (b) above. The
priority for interest payments for purposes of
clauses (a) and (c), above, is: first to
distributions of interest on the Class A1, Class
A1X, Class A2 and Class A2X Certificates, pro rata,
based on their respective Interest Accrual Amounts;
second, to the Class B and Class BX Certificates,
pro rata, based on their respective Interest
Accrual Amounts; third, to the Class C and the
Class CX Certificates, pro rata, based on their
respective Interest Accrual Amounts; fourth, to the
Class D Certificates; fifth, to the Class E
Certificates; and then to the remaining classes of
Certificates up to their respective Interest
Accrual Amounts, all as described under "Interest
Distributions on the Certificates" above. The
Principal Distribution Amount for such Distribution
Date will be applied to the payment of principal of
the Class A1, Class A2, Class B, Class C, Class D
and Class E Certificates, in that order, and then
to the remaining classes of Certificates, until
their respective Class Balances have been reduced
to zero. Any Net Prepayment Premium for any
Distribution Date will be applied to reimburse the
Master Servicer for reductions in its compensation
due to Prepayment Interest Shortfalls, as described
herein, and then to distributions on the
Certificates, as described herein. In addition, to
the extent any amounts corresponding to a
Collateral Value Adjustment are recovered on a
Mortgage Loan, any interest accrued on any class of
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<PAGE> 11
Certificates and not paid as a result of such
Collateral Value Adjustment shall be allocated to
such classes as described herein. See "Description
of the Certificates -- Subordination" herein.
P&I Advances............... The Master Servicer, the Special Servicer and the
Primary Servicers (each, a "Servicer") are required
to make advances ("P&I Advances") for delinquent
Monthly Payments on the Mortgage Loans, subject to
the limitations described herein. None of the
Servicers will be required to advance the full
amount of any Balloon Payment not made by the
related Mortgagor. To the extent a Servicer is
required to make a P&I Advance on and after the Due
Date for a Balloon Payment, such P&I Advance shall
not exceed an amount equal to the monthly payment
calculated by the Special Servicer necessary to
fully amortize the related Mortgage Loan over the
period used for purposes of calculating the
scheduled monthly payments thereon prior to the
related Maturity Date. As more fully described
herein, each Servicer making a P&I Advance (or any
other advance) will be entitled to reimbursement
thereof and interest thereon at the prime rate
determined in accordance with the Pooling and
Servicing Agreement to the extent provided therein.
See "Description of the Certificates -- P&I
Advances" herein and "Description of the
Certificates -- P&I Advances in Respect of
Delinquencies" in the Prospectus.
Other Certificates......... The Class F, Class G, Class NR, Class R-I, Class
R-II and Class R-III Certificates are not offered
hereby (the "Other Certificates"). The Pass-Through
Rates on the Class F, Class G and Class NR
Certificates will equal the weighted average of the
Remittance Rates in effect from time to time on the
Mortgage Loans. The Class Balances on the Class F,
Class G and Class NR Certificates will equal
$26,069,000, $18,048,000 and $12,036,989,
respectively, and approximately $56,153,989, in the
aggregate. The Class R-I, Class R-II and Class
R-III Certificates will not have a Pass-Through
Rate or a Class Balance.
Subordination.............. Neither the Offered Certificates nor the Mortgage
Loans are insured or guaranteed against losses
suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the
Trustee, the Underwriter, the Master Servicer, the
Special Servicer, the Primary Servicers, or any
affiliate thereof.
Realized Losses and Collateral Valuation
Adjustments (as defined herein) on the Mortgage
Loans will be allocated, first, to the Other
Certificates, second, to the Class E Certificates,
third, to the Class D Certificates, fourth, to the
Class C Certificates, fifth to the Class B
Certificates, and thereafter, to the Class A1 and
Class A2 Certificates, on a pro rata basis, based
on Class Balance, in each case until the related
Class Balance is reduced to zero. Any allocation of
a Realized Loss or a Collateral Valuation
Adjustment to a class of Certificates will result
in a reduction of the related Class Balance and the
Notional Amount of any of the Interest Only
Certificates calculated by reference to such Class
Balance. In addition, the Adjusted Available
Distribution Amount will be applied in the order
set forth under "Priority of Distributions" above.
In addition to Realized Losses and Collateral
Valuation Adjustments, shortfalls may also occur as
a result of each Servicer's right to receive
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<PAGE> 12
payments of interest with respect to unreimbursed
advances, the Special Servicer's right to
compensation with respect to Mortgage Loans which
are or have been Specially Serviced Mortgage Loans
and as a result of other Trust Fund expenses. Such
shortfalls will be allocated to the classes of
Certificates with the lowest payment priority for
purposes of the application of the Adjusted
Available Distribution Amount in the order
described herein.
Optional Termination....... At its option, the Master Servicer, the Special
Servicer, any holder of a Class R-I Certificate,
the holders of an aggregate Percentage Interest in
excess of 50% of the Most Subordinate Class of
Certificates (as defined herein) and (to the extent
all of the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) the Primary
Servicer may purchase all of the Mortgage Loans, at
the price set forth under "Description of the
Agreement -- Termination," and thereby effect
termination of the Trust Fund and early retirement
of the then outstanding Certificates, on any
Distribution Date on which the aggregate Stated
Principal Balance (as defined herein) of the
Mortgage Loans remaining in the Trust Fund is less
than 5% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. See "Pooling
and Servicing Agreement -- Termination" herein and
"Description of the Certificates -- Termination" in
the Prospectus.
Special Principal Payment
Considerations............. The rate and timing of principal payments, if any,
on the Offered Certificates will depend, among
other things, on the rate and timing of principal
payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to
a breach of a representation and warranty) on the
Mortgage Loans. As described herein, each of the
Mortgage Loans prohibits, and/or requires the
payment of a Prepayment Premium in connection with,
any voluntary prepayment during certain specified
times. See "The Mortgage Pool" above and
"Description of the Mortgage Pool" herein.
All classes of Offered Certificates entitled to
payments of principal are subject to priorities for
payment of principal as described herein.
Distributions of principal on classes having an
earlier priority of payment will be directly
affected by the rates of prepayments of the
Mortgage Loans. The timing of commencement of
principal distributions and the weighted average
lives of classes of Certificates with a later
priority of payment will be affected by the rates
of prepayments experienced both before and after
the commencement of principal distributions on such
classes.
In addition, a portion of collections on the
Mortgage Loan in excess of scheduled and
unscheduled principal distributions will be
allocated to the classes of Certificates then
entitled to distributions of principal. Any such
allocation may result in a faster amortization of
such class of Certificates.
Special Yield
Considerations............. The yield to maturity on each class of the Offered
Certificates will depend on, among other things,
the rate and timing of principal payments
(including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to breaches of
representations and warranties) on the Mortgage
Loans and the allocation thereof to reduce the
Class Balance or Notional Amount of such class. The
yield to maturity on each class of the Offered
Certificates will also depend on the Pass-Through
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<PAGE> 13
Rate and the purchase price for such Certificates.
The yield to investors on any class of Offered
Certificates will be adversely affected by any
allocation thereto of Prepayment Interest
Shortfalls on the Mortgage Loans, which may result
from the distribution of interest only to the date
of a prepayment occurring during any month
following the related Determination Date (rather
than a full month's interest). See "Description of
the Certificates -- Distributions -- Interest
Distributions on the Certificates" herein.
In general, if a class of Offered Certificates is
purchased at a premium and principal distributions
thereon occur at a rate faster than anticipated at
the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the
time of purchase. Conversely, if a class of Offered
Certificates is purchased at a discount and
principal distributions thereon occur at a rate
slower than that assumed at the time of purchase,
the investor's actual yield to maturity will be
lower than that assumed at the time of purchase.
The multiple class structure of the Offered
Certificates causes the yield of certain classes to
be particularly sensitive to changes in the rates
of principal payments (including prepayments,
defaults, liquidations and purchases of Mortgage
Loans due to a breach of a representation and
warranty) of the Mortgage Loans and other factors.
The yield to investors on the Interest Only
Certificates will be sensitive to the rate and
timing of prepayments, defaults and liquidations on
the Mortgage Loans. The rate of such prepayments,
defaults and liquidations on the Mortgage Loans may
fluctuate significantly over time. A significantly
faster than expected rate of such prepayments,
defaults and liquidations on the Mortgage Pool will
have a negative effect on the yield to such
investors and could result in the failure of
investors in the Interest Only Certificates to
recover their initial investments. In addition,
because holders of the Class A1X and A2X
Certificates have rights to relatively larger
portions of interest payments on Mortgage Loans
with higher Mortgage Interest Rates than on
Mortgage Loans with lower Mortgage Interest Rates,
and because Mortgage Loans with higher Mortgage
Interest Rates are generally likely to prepay at a
faster rate than Mortgage Loans with lower Mortgage
Interest Rates, the yield on the Class A1X and A2X
Certificates will be materially adversely affected
to a greater extent than the yields on the other
Offered Certificates if the Mortgage Loans with
higher Mortgage Interest Rates prepay faster than
the Mortgage Loans with lower Mortgage Interest
Rates. See "Certain Yield, Prepayment and Maturity
Considerations," especially "-- Interest Only
Certificate Yield Considerations" herein.
The yield to investors on any of the Certificates
will be sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), because
the amount of such losses will be allocable to such
class to the extent such losses are not covered by
a subordinate class of Certificates, as described
herein. Furthermore, as described herein, the
timing of receipt of principal and interest by any
such class of Certificates may be adversely
affected by losses even if such class does not
ultimately bear such loss.
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<PAGE> 14
Each Servicer making an advance will be entitled to
interest thereon at the prime rate determined in
accordance with the Pooling and Servicing Agreement
to the extent provided therein. Therefore losses
may be allocated to a class of Offered Certificates
with respect to any delinquent Monthly Payment and
certain other expenses advanced by such Servicer.
The Special Servicer will be entitled to receive
compensation in the form of a percentage of
collections of any Mortgage Loan which is being
serviced or has been serviced by the Special
Servicer (a "Specially Serviced Mortgage Loan")
prior to the right of Certificateholders to receive
distributions on the Certificates. Such
compensation will result in shortfalls which will
be allocated to the classes of Certificates with
the lowest payment priority for purposes of
application of the Adjusted Available Distribution
Amount in the order described herein. Consequently,
it is possible that losses will be allocated to the
Offered Certificates with respect to any Specially
Serviced Mortgage Loan notwithstanding the fact
that such Mortgage Loan is returned to a performing
status. See "Servicing -- Servicing and Other
Compensation and Payment of Expenses" herein.
See "Certain Yield, Prepayment and Maturity
Considerations," especially "-- Class C, Class CX,
Class D and Class E Yield Considerations" herein,
and "Yield Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences............... Three separate real estate mortgage investment
conduit ("REMIC") elections will be made with
respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Offered
Certificates, Brown & Wood, counsel to the
Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the REMIC I, REMIC
II and REMIC III (each as defined in the Pooling
and Servicing Agreement) will each qualify as a
REMIC under Sections 860A through 860G of the
Internal Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Class R-I
Certificates will be the sole class of "residual
interests" in REMIC I, the Class R-II Certificates
will be the sole class of "residual interests" in
REMIC II, the Offered Certificates and the Class F,
Class G and Class NR Certificates will be "regular
interests" of REMIC III and will generally be
treated as debt instruments of REMIC III, and the
Class R-III Certificates will be the sole class of
"residual interests" in REMIC III.
The Interest Only Certificates will and the other
Offered Certificates may be treated as having been
issued with original issue discount for federal
income tax purposes. For purposes of computing the
accrual of original issue discount, market discount
and premium, if any, for federal income tax
purposes it will be assumed that there are no
prepayments on the Mortgage Loans, other than the
Crown Hotel Notes and that there are no prepayments
on the Crown Hotel Notes until April 30, 2005 when,
it is assumed, the Crown Hotel Notes will prepay in
full. However, no representation is made that the
Mortgage Loans will not prepay at another rate.
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<PAGE> 15
For further information regarding the federal
income tax consequences of investing in the Offered
Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code should
review carefully with its legal advisors whether
the purchase or holding of any class of Offered
Certificates could give rise to a transaction that
is prohibited or is not otherwise permitted either
under ERISA or Section 4975 of the Code or whether
there exists any statutory or administrative
exemption applicable to an investment therein. The
U.S. Department of Labor has issued individual
exemption, Prohibited Transaction Exemption 90-23,
to J.P. Morgan Securities Inc. that generally
exempts from the application of certain of the
prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on such
prohibited transactions by Section 4975(a) and (b)
of the Code and Section 502(i) of ERISA,
transactions relating to the purchase, sale and
holding of pass-through certificates underwritten
by J.P. Morgan Securities Inc., such as the Class
A1, Class A1X, Class A2 and Class A2X Certificates
and the servicing and operation of asset pools,
provided that certain conditions are satisfied.
Purchasers using insurance company general account
funds to effect such purchase should consider the
availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995)
issued by the U.S. Department of Labor. See "ERISA
Considerations" herein and in the Prospectus.
Rating..................... It is a condition to the issuance of the Class A1
and Class A2 Certificates that they be rated "AAA"
by Fitch Investors Service Inc. ("Fitch") and
Standard & Poor's Ratings Services ("Standard &
Poor's"). It is a condition of the issuance of the
Class A1X and Class A2X Certificates that they be
rated "AAA" by Fitch and "AAAr" by Standard &
Poor's. It is a condition of the issuance of the
Class B Certificates that they be rated not lower
than "AA" by Fitch and Standard & Poor's. It is a
condition of the issuance of the Class BX
Certificates that they be rated not lower than "AA"
by Fitch and "AAr" by Standard & Poor's. It is a
condition of the issuance of the Class C
Certificate that they be rated not lower than "A"
by Fitch and "A-" by Standard & Poor's. It is a
condition of the issuance of the Class CX
Certificates that they be rated not lower than "A"
by Fitch and "A-r" by Standard & Poor's. It is a
condition of the issuance of the Class D
Certificates that they be rated not lower than
"BBB" by Fitch and Standard & Poor's. It is a
condition of the issuance of the Class E
Certificates that they be rated not lower than
"BBB-" by Fitch and Standard & Poor's. 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. A security rating does not address
the frequency or likelihood of prepayments (whether
voluntary or involuntary) of Mortgage Loans, or the
degree to which such prepayments might differ from
those originally anticipated, or the likelihood of
collection of Prepayment Premiums, or the
corresponding effect on yield to investors. A
rating of any of the Interest Only Certificates
does not address the possibility that the holders
of such Certificates may fail to fully recover
their initial invest-
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<PAGE> 16
ments due to a rapid rate of prepayments, defaults
or liquidations. See "Certain Yield, Prepayment and
Maturity Considerations" herein, "Risk Factors,"
and "Rating" herein and in the Prospectus and
"Yield Considerations" 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 any Class
of Offered Certificates, may be subject to
significant interpretative uncertainties. The
Offered Certificates will not be "mortgage related
securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA").
In addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become subject
to restrictions, which may be retroactively imposed
by such regulatory authorities, on the investment
by such institutions in certain forms of
mortgage-backed securities. Accordingly, investors
should consult their own legal advisors to
determine whether and to what extent the Offered
Certificates constitute legal investments for them.
See "Legal Investment" herein and in the
Prospectus.
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<PAGE> 17
RISK FACTORS
Prospective purchasers of the Offered Certificates should consider, among
other things, the following risk factors (as well as the risk factors set forth
under "Risk Factors" in the Prospectus) in connection with an investment in the
Offered Certificates.
Special Prepayment Considerations. The rate and timing of principal
payments on the Offered Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Mortgage Loans. The rate at which principal payments occur
on the Mortgage Pool will be affected by a variety of factors, including,
without limitation, the terms of the Mortgage Loans, the level of prevailing
interest rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest Rates on the
Mortgage Loans, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. The rate of principal payments on the Offered
Certificates will correspond to the rate of principal payments on the Mortgage
Loans and is likely to be affected by the Lock-out Periods (as defined herein)
and Prepayment Premium provisions applicable to the Mortgage Loans and by the
extent to which a Servicer is able to enforce such provisions. Mortgage Loans
with a Lock-out Period or a Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of principal
prepayments than otherwise identical mortgage loans without such provisions with
shorter Lock-out Periods or with lower Prepayment Premiums. See "Description of
the Mortgage Pool," "Description of the Certificates -- Distributions --
Priority" and "Certain Yield, Prepayment and Maturity Considerations" herein and
"Yield Considerations" in the Prospectus.
Special Yield Considerations. The yield to maturity on each class of the
Offered Certificates will depend, among other things, on the rate and timing of
principal payments (including prepayments, defaults, liquidations and purchases
of Mortgage Loans due to a breach of representation and warranty) on the
Mortgage Pool and the allocation thereof to reduce the Class Balance of such
class. Mortgage Loans with higher Mortgage Interest Rates will have higher
Remittance Rates, and therefore, the yield on the Class A1X, Class A2X, Class B,
Class C, Class D and Class E Certificates could be adversely affected if
Mortgage Loans with higher Mortgage Interest Rates pay faster than the Mortgage
Loans with lower Mortgage Interest Rates. The yield to investors on the Offered
Certificates will be adversely affected by any allocation thereto of interest
shortfalls on the Mortgage Loans, such as Prepayment Interest Shortfalls.
Neither the Certificates nor the Mortgage Loans are guaranteed by any
governmental entity or instrumentality or any other entity.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than assumed at the time of purchase. See "Yield, Prepayment and Maturity
Considerations" herein and "Yield Considerations" in the Prospectus.
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties. The Mortgage Loans are secured by a fee simple or leasehold
interest in multifamily, retail, hotel, office, industrial and other commercial
properties. Commercial and multifamily lending is generally 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 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 property. If the cash flow from the property 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
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<PAGE> 18
borrower or lender, such as rent control laws in the case of multifamily
mortgage loans, which impact the future cash flow of the property. See
"Nonrecourse Mortgage Loans" below.
The successful operation of a real estate project is also dependent on the
performance and viability of the property manager of such project. The property
manager is responsible for responding to changes in the local market, planning
and implementing the rental structure, including establishing appropriate rental
rates, and advising the borrowers so that maintenance and capital improvements
can be carried out in a timely fashion. There is no assurance regarding the
performance of any operators and/or managers or persons who may become operators
and/or managers upon the expiration or termination of leases or management
agreements or following any default or foreclosure under a Mortgage Loan.
An appraisal of each of the Mortgaged Properties was made between January
1995 and March 1996. It is possible that the market value of a Mortgaged
Property securing a Mortgage Loan has declined since the most recent appraisal
for such Mortgaged Property. Commercial and multifamily property values and net
operating income are subject to volatility. The net operating income and value
of the Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to the national, regional and local economic
conditions (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail, office or self-storage space, hotel rooms or
nursing homes); changes or continued weakness in specific industry segments;
perceptions by prospective tenants and, in the case of retail properties,
retailers and shoppers, of the safety, convenience, services and attractiveness
of the property; the willingness and ability of the property's owner to provide
capable management and adequate maintenance; construction quality, age and
design; demographic factors; retroactive changes to building or similar codes;
and increases in operating expenses (such as energy costs). Historical operating
results of the Mortgaged Properties may not be comparable to future operating
results. In addition, other factors may adversely affect the Mortgaged
Properties' value without affecting their current net operating income,
including changes in governmental regulations, zoning or tax laws; potential
environmental or other legal liabilities; the availability of refinancing; and
changes in interest rate levels.
Mortgage Loans secured by liens on residential health care facilities pose
risks not associated with loans secured by liens on other types of
income-producing real estate. Providers of long-term nursing care, assisted
living and other medical services are subject to federal and state laws that
relate to the adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies and additions to facilities
and services and to the reimbursement policies of government programs and
private insurers. The failure of any of such borrower to maintain or renew any
required license or regulatory approval could prevent it from continuing
operations (in which case no revenues would be received from the related
Mortgaged Property or the portion thereof requiring licensing) or, if
applicable, bar it from participation in certain reimbursement programs.
Furthermore, in the event of foreclosure, there can be no assurance that the
Trustee or any other purchaser at a foreclosure sale would be entitled to the
rights under such licenses and such party may have to apply in its own right for
such a license. There can be no assurance that a new license could be obtained.
In addition, to the extent any nursing home receives a significant portion of
its revenues from government reimbursement programs, primarily Medicaid and
Medicare, such revenue may be subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings, policy interpretations,
delays by fiscal intermediaries and government funding restrictions. Moreover,
governmental payors have employed cost-containment measures that limit payments
to health care providers, and there are currently under consideration various
proposals in the United States Congress that could materially change or curtail
those payments. Accordingly, there can be no assurances that payments under
government programs will, in the future, be sufficient to fully reimburse the
cost of caring for program beneficiaries. If not, net operating income of the
Mortgaged Properties that receive substantial revenues from those sources, and
consequently the ability of the related borrowers to meet their Mortgage Loan
obligations, could be adversely affected. Under applicable federal and state
laws and regulations, including those that govern Medicare and Medicaid
programs, only the provider who actually furnished the related medical goods and
services may sue for or enforce its rights to reimbursement. Accordingly, in the
event of foreclosure, none of the Trustee, the Master Servicer, the Special
Servicer or a subsequent lessee or operator of the property would generally be
entitled to
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obtain from federal or state governments any outstanding reimbursement payments
relating to services furnished at the respective properties prior to such
foreclosure.
The aggregate principal balance as of the Cut-off Date related to Mortgage
Loans secured by multifamily, retail, hotel, nursing home, office, industrial
and other properties represent approximately 37.7%, 28.1%, 15.6%, 6.2%, 5.9%,
4.9% and 1.6% of the Cut-off Date aggregate principal balance of the Mortgage
Pool, respectively.
Risks Associated with Hotel Properties. Eleven of the Mortgage Loans
representing 15.6% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date are secured by hotel properties, including the Trust Fund's
Participation Interest in the Crown Hotel Notes (as defined herein) which are
secured by 21 hotel properties. Like any income producing property, the income
generated by a hotel property is subject to several factors such as local,
regional and national economic conditions and competition. However, because such
income is primarily generated by room occupancy and such occupancy is usually
for short periods of time, the level of such income may respond more quickly to
conditions such as those described above. Such sensitivity to competition may
require more frequent improvements and renovations than other properties. To the
extent a hotel is affiliated to, or associated with, a regional, national or
international chain, changes in the public perception of such chain may have an
impact on the income generated by the related property. Finally, the hotel
industry is generally seasonal. This will result in fluctuation in the income
generated by hotel properties.
Nonrecourse Mortgage Loans. Each Mortgage Loan is a nonrecourse loan as to
which, in the event of a default under such Mortgage Loan, recourse generally
may be had only against the related Mortgaged Property. Consequently, payment of
each such Mortgage Loan prior to maturity is dependent primarily on the
sufficiency of the net operating income of the related Mortgaged Property, and
at maturity (whether at scheduled maturity or in the event of a default upon the
acceleration of such maturity after default), upon the then market value of the
related Mortgaged Property, or the ability to refinance such Mortgage Loan.
Concentration of Mortgage Loans. The average principal balance of the
Mortgage Loans as of the Cut-off Date is approximately $3,856,500, which is
equal to 1.0% of the aggregate principal balance as of the Cut-off Date of the
Mortgage Loans.
A mortgage pool consisting of fewer loans each having a relatively higher
outstanding principal balance may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool consisted
of a greater number of mortgage loans each having a relatively smaller
outstanding principal balance. In addition, the concentration of any mortgage
pool in one or more loans that have outstanding principal balances that are
substantially larger than the other mortgage loans in such pool can result in
losses that are substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the loans in such pool. The Mortgage Loan secured by the
Waterview Park Apartments represents 5.3% of the aggregate principal balance of
the Mortgage Loans. Except as set forth below with respect to the Crown
Participation, no other Mortgage Loan represents more than 5% of the aggregate
principal balance as of the Cut-off Date of the Mortgage Loans. Mortgage Loans
with related Mortgagors represent in the aggregate 15.1% of the aggregate
principal balance as of the Cut-off Date of the Mortgage Loans but no single
group of related Mortgagors represents in excess of 5% of the aggregate
principal balance of the Mortgage Loans. See "Description of the Mortgage
Pool -- Certain Characteristics of the Mortgage Loans -- Related Borrowers and
Other Issues" herein. The Mortgage Pool also includes a 34.3911814%
participation in a mortgage loan with an aggregate principal balance as of the
Cut-off Date of approximately $72,693,054. Such participation represents 6.2% of
the aggregate principal balance as of the Cut-off Date of the Mortgage Loans.
See "-- Crown Participation" below and "Description of the Mortgage Pool -- The
Crown Participation" herein.
Risks of Different Timing of Mortgage Loan Amortization. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk with
respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See the table
entitled "Year of Scheduled Maturity" under "Description of the Mortgage
Pool -- Certain Characteristics of the Mortgage Loans" for a description of the
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respective maturity dates of the Mortgage Loans. Because principal on the
Offered Certificates is payable in sequential order, and no class receives
principal until the Class Balance of the preceding class or classes has been
reduced to zero, classes that have a lower sequential priority are more likely
to be exposed to the risk of concentration discussed under "-- Concentration of
Mortgage Loans and Borrowers" above than classes with a higher sequential
priority.
Geographic Concentration. 35, 19, 15, 6 and 5 of the Mortgaged Properties,
representing approximately 19.8%, 18.8%, 9.6%, 8.6% and 6.0%, respectively, of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date,
are located in California, Texas, Pennsylvania, Virginia and Florida,
respectively. Except as indicated in the immediately preceding sentence, no more
than 5% of the Mortgage Loans, by aggregate principal balance of the Mortgage
Loans as of the Cut-off Date are secured by Mortgaged Properties in any one
state. 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.
Environmental Risks. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal and remediation of
hazardous or toxic substances on, under, adjacent to or in such property. Such
laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefor as to any property
is generally not limited under such enactments and could exceed the value of the
property and/ or the aggregate assets of the owner. In addition, the presence of
hazardous or toxic substances, or the failure to properly remediate such
property, may adversely affect the owner's or operator's ability to borrow using
such property as collateral. Persons who arrange for the disposal or treatment
of hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility. Certain
laws impose liability for release of asbestos into the air and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with exposure to asbestos.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable as an "owner" or "operator", for the costs of responding to
a release or threat of a release of hazardous substances on or from a borrower's
property, if agents or employees of a lender are deemed to have participated in
the management of the borrower's property, regardless of whether a previous
owner caused the environmental damage. The Trust Fund's potential exposure to
liability for cleanup costs pursuant to CERCLA may increase if the Trust Fund
actually takes possession of a borrower's property, or control of its day-to-day
operations, as for example through the appointment of a receiver.
Except as set forth under "Description of the Mortgage Pool -- The Crown
Participation -- Environmental Insurance" herein with respect to the Crown Loan,
an environmental site assessment ("ESA") of each of the Mortgaged Properties was
performed (or prior assessments were updated) in connection with the initial
underwriting and origination of the Mortgage Loans. In certain cases,
environmental testing in addition to the ESA was performed.
The following information is based on the ESAs and has not been
independently verified by the Depositor, the Servicers, the Trustee, the
Underwriter, or by any of their respective affiliates. With respect to a number
of the Mortgaged Properties, the ESAs revealed the existence of
asbestos-containing materials, possible radon gas and other environmental
matters at the related Mortgaged Properties, none of which constituted a
material violation of any environmental law in the judgment of the assessor. In
these cases, the Mortgagors agreed to establish and maintain operations and
maintenance programs or had other remediation agreements or escrows in place.
With respect to several Mortgaged Properties, the ESAs identified the presence
of above-ground or underground storage tanks and the related Mortgagors have
agreed to make periodic visual inspections or other testing for any petroleum
releases.
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It is possible that the ESAs did not reveal all environmental liabilities,
that there are material environmental liabilities of which neither MGT nor the
Depositor are aware and that the environmental condition of the Mortgaged
Properties in the future could be affected by tenants and occupants or by third
parties unrelated to the Mortgagors.
No ESAs were performed with respect to the Hotel Properties (as defined
herein) securing the Crown Hotel Notes in connection with the origination
thereof. However, Crown (as defined herein), the Mortgagor under the Crown Hotel
Notes, purchased an environmental insurance policy covering specified claims for
each Hotel Property, as more fully described herein. There can be no assurance
that the insurance policies will be in an amount sufficient to cover potential
liability for environmental matters, that the coverage will be sufficient for
all purposes, that the issuer of the insurance will continue to meet its
insurance liabilities, or that a satisfactory insurance policy will be available
upon expiration of the current policies. In the event such policies are no
longer available, Crown is required to cause ESAs to be made with respect to
each Hotel Property prior to the expiration of the current policies and to make
a claim under such policies if contamination is discovered. See "Description of
the Mortgage Pool -- The Crown Participation -- Environmental Insurance."
Each Mortgagor has represented that, except as described in the
environmental reports referred to above, each Mortgaged Property either was, or
to the best of its knowledge was, in compliance with applicable environmental
laws and regulations on the date of the origination of the related Mortgage
Loan; that, except as described in the environmental reports referred to above,
no actions, suits or proceedings have been commenced or are pending or, to the
best knowledge of the Mortgagor, are threatened with respect to any applicable
environmental laws and that such Mortgagor has not received notice of any
violation of a legal requirement relating to the use and occupancy of any
Mortgaged Property. The principal security for the obligations under each
Mortgage Loan consists of the Mortgaged Property and, accordingly, if any such
representations are breached, there can be no assurance that any other assets of
the Mortgagor would be available in connection with any exercise of remedies in
respect of such breach. Moreover, most Mortgagors are structured as single asset
entities and therefore have no assets other than the related Mortgaged Property.
The Pooling and Servicing Agreement provides that the Special Servicer,
acting on behalf of the Trust Fund, may not acquire, through foreclosure or deed
in lieu thereof, title to a Mortgaged Property or take over its operation unless
the Special Servicer has previously determined, based on a report prepared by a
qualified person who regularly conducts environmental audits, that (i) the
Mortgaged Property is in compliance with applicable environmental laws or that
taking the actions necessary to comply with such laws is reasonably likely to
produce a greater recovery on a present value basis than not taking such actions
and (ii) there are no circumstances known to the Special Servicer relating to
the use of hazardous substances or petroleum-based materials which require
investigation or remediation, or that if such circumstances exist, taking such
remedial actions is reasonably likely to produce a greater recovery on a present
value basis than not taking such actions.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the Mortgagors and the managers of the Mortgaged Properties
and their respective affiliates arising out of the ordinary business of the
Mortgagor, the managers and such affiliates. There can be no assurance that such
litigation may not have a material adverse effect on distributions to
Certificateholders.
Other Financings. Each Mortgagor is restricted from incurring any
indebtedness secured by the related Mortgaged Property other than the related
Mortgage Loan without the consent of the lender. With respect to 49 Mortgage
Loans representing 73.1% of the Mortgage Pool and which were made to single
purpose entities, the Mortgagor is restricted from incurring any indebtedness
other than the Mortgage Loan, normal trade accounts payable and certain purchase
financing debt, provided that three of these Mortgagors representing 6.8% of the
Mortgage Pool have unsecured subordinate debt that is subject to a subordination
and standstill agreement limiting the rights of the holder of such additional
indebtedness including limitations on its right to commence any enforcement or
foreclosure proceeding.
In cases where one or more junior liens are imposed on a Mortgaged Property
or the Mortgagor incurs other indebtedness, the Trust Fund is subjected to
additional risks, including, without limitation, the risks that the Mortgagor
may have greater incentives to repay the junior or unsecured indebtedness first
and that it may
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be more difficult for the Mortgagor to refinance the Mortgage Loan or to sell
the Mortgaged Property for purposes of making the Balloon Payment upon the
maturity of the Mortgage Loan.
Effect of Mortgagor Delinquencies and Defaults. The aggregate amount of
distributions on the Offered Certificates, the yield to maturity of the Offered
Certificates, the rate of principal payments on the Offered Certificates and the
weighted average lives of the Offered Certificates will be affected by the rate
and the timing of delinquencies and defaults on the Mortgage Loans. If a
purchaser of a class of Offered Certificates calculates its anticipated yield
based on an assumed rate of default and amount of losses on the Mortgage Loans
that is lower than the default rate and amount of losses actually experienced
and such additional losses are allocable to such class of Certificates, such
purchaser's actual yield to maturity will be lower than that so calculated and
could, under certain extreme scenarios, be negative. The timing of any loss on a
liquidated Mortgage Loan will also affect the actual yield to maturity of the
class of Offered Certificates to which a portion of such loss is allocable, even
if the rate of defaults and severity of losses are consistent with an investor's
expectations. In general, the earlier a loss borne by an investor occurs, the
greater is the effect on such investor's yield to maturity.
As and to the extent described herein, each Servicer will be entitled to
receive interest on unreimbursed P&I Advances and unreimbursed advances of
servicing expenses until such advances (i) are recovered out of amounts received
on the Mortgage Loan as to which such advances were made pursuant to the Pooling
and Servicing Agreement, which amounts are in the form of late payments,
liquidation proceeds, insurance proceeds, condemnation proceeds or amounts paid
in connection with the purchase of such Mortgage Loan out of the Trust Fund or
(ii) are otherwise recovered following a determination that such advance is a
nonrecoverable advance. Each Servicer's right to receive such payments of
interest is prior to the rights of Certificateholders to receive distributions
on the Certificates and, consequently, is likely to result in losses being
allocated to the Offered Certificates that would not otherwise have resulted
absent the accrual of such interest.
The Special Servicer will be entitled to receive, with respect to each
Mortgage Loan which is or was at some time a Specially Serviced Mortgage Loan,
compensation in the form of a percentage of collections of any such Specially
Serviced Mortgage Loan prior to the right of Certificateholders to receive
distributions on the Certificates. Consequently, it is possible that shortfalls
will be allocated to the Offered Certificates with respect to any Mortgage Loan
which is or was at some time a Specially Serviced Mortgage Loan notwithstanding
the fact that such Mortgage Loan is returned to a performing status. See
"Servicing -- Servicing and Other Compensation and Payment of Expenses" herein.
Regardless of whether losses ultimately result, delinquencies and defaults
on the Mortgage Loans may significantly delay the receipt of payments by the
holder of a class of Offered Certificates, to the extent that P&I Advances or
the subordination of another class of Certificates does not fully offset the
effects of any such delinquency or default. The Special Servicer has the ability
to extend and modify Mortgage Loans that are in default or as to which a payment
default is imminent, including the ability to extend the date on which a Balloon
Payment is due, subject to certain conditions described in the Pooling and
Servicing Agreement. A Servicer's obligation to make P&I Advances in respect of
a Mortgage Loan that is delinquent as to its Balloon Payment is limited,
however, to the extent described under "Description of the
Certificates -- Advances." Until such time as any Mortgage Loan delinquent in
respect of its Balloon Payment is liquidated, the entitlement of the holders of
any class of Offered Certificates on each Distribution Date in respect of
principal of such Mortgage Loan will be limited to any payment made by the
related Mortgagor and any related P&I Advance made by a Servicer. Consequently,
any delay in the receipt of a Balloon Payment that is payable, in whole or in
part, to holders of the Offered Certificates will extend the weighted average
life of the Offered Certificates.
As described under "Description of the Certificates -- Distributions"
herein, if the portion of the Adjusted Available Distribution Amount
distributable in respect of interest on any class of Offered Certificates on any
Distribution Date is not sufficient to distribute the Interest Distribution
Amount then payable for such class, the shortfall will be distributable to
holders of such class of Certificates on subsequent Distribution Dates, to the
extent of available funds.
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Balloon Payments. Ninety-one Mortgage Loans, representing 92.3% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
Balloon Mortgage Loans. Balloon Mortgage Loans involve a greater degree of risk
because the ability of a Mortgagor to make a Balloon Payment typically depends
on his ability either to refinance the loan or to sell the related Mortgaged
Property. See "Risk Factors -- Balloon Payments" in the Prospectus.
Ground Leases and Other Leasehold Interests. Two Mortgage Loans,
representing 6.9% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date, and three Crown Hotel Notes are secured in part by leasehold
interests in three Mortgaged Properties. The portion of the Crown Participation
secured thereby represents approximately 0.61% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date. Pursuant to Section 365(h)
of the Bankruptcy Code, ground lessees are currently afforded rights not to
treat a ground lease as terminated and to remain in possession of their leased
premises upon the bankruptcy of their ground lessor and the rejection of the
ground lease by the representative of such ground lessor's bankruptcy estate.
The leasehold mortgages provide that the Mortgagor may not elect to treat the
ground lease as terminated on account of any such bankruptcy of, and rejection
by, the ground lessor without the consent of the Servicer. In the event of a
bankruptcy of a ground lessee/borrower, the ground lessee/borrower under the
protection of the Bankruptcy Code has the right to assume (continue) or reject
(terminate) any or all of its ground leases. In the event of concurrent
bankruptcy proceedings involving the ground lessor and the ground
lessee/Mortgagor, the Trustee may be unable to enforce the bankrupt ground
lessee/Mortgagor's obligation to refuse to treat a ground lease rejected by a
bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
therein or in the mortgage.
Attornment Considerations. Some of the tenant leases, including the anchor
tenant leases, contain certain provisions that require the tenant to attorn to
(that is, recognize as landlord under the lease) a successor owner of the
property following foreclosure. Some of the leases, including the anchor tenant
leases, may be either subordinate to the liens created by the Mortgage Loans or
else contain a provision that requires the tenant to subordinate the lease if
the mortgagee agrees to enter into a non-disturbance agreement. In some states,
if tenant leases are subordinate to the liens created by the Mortgage Loans and
such leases do not contain attornment provisions, such leases may terminate upon
the transfer of the property to a foreclosing lender or purchaser at
foreclosure. Accordingly, in the case of the foreclosure of a Mortgaged Property
located in such a state and leased to one or more desirable tenants under leases
that do not contain attornment provisions, such Mortgaged Property could
experience a further decline in value if such tenants' leases were terminated
(e.g., if such tenants were paying above-market rents). If a Mortgage is
subordinate to a lease, the lender will not (unless it has otherwise agreed with
the tenant) possess the right to dispossess the tenant upon foreclosure of the
property, and if the lease contains provisions inconsistent with the Mortgage
(e.g., provisions relating to application of insurance proceeds or condemnation
awards), the provisions of the lease will take precedence over the provisions of
the Mortgage.
Liquor License Considerations. Eleven Mortgage Loans (including the Crown
Participation), representing 15.6% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date are secured by hotel properties (including
the 21 hotel properties securing the Crown Hotel Notes). The liquor licenses for
some of such properties may be held by the property manager rather than by the
related Mortgagor. The applicable laws and regulations relating to such licenses
generally prohibit the transfer of such licenses to any person. In the event of
a foreclosure of a hotel property it is unlikely that the Trustee (or Special
Servicer) or purchaser in any such sale would be entitled to the rights under
the liquor license for such hotel property and such party would be required to
apply in its own right for such license.
Special Servicer Actions. In connection with the servicing of Specially
Serviced Mortgage Loans, the Special Servicer may take actions with respect to
such Mortgage Loans that could adversely affect the holders of some or all of
the classes of Offered Certificates. As described herein under "Servicing -- The
Special Servicer" and "-- The Directing Certificateholder," the actions of the
Special Servicer will be subject to review and may be rejected by a
representative of the holders of the Monitoring Certificates (as defined
herein), who may have interests in conflict with those of the holders of the
other classes of Certificates. As a
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<PAGE> 24
result, it is possible that such representative may cause the Special Servicer
to take actions which conflict with the interests of certain classes of
Certificates.
Servicer May Purchase Certificates. The Special Servicer may purchase,
either directly or through an affiliate, a portion of the Class NR Certificates.
Such a purchase by the Special Servicer could cause a conflict between the
Special Servicer's duties pursuant to the Pooling and Servicing Agreement and
the Special Servicer's interest as a holder of a Certificate. The Pooling and
Servicing Agreement provides that each Servicer shall administer the Mortgage
Loans in accordance with the servicing standard set forth therein without regard
to ownership of any Certificate by such Servicer or any affiliate of such
Servicer.
Crown Participation. The Trust Fund will own a 34.3911814% Participation
Interest (as defined herein) in the Crown Hotel Notes. Certificateholders
entitled to vote on matters relating to the Trust Fund and the Mortgage Loans
will not be able to control the decision making authority normally afforded a
holder of a mortgage loan upon default or other matter requiring consent or
vote. Any such consent or vote will be subject to the vote of the Majority
Percentage (as defined herein), which will include other owners of Participation
Interests. There can be no assurance that such other Participants (as defined
herein) will vote in the same manner as would the Certificateholders, or the
Directing Certificateholders, as the case may be, hereunder. See "Description of
the Mortgage Pool -- The Crown Participation" herein.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of fixed rate Mortgage
Loans, including the Crown Participation, with an aggregate principal balance as
of the Cut-off Date, after deducting payments of principal due on such date, of
$401,075,989. Each Mortgage Loan is evidenced by a promissory note (a "Mortgage
Note") and secured by a mortgage, deed of trust or other similar security
instrument (a "Mortgage") creating a first lien on a fee simple or leasehold
interest in a multifamily, retail, hotel, office, industrial, or other
commercial property (a "Mortgaged Property"). All of the Mortgage Loans are
nonrecourse loans. Therefore, in the event of a Mortgagor default, recourse may
be had only against the specific property and such limited other assets as have
been pledged to secure a Mortgage Loan, and not against the Mortgagor's other
assets. Except as otherwise indicated all percentages of the Mortgage Loans
described herein are approximate percentages by aggregate principal balance as
of the Cut-off Date. The term "Mortgage Loans" herein shall include the Crown
Participation, and references herein to, and any calculation based on, the
principal balance of the Crown Hotel Notes or the Crown Participation shall
include only the percentage interest in the Crown Hotel Notes represented by the
Crown Participation unless otherwise expressly stated.
Of the Mortgage Loans to be included in the Trust Fund, 47.5% were
originated by AMRESCO Capital Corporation, 16.9% by Home Savings of America FSB,
15.2% by Banc One Commercial Loan Origination Corporation, 11.2% by John Hancock
Real Estate Finance, Inc., a Delaware corporation, 5.7% by Midlantic Bank, N.A.,
a national banking association, and 3.6% by Norwest Bank Minnesota, National
Association. The originators of the Mortgage Loans are referred to herein as the
"Originators". The Mortgage Loans were originated for sale to MGT. All the
Mortgage Loans were underwritten generally in conformity with certain guidelines
provided by MGT. See "-- Underwriting Guidelines" below. MGT purchased the
Mortgage Loans to be included in the Mortgage Pool prior to the Delivery Date
from each Originator pursuant to a mortgage loan purchase agreement (the
"Mortgage Loan Purchase Agreement"). The Depositor will acquire the Mortgage
Loans to be included in the Mortgage Pool on or before the Delivery Date from
MGT. The Depositor will cause the Mortgage Loans in the Mortgage Pool to be
assigned to the Trustee pursuant to the Pooling and Servicing Agreement. AMRESCO
Management, Inc. will be the Primary Servicer with respect to all the Mortgage
Loans originated by its affiliate, AMRESCO Capital Corporation (other than the
Crown Hotel Notes). BOMCC will be the Master Servicer and Special Servicer with
respect to all the Mortgage Loans and the Primary Servicer with respect to the
Mortgage Loans not originated by AMRESCO Capital Corporation or Home Savings of
America, FSB. GMACCM Commercial Mortgage Corporation will be the Primary
Servicer with respect to all the Mortgage Loans originated by Home Savings of
America, FSB. Each
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Servicer will service the Mortgage Loans pursuant to a servicing agreement (each
a "Servicing Agreement"), among MGT, as the initial purchaser of the Mortgage
Loans, the Master Servicer, the Special Servicer and the related Primary
Servicer, and the Master Servicer and the Special Servicer will also service the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. Upon transfer of
the Mortgage Loans to the Trust Fund, all of the rights and obligations of MGT
with respect to such Mortgage Loans under the related Servicing Agreement will
be assigned to the Trustee.
REPRESENTATIONS AND WARRANTIES
Under a loan sale agreement (the "Loan Sale Agreement"), MGT will make
certain representations and warranties to the Depositor. Pursuant to the terms
of the Loan Sale Agreement, MGT will be obligated to cure any breach of such
representations and warranties or to repurchase any Mortgage Loan from the
Depositor as to which there exists a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan. MGT shall covenant with the Depositor
to repurchase any Mortgage Loan from the Depositor or cure any such breach
within 90 days of receiving notice thereof. Under the Pooling and Servicing
Agreement, the Depositor will assign its rights under the Loan Sale Agreement to
the Trustee for the benefit of the Certificateholders. The sole remedy available
to the Trustee or the Certificateholders is the obligation of MGT to cure or
repurchase any Mortgage Loan in connection with which there has been a breach of
any such representation or warranty which materially and adversely affects the
interest of the Certificateholders in such Mortgage Loan.
MGT has generally represented and warranted as of the Delivery Date with
respect to each Mortgage Loan (or the Crown Hotel Notes in the case of the Crown
Participation), among other things, that: (i) such Mortgage Loan is not one
month or more delinquent in payment of principal and interest and has not been
so delinquent more than once in a twelve-month period prior to the Delivery Date
and there is no payment default and no other material default under the Mortgage
Loan; (ii) such Mortgage Loan is secured by a Mortgage that is a valid and
subsisting first priority lien on the Mortgaged Property (or a leasehold
interest therein) free and clear of any liens, claims or encumbrances, subject
only to certain permitted encumbrances; (iii) such Mortgage, together with any
separate security agreements, establishes a first priority security interest in
favor of MGT in all the related Mortgagor's personal property used in, and
reasonably necessary to operate the Mortgaged Property, and to the extent a
security interest may be created therein, the proceeds arising from the
Mortgaged Property and any other collateral securing such Mortgage subject only
to certain permitted encumbrances; (iv) there is an assignment of leases and
rents provision creating a first priority security interest in leases and rents
arising in respect of the related Mortgaged Property, subject only to certain
permitted encumbrances; (v) there are no mechanics' or other similar liens
affecting the Mortgaged Property which are or may be prior or equal to the lien
of the Mortgage, except those insured against pursuant to the applicable title
insurance policy; (vi) the related Mortgagor has good and indefeasible title to,
and no person has any outstanding exercisable rights of record with respect to
the purchase or sale of all or a portion of, the related Mortgaged Property or
leasehold interest therein, except for rights of first refusal and purchase
options with respect to four Mortgage Loans; (vii) the Mortgaged Property is
covered by a title insurance policy insuring that the Mortgage is a valid first
lien, subject only to certain permitted encumbrances; (viii) no claims have been
made under the related title insurance policy and such policy is in full force
and effect and will provide that the insured includes the owner of the Mortgage
Loan; (ix) at the time of the assignment of such Mortgage Loan to the Depositor,
MGT had good title to and was the sole owner of such Mortgage Loan free and
clear of any pledge, lien or encumbrance and such assignment validly transfers
ownership of such Mortgage Loan to the Depositor free and clear of any pledge,
lien or encumbrance; (x) the related assignment of mortgage and related
assignment of the assignment of rents and leases is legal, valid and binding and
has been recorded or submitted for recording in the applicable jurisdiction;
(xi) MGT's endorsement of the related Mortgage Note constitutes the legal and
binding assignment of such Mortgage Note and together with an assignment of
mortgage and the assignment of the assignment of leases and rents, legally and
validly conveys all right, title and interest in such Mortgage Loan and related
Mortgage Loan documents; (xii) each Mortgage Loan document is a legal, valid and
binding obligation of the parties thereto, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by applicable state
law and by bankruptcy, insolvency, reorganization or other laws relating to
creditors' rights and general equitable
S-21
<PAGE> 26
principles and except that certain provisions of such Mortgage Loan documents
are or may be unenforceable in whole or in part, but the inclusion of such
provisions does not render the Mortgage Loan documents invalid as a whole, and
such Mortgage Loan documents taken as a whole are enforceable to the extent
necessary and customary for the practical realization of the rights and benefits
afforded thereby; (xiii) MGT has not modified the terms of such related Mortgage
Loan and related Mortgage Loan documents have not been modified or waived in any
material respect except as set forth in the Loan Sale Agreement; (xiv) such
Mortgage Loan has not been satisfied, canceled, subordinated, released or
rescinded and the related Mortgagor has not been released from its obligations
under any Mortgage Loan document; (xv) none of the Mortgage Loan documents is
subject to any right of rescission, set-off, valid counterclaim or defense;
(xvi) each Mortgage Loan document complied in all material respects with all
material applicable state or federal laws including usury; (xvii) the related
Mortgaged Property is, in all material respects, in compliance with, and is used
and occupied in accordance with applicable law; (xviii) the related Mortgaged
Property is in good repair and no condemnation proceedings are pending; (xix)
either (a) the environmental site assessment prepared in connection with the
origination thereof reveals no known circumstances or conditions with respect to
the Mortgaged Property that would constitute or result in a material violation
of any environmental laws, require any expenditure material in relation to the
principal balance of such Mortgage Loan to achieve or maintain compliance in all
material respects with any environmental laws or require substantial cleanup or
remedial action or any other extraordinary action in excess of the amount
escrowed for such purposes or (b) with respect to the Crown Hotel Properties,
the Mortgagor has purchased an environmental insurance policy covering certain
claims for each Crown Hotel Property (as more fully described in "-- The Crown
Participation -- Environmental Insurance" hereinbelow); (xx) the Mortgaged
Property is covered by insurance policies providing coverage against certain
losses or damage; (xxi) all amounts required to be deposited by the borrower at
origination have been deposited; (xxii) to MGT's knowledge, all significant
leases are in full force and effect, and there has been no material default by
the related Mortgagor or lessee; and (xxiii) to MGT's knowledge, there are no
pending or threatened actions, suits or proceedings by or before any court or
other governmental authority against or affecting the related Mortgagor under
such Mortgage Loan or the Mortgaged Property which, if determined against such
Mortgagor or property would materially and adversely affect the value of such
property or ability of the Mortgagor to pay principal, interest and other
amounts due under such Mortgage Loan.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month. All of the Mortgage Loans are secured by first liens on fee simple
or leasehold interests in the related Mortgaged Properties. As of the Cut-off
Date, the Mortgage Loans had characteristics set forth below. The totals in the
following tables may not add due to rounding. Unless otherwise noted in the
related table, for purposes of the tables set forth herein, the Crown
Participation is presented as one Mortgage Loan. See "-- The Crown
Participation -- General."
S-22
<PAGE> 27
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
MORTGAGE RATE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
7.5000%- 7.7500%...................... 13 12.50% $ 33,075,076 8.25%
7.7501%- 8.0000%...................... 22 21.15 93,609,478 23.34
8.0001%- 8.2500%...................... 26 25.00 61,357,246 15.30
8.2501%- 8.5000%...................... 17 16.35 69,671,808 17.37
8.5001%- 8.7500%...................... 10 9.62 60,596,723 15.11
8.7501%- 9.0000%...................... 6 5.77 23,435,885 5.84
9.0001%- 9.2500%...................... 2 1.92 10,317,600 2.57
9.2501%- 9.5000%...................... 5 4.81 15,217,318 3.79
9.5001%- 9.7500%...................... 1 0.96 5,188,883 1.29
9.7501%-10.0000%...................... 1 0.96 25,000,000 6.23
10.0001%-10.2500%...................... 1 0.96 3,605,972 0.90
--- --------- ---------------- -------
Total.................................. 104 100.00% $401,075,989 100.00%
======== ======== =========== ===========
</TABLE>
Weighted Average Mortgage Interest Rate: 8.452%
The Crown Hotel Notes (as defined herein), representing 6.23% of the
Mortgage Loans, provide for computation of interest on the basis of a 360-day
year and the actual days in a month. Interest with respect to the remaining
Mortgage Loans is computed on the basis of a 360-day year consisting of twelve
30-day months.
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
PRINCIPAL BALANCES MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
AS OF THE CUT-OFF DATE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Under $1,000,000............................ 9 8.65% $ 7,262,763 1.81%
$ 1,000,001- 2,000,000...................... 31 29.81 46,890,748 11.69
$ 2,000,001- 3,000,000...................... 23 22.12 57,566,608 14.35
$ 3,000,001- 4,000,000...................... 10 9.62 36,030,686 8.98
$ 4,000,001- 5,000,000...................... 9 8.65 40,504,440 10.10
$ 5,000,001- 6,000,000...................... 5 4.81 28,243,616 7.04
$ 6,000,001- 7,000,000...................... 1 0.96 6,231,283 1.55
$ 7,000,001- 8,000,000...................... 5 4.81 37,546,872 9.36
$ 8,000,001- 9,000,000...................... 2 1.92 16,478,327 4.11
$ 9,000,001-10,000,000...................... 2 1.92 19,874,237 4.96
$10,000,001-11,000,000...................... 2 1.92 20,886,220 5.21
$11,000,001-12,000,000...................... 2 1.92 23,340,619 5.82
$13,000,001-14,000,000...................... 1 0.96 13,923,895 3.47
Over $14,000,000............................ 2 1.92 46,295,675 11.54
--- ---------- ---------------- -------
Total....................................... 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Average Principal Balance as of the Cut-off Date: $3,856,500
S-23
<PAGE> 28
ORIGINAL TERM TO MATURITY IN MONTHS*
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
ORIGINAL TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
60......................................... 1 0.96% $ 4,291,289 1.07%
84......................................... 11 10.58 43,590,678 10.87
119......................................... 1 0.96 4,326,823 1.08
120......................................... 77 74.04 316,082,924 78.81
180......................................... 3 2.88 4,240,209 1.06
240......................................... 5 4.81 14,466,998 3.61
300......................................... 6 5.77 14,077,069 3.51
--- ---------- ---------------- -------
Total....................................... 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Original Term to Maturity in Months: 127
* Assumes an April 30, 2005 maturity date for the Crown Participation
REMAINING TERM TO MATURITY IN MONTHS*
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
REMAINING TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
49- 60..................................... 1 0.96% $ 4,291,289 1.07%
73- 84..................................... 11 10.58 43,590,678 10.87
97-108..................................... 1 0.96 25,000,000 6.23
109-120..................................... 77 74.04 295,409,747 73.65
Over 120.................................... 14 13.46 32,784,276 8.17
--- ---------- ---------------- -------
Total....................................... 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Remaining Term to Maturity in Months: 122
* Assumes an April 30, 2005 maturity date for the Crown Participation
MONTH AND YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
MONTH/YEAR LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
4/95............................... 1 0.96% $ 25,000,000 6.23%
8/95............................... 1 0.96 3,605,972 0.90
10/95............................... 10 9.62 33,800,984 8.43
11/95............................... 6 5.77 21,551,148 5.37
12/95............................... 42 40.38 170,177,907 42.43
1/96............................... 8 7.69 26,815,180 6.69
2/96............................... 15 14.42 47,925,008 11.95
3/96............................... 18 17.31 64,217,930 16.01
4/96............................... 2 1.92 4,095,861 1.02
5/96............................... 1 0.96 3,886,000 0.97
--- --------- ---------------- -------
Total............................... 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
S-24
<PAGE> 29
YEAR OF SCHEDULED MATURITY*
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
YEAR LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
2001.................................. 1..... 0.96% $ 4,291,289 1.07%
2002.................................. 2..... 1.92 7,430,877 1.85
2003.................................. 9..... 8.65 36,159,801 9.02
2005.................................. 12.... 11.54 69,985,794 17.45
2006.................................. 66.... 63.46 250,423,953 62.44
2011.................................. 3..... 2.88 4,240,209 1.06
2015.................................. 4..... 3.85 9,278,114 2.31
2016.................................. 1..... 0.96 5,188,883 1.29
2020.................................. 1..... 0.96 1,590,141 0.40
2021.................................. 5..... 4.81 12,486,928 3.11
--- --------- ---------------- -------
Total................................. 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
* Assumes an April 30, 2005 maturity date for the Crown Participation
Ninety-one of the Mortgage Loans, representing 92.3% of the Mortgage Loans,
as a percentage of the aggregate Principal Balance as of the Cut-off Date, are
Balloon Mortgage Loans. For purposes of the following tables on Balloon Mortgage
Loans, the Crown Hotel Notes are reflected as one Mortgage Loan with a Balloon
Payment due on April 30, 2005.
BALLOON MORTGAGE LOANS*
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
ORIGINAL TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
60.................................. 1 1.10% $ 4,291,289 1.16%
84.................................. 11 12.09 43,590,678 11.77
119................................. 1 1.10 4,326,823 1.17
120................................. 77 84.62 316,082,924 85.36
180................................. 1 1.10 1,989,344 0.54
--
--------- ---------------- -------
Total............................... 91 100.00% $370,281,058 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Original Term to Maturity in Months: 115
* Assumes an April 30, 2005 maturity date for the Crown Participation
S-25
<PAGE> 30
BALLOON MORTGAGE LOANS*
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
REMAINING TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
49-60............................... 1 1.10% $ 4,291,289 1.16%
73-84............................... 11 12.09 43,590,678 11.77
97-108.............................. 1 1.10 25,000,000 6.75
109-120............................. 77 84.62 295,409,747 79.78
Over 120............................ 1 1.10 1,989,344 0.54
--
---------- ---------------- -------
Total............................... 91 100.00% $370,281,058 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Remaining Term to Maturity in Months: 111
* Assumes an April 30, 2005 maturity date for the Crown Participation
The following table sets forth the range of remaining amortization terms of
each Balloon Mortgage Loan. The remaining amortization term of a Balloon
Mortgage Loan represents the number of months required to fully amortize the
Cut-off Balance of each Balloon Mortgage Loan.
BALLOON MORTGAGE LOANS*
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
REMAINING AMORTIZATION TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
180 or less......................... 1 1.10% $ 2,760,751 0.75%
181-240............................. 3 3.30 12,523,083 3.38
241-300............................. 59 64.84 209,693,823 56.63
301-360............................. 28 30.77 145,303,400 39.24
--
---------- ---------------- -------
Total............................... 91 100.00% $370,281,058 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Remaining Amortization Term in Months: 311
The following two tables set forth the range of Cut-off Date LTV Ratios and
Maturity Date LTV Ratios of the Mortgage Loans. A "Cut-off Date LTV Ratio" is a
fraction, expressed as a percentage, the numerator of which is the Cut-off Date
Balance of a Mortgage Loan, and the denominator of which is the appraised value
of the related Mortgaged Property as determined by an appraisal thereof obtained
in connection with the origination of such Mortgage Loan. A "Maturity Date LTV
Ratio" is a fraction, expressed as a percentage, the numerator of which is the
principal balance of a Mortgage Loan on the related Maturity Date assuming all
scheduled payments due prior thereto are made and there are no principal
prepayments, and the denominator of which is the appraised value of the related
Mortgaged Property as determined by an appraisal thereof obtained in connection
with the origination of such Mortgage Loan. Because the value of Mortgaged
Properties at the Maturity Date may be different than such appraisal value,
there can be no assurance that the loan-to-value ratio for any Mortgage Loan
determined at any time following origination thereof will be lower than the
Cut-off Date LTV Ratio or Maturity Date LTV Ratio, notwithstanding any positive
amortization of such Mortgage Loan. It is also possible that the market value of
a Mortgaged Property securing a Mortgage Loan may decline between the
origination thereof and the related Maturity Date.
An appraisal of each of the Mortgaged Properties was made between January
1995 and March 1996. It is possible that the market value of a Mortgaged
Property securing a Mortgage Loan has declined since the most recent appraisal
for such Mortgaged Property. All appraisals were obtained by the related
Originator in
S-26
<PAGE> 31
accordance with the requirements of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, as amended ("FIRREA").
CUT-OFF DATE LTV RATIOS (1)
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
CUT-OFF DATE MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
LTV RATIO LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
50% or less................................... 13 10.48% $ 23,032,563 5.74%
50.01%- 55.00%................................ 13 10.48 19,343,636 4.82
55.01%- 60.00%................................ 14 11.29 43,359,912 10.81
60.01%- 65.00%................................ 18 14.52 54,635,262 13.62
65.01%- 70.00%................................ 11 8.87 51,836,212 12.92
70.01%- 75.00%................................ 40 32.26 168,016,814 41.89
75.01%- 80.00%................................ 14 11.29 38,582,794 9.62
80.01%- 85.00%................................ 1 0.81 2,268,797 0.57
--- ---------- ---------------- -------
Total......................................... 124 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Cut-off Date LTV Ratio: 67.0%
(1) Each Mortgaged Property securing the Crown Hotel Notes and the principal
balance of the related Crown Hotel Note (as defined herein) are accounted
for separately. The principal balance of each Crown Hotel Note is presented
as approximately 34.3911814% of the principal balance thereof. See "-- The
Crown Participation" below.
BALLOON MORTGAGE LOAN
MATURITY DATE LTV RATIOS (1)
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
MATURITY DATE MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
LTV RATIO LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
50% or less................................... 36 32.43% $ 75,180,106 20.30%
50.001%- 55.000%.............................. 16 14.41 65,029,858 17.56
55.001%- 60.000%.............................. 22 19.82 71,016,314 19.18
60.001%- 65.000%.............................. 22 19.82 116,258,228 31.40
65.001%- 70.000%.............................. 11 9.91 35,676,034 9.63
70.001%- 75.000%.............................. 4 3.60 7,120,519 1.92
--- ---------- ---------------- -------
Total......................................... 111 100.00% $370,281,058 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Maturity Date LTV Ratio: 54.9%
(1) Each Mortgaged Property securing the Crown Hotel Notes and the principal
balance of the related Crown Hotel Note are accounted for separately. The
principal balance of each Crown Hotel Note is presented as approximately
34.3911814% of the principal balance thereof. See "-- The Crown
Participation" below.
The following table sets forth the range of 1995 Debt Service Coverage
Ratios for the Mortgage Loans. The "Debt Service Coverage Ratio" or "DSCR" for
any Mortgage Loan for any period is the ratio of Net Operating Income produced
by the related Mortgaged Property for such period covered by the operating
statement for such period to the amounts of principal and interest due under
such Mortgage Loan for the same period. The DSCRs for 1995 are for periods of 12
months or annualized based upon periods that range from 3 to 11 months. The
DSCRs for 1993 and 1994 for each Mortgage Loan as set forth in Annex A hereto
are for
S-27
<PAGE> 32
the entire fiscal year. Generally, "Net Operating Income" for a Mortgaged
Property equals the operating revenues for such Mortgaged Property minus its
operating expenses and replacement reserves, but without giving effect to debt
service, depreciation, non-recurring capital expenditures, tenant improvements,
leasing commissions and similar items. The operating statements for the
Mortgaged Properties used in preparing the following table were obtained from
the respective Mortgagors. The information contained therein was unaudited, and
the Depositor has made no attempt to verify its accuracy. The information
derived from these sources was not uniform among the Mortgage Loans. In some
instances, adjustments were made to such operating statements principally for
real estate tax and insurance expenses resulting in increases or decreases in
net operating income stated therein based upon the Depositor's evaluation that
more appropriate information was available. In addition, obvious capital
expenditures were eliminated and replacement reserve estimates were incorporated
for each property based on MGT's standard underwriting ranges considering
property age and improvements. The following ranges were utilized (by property
type) in estimating the replacement reserve: office, $0.20 to $0.25 per net
rentable square foot; multifamily (except student housing), $225 to $275 per
unit; student housing, $250 to $400 per unit; retail, $0.15 to $0.20 per net
rentable square foot; industrial, $0.10 to $0.15 per net rentable square foot;
hotel, 4% to 5% of gross income; self-storage, $0.10 to $0.15 per net rentable
square foot; nursing home, $200 to $250 per bed; and mobile home park, $50 to
$75 per pad.
1995 DEBT SERVICE COVERAGE RATIOS (1)
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
PERCENT PRINCIPAL
BY NUMBER AGGREGATE BALANCE AS
NUMBER OF OF PRINCIPAL OF
DEBT SERVICE MORTGAGE MORTGAGE BALANCE AS OF THE CUT-OFF
COVERAGE RATIO LOANS LOANS THE CUT-OFF DATE DATE
- ------------------------------------- --------- --------- ---------------- ------------
<S> <C> <C> <C> <C>
Not Available........................ 2 1.92% $ 3,013,681 0.75%
1.0000 or Less....................... 3 2.88 6,647,873 1.66
1.0001x-1.1000x...................... 1 0.96 7,890,394 1.97
1.1001x-1.2000x...................... 5 4.81 20,223,415 5.04
1.2001x-1.3000x...................... 12 11.54 83,403,594 20.79
1.3001x-1.4000x...................... 6 5.77 17,354,303 4.33
1.4001x-1.5000x...................... 16 15.38 55,419,958 13.82
1.5001x-1.6000x...................... 16 15.38 58,960,982 14.70
1.6001x-1.7000x...................... 18 17.31 52,766,759 13.16
1.7001x-1.8000x...................... 8 7.69 42,682,456 10.64
1.8001x-1.9000x...................... 4 3.85 15,214,851 3.79
1.9001x-2.0000x...................... 4 3.85 13,840,802 3.45
2.0001x-2.1000x...................... 3 2.88 6,290,676 1.57
2.1001x-2.2000x...................... 3 2.88 5,853,842 1.46
Over 2.2001x......................... 3 2.88 11,512,404 2.87
--- --------- ---------------- ------------
Total................................ 104 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Debt Service Coverage Ratio: 1.5x
(1) The Crown Hotel Notes are set forth herein as one Mortgage Loan with a 1995
Debt Service Coverage Ratio of 1.76x. The 1995 Debt Service Coverage Ratio
for one Crown Hotel Note was .31x. The related property was under renovation
in 1995. The Debt Service Coverage Ratios for the remaining Crown Hotel
Notes range from 1.25x to 2.82x.
There are two Mortgage Loans for which 1995 operating statements were not
available. The Mortgage Loan secured by Park Pointe Plaza Shopping Center,
representing 0.47% of the Mortgage Loans, was purchased by the current owner in
October 1995. Based on a partial year operating statement for the period from
January 1, 1996 through March 31, 1996, the DSCR is 1.23x. The Mortgage Loan
secured by New Hampshire Villas, representing 0.28% of the Mortgage Loans, was
purchased by the current owner in
S-28
<PAGE> 33
December 1995. Based on a partial year operating statement for the period from
January 1, 1996 through March 31, 1996, the DSCR is 1.59x.
There are three Mortgage Loans for which the 1995 DSCR was below 1.00x. The
Mortgage Loan secured by Glen Oaks Plaza Shopping Center, representing 0.85% of
the Mortgage Loans, had a 1995 DSCR of 0.84x. In May 1995 Sears Hardware leased
38% of the net rentable square feet which had been previously vacant. Current
occupancy as of November, 1995 is 95%. Based on a partial year operating
statement for the period from January 1, 1996 through March 31, 1996, the DSCR
is 2.31x.
The Mortgage Loan secured by Rock Springs Business Park Center,
representing 0.69% of the Mortgage Loans, had a 1995 DSCR of 0.99x based on
operations from October 1, 1995 to December 31, 1995. The property was
constructed and began operations in mid-1995, and was 100% occupied as of
December 1995. Based on a partial year operating statement for the period from
March 1, 1996 through May 31, 1996, the DSCR is 1.48x.
The Mortgage Loan secured by Villa Granada Apartments, representing 0.12%
of the Mortgage Loans, had a 1995 DSCR of 0.39x based on operations from January
1, 1995 to August 31, 1995. The property was purchased in a foreclosure
proceeding in 1995. Occupancy was 92% as of September 1995. Based on a partial
year operating statement for the period from January 1, 1996 through March 31,
1996, the DSCR is 1.69x.
There is one Mortgage Loan for which the 1995 DSCR was between 1.00x and
1.10x. The Mortgage Loan secured by Center Square Plaza, representing 1.97% of
the Mortgage Loans, had a 1995 DSCR of 1.05x. The property underwent a major
renovation beginning in 1994. Based on a partial year operating statement for
the period from January 1, 1996 through March 31, 1996, the DSCR is 1.63x.
S-29
<PAGE> 34
The Mortgage Loans are secured by Mortgaged Properties located in 27
different states. The table below sets forth the states in which the Mortgaged
Properties are located:
GEOGRAPHIC DISTRIBUTION (1)
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
STATE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
California............................ 35 28.23% $ 79,223,227 19.75%
Texas................................. 19 15.32 75,243,086 18.76
Pennsylvania.......................... 15 12.10 38,399,873 9.57
Virginia.............................. 6 4.84 34,677,858 8.65
Florida............................... 5 4.03 23,913,707 5.96
Georgia............................... 4 3.23 18,072,628 4.51
New York.............................. 3 2.42 14,020,524 3.50
Rhode Island.......................... 1 0.81 13,923,895 3.47
Maryland.............................. 4 3.23 13,036,139 3.25
Arizona............................... 3 2.42 13,022,079 3.25
Wisconsin............................. 2 1.61 9,336,577 2.33
Ohio.................................. 4 3.23 9,278,114 2.31
New Jersey............................ 5 4.03 8,276,306 2.06
Washington............................ 2 1.61 7,277,881 1.81
Michigan.............................. 1 0.81 7,234,550 1.80
Missouri.............................. 1 0.81 5,939,204 1.48
Tennessee............................. 2 1.61 4,686,151 1.17
North Carolina........................ 3 2.42 4,293,615 1.07
Massachusetts......................... 1 0.81 4,243,321 1.06
Illinois.............................. 1 0.81 3,389,142 0.85
Indiana............................... 1 0.81 2,977,907 0.74
Nebraska.............................. 1 0.81 2,788,201 0.70
Nevada................................ 1 0.81 2,781,749 0.69
Colorado.............................. 1 0.81 2,397,577 0.60
Oklahoma.............................. 1 0.81 1,019,860 0.25
Minnesota............................. 1 0.81 927,047 0.23
New Mexico............................ 1 0.81 695,773 0.17
--- ---------- ---------------- -------
Total................................. 124 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
(1) Each Mortgaged Property securing the Crown Hotel Notes and the principal
balance of the related Crown Hotel Note are accounted for separately. The
principal balance of each Crown Hotel Note is presented as approximately
34.3911814% of the principal balance thereof. See "-- The Crown
Participation" below.
S-30
<PAGE> 35
PROPERTY TYPES (1)
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
TYPE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Multi-Family.......................... 56 45.16% $151,202,153 37.70%
Retail -- with anchor tenant(2)....... 12 9.68 76,503,231 19.07
Hotel................................. 31 25.00 62,457,044 15.57
Retail -- without anchor tenant(2).... 11 8.87 36,360,591 9.07
Nursing Home.......................... 2 1.61 24,722,714 6.16
Office................................ 5 4.03 23,660,397 5.90
Industrial............................ 3 2.42 19,719,800 4.92
Mobile Home Park...................... 2 1.61 3,315,394 0.83
Self Storage.......................... 2 1.61 3,134,665 0.78
--- --------- ---------------- -------
Total................................. 124 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
(1) Each Mortgaged Property securing the Crown Loan and the principal balance of
the related Crown Hotel Note are accounted for separately. The principal
balance of each Crown Hotel Note is presented as approximately 34.3911814%
of the principal balance thereof. See "-- The Crown Participation" below.
(2) For purposes of this table, the properties with an anchor tenant are as
designated in Annex A. The anchor tenant, if any, is set forth in Annex A.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)(2)
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
PROPERTY AGE MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN YEARS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
6 or less............................. 15 12.10% $ 64,592,478 16.10%
7-11.................................. 35 28.23 137,520,658 34.29
12-16................................. 13 10.48 41,741,752 10.41
17-21................................. 12 9.68 43,996,567 10.97
22-26................................. 12 9.68 38,032,433 9.48
27-31................................. 15 12.10 26,140,592 6.52
Over 31............................... 22 17.74 49,051,510 12.23
--- --------- ---------------- -------
Total................................. 124 100.00% $401,075,989 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Property Age in Years: 16.9
(1) Each Mortgaged Property securing the Crown Hotel Notes and the principal
balance of the related Crown Hotel Note are accounted for separately. The
principal balance of each Crown Hotel Note is presented as approximately
34.3911814% of the principal balance thereof. See "-- The Crown
Participation" below.
(2) See Annex A for the date on which the Mortgaged Property most recently
underwent some degree of capital improvements.
S-31
<PAGE> 36
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY AND MOBILE HOME PARKS
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
80.1%- 85.0%............................ 1 1.72% $ 4,285,262 2.77%
85.1%- 90.0%............................ 5 8.62 20,054,442 12.98
90.1%- 95.0%............................ 19 32.76 51,352,256 33.23
95.1%-100.0%............................ 33 56.90 78,825,587 51.01
--
--------- ---------------- -------
Total................................... 58 100.00% $154,517,547 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Occupancy Percentage: 94.6%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
RETAIL
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
85.1%- 90.0%............................ 2 8.70% $ 11,437,462 10.13%
90.1%- 95.0%............................ 6 26.09 39,170,636 34.71
95.1%-100.0%............................ 15 65.22 62,255,724 55.16
--
--------- ---------------- -------
Total................................... 23 100.00% $112,863,822 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Occupancy Percentage: 95.6%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)(2)
HOTEL
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY AGGREGATE AGGREGATE
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
OCCUPANCY MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
50.1%-55.0%............................ 2 6.45% $ 7,336,687 11.75%
55.1%-60.0%............................ 4 12.90 9,119,892 14.60
60.1%-65.0%............................ 3 9.68 5,014,729 8.03
65.1%-70.0%............................ 9 29.03 12,674,937 20.29
70.1%-75.0%............................ 5 16.13 14,955,197 23.94
75.1%-80.0%............................ 5 16.13 10,845,169 17.36
80.1%-85.0%............................ 2 6.45 2,095,835 3.36
90.1%-95.0%............................ 1 3.23 414,598 0.66
--
--------- ---------------- -------
Total.................................. 31 100.00% $ 62,457,044 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Occupancy Percentage: 67.6%
(1) Each Mortgaged Property securing the Crown Hotel Notes and the principal
balance of the related Crown Hotel Note are accounted for separately. The
principal balance of each Crown Hotel Note is presented as approximately
34.3911814% of the principal balance thereof. See "-- The Crown
Participation" below.
(2) See Annex A for the period over which occupancy percentages were calculated
for each Mortgaged Property.
S-32
<PAGE> 37
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
OCCUPANCY MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
90.1%- 95.0%.......................... 2 40.00% $ 8,151,728 34.45%
95.1%-100.0%.......................... 3 60.00 15,508,669 65.55
-
-------- --------- ---------------- -------
Total................................. 5 100.00% $ 23,660,397 100.00%
======== ======== ============ ============
</TABLE>
Weighted Average Occupancy Percentage: 97.2%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OTHER
<TABLE>
<CAPTION>
PERCENT PERCENT BY
BY NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
OCCUPANCY MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------------------------------- --------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
80.1%- 85.0%........................... 1 14.29% $ 2,040,526 4.29%
85.1%- 90.0%........................... 1 14.29 13,923,895 29.27
90.1%- 95.0%........................... 2 28.57 11,892,958 25.00
95.1%-100.0%........................... 3 42.86 19,719,800 41.45
-
-------- --------- ---------------- -------
Total.................................. 7 100.00% $ 47,577,180 100.00%
======== ======== =========== ===========
</TABLE>
Weighted Average Occupancy Percentage: 94.3%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the borrower's control, all of the
Mortgage Loans prohibit the prepayment thereof until a date specified in the
related Mortgage Note (such period, the "Lock-out Period" and the date of
expiration thereof, the "Lock-out Date") and/or provide that upon any voluntary
principal prepayment of a Mortgage Loan, the related Mortgagor will be required
to pay a prepayment premium or yield maintenance penalty (a "Prepayment
Premium"). The following table sets forth the percentage of the declining
aggregate balance of all the Mortgage Loans that on June 1 of each of the years
indicated will be within their related Lock-out Period and/or in which a
principal prepayment must be accompanied by a Prepayment Premium.
S-33
<PAGE> 38
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS*
<TABLE>
<CAPTION>
JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
CURRENT 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out............................ 96.2% 93.4 % 81.3 % 71.4 % 7.5 % 7.5 % 7.4 % 0.0 % 0.0 % 0.0 % 0.0 %
Prepayment Premium
Yield Maintenance (1)............... 3.8 3.8 13.7 17.3 69.3 68.9 68.0 70.8 70.7 47.0 57.9
7.00 - 7.99% (2).................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.8 0.0 0.0 0.0
6.00 - 6.99% (2).................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.7 0.0 0.0
5.00 - 5.99% (2).................. 0.0 1.9 2.1 0.0 10.2 0.0 0.0 0.0 0.0 3.9 0.0
4.00 - 4.99% (2).................. 0.0 0.0 1.9 2.1 0.0 10.3 0.0 0.0 0.0 0.0 42.1
3.00 - 3.99% (2).................. 0.0 0.9 1.1 8.2 10.1 0.0 10.4 0.0 0.0 0.0 0.0
2.00 - 2.99% (2).................. 0.0 0.0 0.0 1.1 1.9 10.2 6.4 11.7 0.0 0.0 0.0
1.00 - 1.99% (2).................. 0.0 0.0 0.0 0.0 1.1 3.0 5.8 13.7 25.5 18.3 0.0
0.01 - 0.99% (2).................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
No Prepayment Premium............... 0.0 0.0 0.0 0.0 0.0 0.0 2.0 0.0 0.0 30.8 0.0
------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Aggregate Principal Balance of the
Mortgage Loans (3)................ 401.1 396.2 390.9 385.1 378.8 368.0 360.6 313.8 306.0 275.7 24.2
Percentage of Cut-off Date Principal
Balance of the Mortgage Loans
Outstanding....................... 100.0% 98.8 % 97.5 % 96.0 % 94.4 % 91.7 % 89.9 % 78.2 % 76.3 % 68.7 % 6.0 %
</TABLE>
* The Crown Hotel Notes provide for a 3.00% Prepayment Premium for 64 months
following the Cut-off Date but prohibit the prepayment thereof for 40 months
following the Cut-off Date except if the related Mortgaged Property is sold.
For purposes of the table it is assumed that none of the Mortgaged
Properties related to the Crown Hotel Notes are sold and that therefore the
Crown Hotel Notes are subject to such Lock-out Period and Prepayment
Premium.
(1) The Mortgage Loans generally require the payment of a Prepayment Premium in
connection with any principal prepayment, in whole or in part. Any
Prepayment Premium will equal the present value, as of the date of
prepayment, of the remaining Monthly Payments from such date of prepayment
through the related stated maturity (including the Balloon Payment),
determined by discounting such payments at a U.S. Treasury rate specified
therein, minus the then outstanding balance, subject to a minimum Prepayment
Premium equal to 1% of the principal balance of such Mortgage Loan being
prepaid.
(2) Mortgage Loan requires a Prepayment premium equal to indicated percentage of
amount prepaid.
(3) Millions of dollars.
THE CROWN PARTICIPATION
General. Pursuant to a Master Loan Agreement, as amended (the "Loan
Agreement"), Crown American Associates and a special purpose wholly owned
subsidiary thereof (collectively "Crown") borrowed $75 million under a loan
which was secured by mortgages on a fee simple (or, with respect to 3 of the
properties, a leasehold) interest in 21 hotel properties (the "Hotel
Properties") and one retail property (the "Crown Loan"). The Crown Loan is
represented by 22 promissory notes ("Notes"), one for each of the properties
("Properties"). Only the Notes secured by the 21 Hotel Properties (the "Crown
Hotel Notes") are the subject of a Participation Agreement (as defined and more
fully described below under "-- The Participation Agreement"). The Crown Hotel
Notes are cross-collateralized and cross-defaulted such that an event of default
will allow the holder of the Crown Hotel Notes to pursue remedies against all
the Hotel Properties. The Cut-off Date balance of the Crown Hotel Notes was
approximately $72,693,054, and the Cut-off Date balance of the portion thereof
represented by the 34.3911814% interest under the Participation Agreement
conveyed into the Trust Fund was $25 million (the "Crown Participation"). THE
REMAINING 65.6088186% INTEREST IN THE CROWN HOTEL NOTES IS NOT INCLUDED IN THE
TRUST FUND. MGT currently owns a 31.3423765% interest in the Crown Hotel Notes
and a 34.2664421% interest has been conveyed to a Trust created under a Pooling
and Servicing Agreement dated as of January 1, 1996, with respect to J.P. Morgan
Commercial Mortgage Finance Corp. Mortgage Pass-Through Certificates, Series
1996-C2. For all purposes elsewhere in this Prospectus (except as otherwise
indicated), the Crown Participation is being treated as a Mortgage Loan with
Cut-off Date principal amount of $25 million and an assumed maturity date of
April 30, 2005. See "-- Payment Terms" and "-- The Hotel Properties" below for
the descriptive terms of the Crown Loan and property geographic concentration.
S-34
<PAGE> 39
The Borrower. Crown is a wholly owned subsidiary of Crown Hotel Holding
Company, a Delaware corporation ("CHHC"), which is a wholly owned subsidiary of
Crown Delaware Holding Company, a Delaware corporation ("CDHC"). Crown was
formed in 1993 as the successor by merger to Crown American Corporation ("CAC").
Prior to such merger, CAC owned the Properties, approximately 25 enclosed
shopping malls and certain other assets. As part of a restructuring in August
1993, CAC contributed 23 of the shopping malls and certain other real estate to
Crown American Properties, L.P. ("CAP") and Crown American Financing
Partnership. CAP is a Delaware limited partnership, 74% of which is owned by
Crown American Realty Trust, a publicly traded Maryland real estate investment
trust. The remaining 26% of CAP is owned by other subsidiaries of CDHC. Pursuant
to the restructuring, CAC merged with and into Crown, with Crown acquiring the
remaining assets and assuming certain related liabilities of CAC. Prior to the
funding of the Crown Loan, Crown conveyed all of its real estate properties that
do not secure the Crown Loan to other affiliated entities. Currently, the only
substantial assets owned by Crown are the Properties. While Crown is restricted
from owning or operating any assets other than those currently owned, Crown did
have prior operations and assets that potentially could subject Crown to
liability. Crown has been indemnified against liabilities associated with such
assets by CDHC.
Payment Terms. The Crown Hotel Notes bear interest at a fixed rate equal to
9.82% per annum computed on the basis of the actual number of days elapsed each
month over a 360-day year. As of the Cut-off Date, principal will amortize over
a 304-month term with a final maturity of April 30, 2015. Beginning in May 2005
the monthly principal amortization will become the greater of the amount
required under the current amortization schedule or 100% of the net operating
income (NOI) from the prior month net of accrued interest on the Crown Hotel
Notes for such month. In calculating NOI for this purpose, operating expenses
for the Hotel Properties shall also include (a) the lesser of (i) $2,250,000
(the current debt service on a loan secured in part by the equity interest in
Crown; see "Notice and Cure Agreement" below) and (ii) debt service on any debt
secured by the equity interest in Crown, (b) a capital expenditure reserve of
five percent (5%) of gross revenues, and (c) a management fee of not more than
six percent (6%) of gross revenues.
The Crown Hotel Notes cannot be voluntarily prepaid prior to May 1, 1999
except in the case of a bona fide sale to a third party of the related Hotel
Property, in which case a Prepayment Premium of 3% and the release amount
(described below) would be payable. Thereafter, any Crown Hotel Note can be
prepaid subject to, among other things, the satisfaction of a debt service
coverage test and the payment of (a) a Prepayment Premium (see Annex A hereto)
and (b) a release amount equal to the greater of (i) 25% of the outstanding
principal balance of such Crown Hotel Note and (ii) 100% of the net proceeds
from the sale of the related Mortgaged Property in excess of such outstanding
principal balance. Any release amount paid shall be applied to the repayment of
the principal balance of the other Crown Hotel Notes.
S-35
<PAGE> 40
THE CROWN HOTEL PROPERTIES
<TABLE>
<CAPTION>
NO.
OF
PROPERTY NAME LOCATION ROOMS
- ------------------------ ------------------- -----
<S> <C> <C>
Holiday Inn Cumberland, MD 130
Comfort Inn Atlanta, GA 260
Marriott Courtyard Bensalem, PA 167
Holiday Inn Holidome Clarion, PA 122
Holiday Inn Holidome Frederick, MD 155
Comfort Inn Harrisburg, PA 116
Holiday Inn Johnstown, PA 164
Comfort Inn Oak Ridge, TN 122
Comfort Inn Pottstown, PA 121
Best Western Crown Park Durham, NC 177
Holiday Inn Uniontown, PA 180
Comfort Suites Asheville, NC 125
Holiday Inn Beaver Falls, PA 156
Holiday Inn Charlotte, NC 177
Holiday Inn Express Frederick, MD 104
Best Western Crown Park Harrisburg, PA 167
Holiday Inn Indiana, PA 159
Holiday Inn Express Johnstown, PA 105
Comfort Inn Macon, GA 120
Comfort Inn Newport News, VA 125
Holiday Inn Holidome York, PA 181
</TABLE>
Management of Hotels. The Hotel Properties are managed by Crown American
Hotels Company ("CAHC"), an affiliate of Crown, pursuant to Real Estate
Management Agreements. The Real Estate Management Agreements are terminable upon
30 days' notice.
Reserves. At closing, Crown deposited $869,515 into a Capital Expenditure
Reserve with respect to the Hotel Properties, to be used for certain specified
capital improvements and deferred maintenance. In addition, Crown is required to
escrow with the Primary Servicer on a monthly basis through April 2005 amounts
averaging $352,411 and thereafter an amount equal to five percent (5%) of the
gross revenues of the Hotel Properties for acquisition, repair or replacement of
furniture, fixtures or equipment and for capital improvements.
Notice and Cure Agreement. Concurrently with the funding of the Crown Loan,
Starwood Mezzanine Investors, L.P. ("Starwood") made a $15 million loan to CHHC,
secured in part by a pledge of the equity interest in Crown. Pursuant to a
Notice and Cure Agreement, Starwood would be provided with notice of an event of
default under the Crown Loan when such notice is provided to Crown and Starwood
would have the opportunity to cure such default. Starwood has no direct lien on
any of the assets of Crown, and is not a creditor of Crown.
Environmental Insurance. Crown purchased for each Hotel Property an
environmental insurance policy covering up to $2 million (subject to a $100,000
deductible) of expenses or costs arising from claims as a result of
environmental contamination discovered during the policy term which expires
April 24, 2000. Crown also purchased an asbestos liability insurance policy for
an initial 5 year term covering eleven of the Hotel Properties in the amount of
$1 million per occurrence and $2 million in the aggregate, and a similar policy
for the remaining ten Hotel Properties. All such policies were issued by a
wholly owned subsidiary of Zurich American Insurance Group of Schaumburg,
Illinois which is rated "A+XV" by A.M. Best and "AAA" by Standard & Poor's. The
Loan Agreement requires Crown to maintain such policies in full force and effect
with premiums prepaid through the earlier of (i) 5 years from the most recent
policy anniversary date or (ii) the Maturity Date. If Crown is unable to
purchase such extensions because the insurance is no longer commercially
available, then Crown is required to cause ESA reports to be made with respect
to each Hotel
S-36
<PAGE> 41
Property beginning 12 months prior to expiration of the existing policies and
deliver them to the holder of the Mortgage 120 days prior to such expiration.
Crown has agreed to promptly make a claim under the policies if contamination is
discovered.
The Participation Agreement. The Crown Participation that is included in
the Trust Fund is a 34.3911814% participation (a "Participation" and any owner
thereof (including the Trust Fund), a "Participant") pursuant to a Participation
Agreement dated as of January 30, 1996, between MGT, as seller of the
Participations (the "Seller"), the Depositor, as initial Participant, BOMCC, as
servicer of the Participation (the "Participation Servicer") and State Street
Bank and Trust Company, as custodian (the "Custodian") (the "Participation
Agreement"). The Participation Agreement calls for the Crown Hotel Notes and
loan documents to be maintained by the Custodian pursuant to a custodial
agreement between the Custodian and the Seller. The Crown Loan will be serviced
pursuant to a Servicing Agreement between the Seller and BOMCC as Primary
Servicer, Special Servicer and Master Servicer as described under "Description
of the Mortgage Pool -- General." If BOMCC ceases to be the Master Servicer, the
successor Master Servicer shall assume the duties of the Participation Servicer
under the Participation Agreement.
Under the Participation Agreement, the Participation Servicer will maintain
the list of Participants and will distribute amounts required to be distributed
under the Servicing Agreement to the Participants in accordance with their
percentage interests. The Participation Servicer will provide a list of each
Participant and such Participant's respective percentage interest to any
Participant upon request.
The Participation Agreement states that the Seller may not convey in excess
of a 35% Participation to any one party, and that so long as the Seller owns a
50% or greater Participation, it will be treated for voting purposes as owning
an interest equal to the highest Participation then owned by any other
Participant. All actions requiring a vote of the Participants will require a
vote of Participants holding more than 50% of the Participations (the "Majority
Percentage"), except that a 100% unanimous vote of all Participants will be
required to amend the related Servicing Agreement to change the servicing
provisions thereof which affect the Crown Hotel Notes, including the authority
of the Special Servicer to modify the Crown Hotel Notes and the requirement for
the Special Servicer to provide an Asset Strategy Report. See
"Servicing -- Responsibilities of Special Servicer." Each Participant is
entitled to receive information and reports with respect to the Crown Hotel
Notes. By conveying the Participation into a securitization, each Participant
acknowledges that the person entitled to vote or consent to action with respect
to the Crown Hotel Notes will be as set forth in the related pooling and
servicing agreements. In the case of the Crown Participation in the Trust Fund,
the Directing Certificateholder (as defined herein) will have the right to vote
on or consent to any action with respect to the Mortgage Loans on behalf of the
Trust Fund, as more fully described under "Servicing -- Responsibilities of the
Special Servicer" herein; provided, however, that since the Crown Participation
represents only a 34.3911814% interest in the Crown Hotel Notes, it is therefore
not sufficient to control any actions with respect to the Crown Hotel Notes. The
approval of any such actions will be subject to the vote of the Majority
Percentage, which will include other owners of Participations. There can be no
assurance that such other Participants will vote in the same manner as would the
Directing Certificateholder hereunder. The Master Servicer and Participation
Servicer may refuse to follow the Majority Percentage's instructions if it might
expose the Master Servicer or Participation Servicer, as applicable, to any
material liability or obligation of any kind.
RELATED BORROWERS AND OTHER ISSUES
Farm Creek Industrial Park. Two of the Mortgage Loans (representing, in the
aggregate, 4.3% of the Mortgage Loans) are secured by six properties in the Farm
Creek Industrial Park located in Woodbridge, Virginia (the "Farm Creek Mortgage
Loans"). The Farm Creek Industrial Park consists of six contiguous properties on
which are located eleven industrial buildings. The Farm Creek Mortgage Loans
consist of six mortgage loans which are treated as two Mortgage Loans for
purposes of this Prospectus Supplement. Four of such mortgage loans
(representing, in the aggregate, 2.8% of the Mortgage Loans) (the "Farm Creek
Pool A Loans") are cross-defaulted and cross-collateralized with each other. The
borrowers with respect to the Farm Creek Pool A Loans are four separate single
purpose Virginia limited liability companies with Featherstone Industrial Park,
Inc., a Virginia corporation ("FIP") as their common managing member. The
remaining two
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mortgage loans (representing, in the aggregate, 1.4% of the Mortgage Loans) (the
"Farm Creek Pool B Loans") are also cross-defaulted and cross-collateralized
with each other; however, they are not cross-defaulted and cross-collateralized
with the Farm Creek Pool A Loans. The borrowers with respect to the Farm Creek
Pool B Loans are two separate single purpose Virginia limited liability
companies with Farm Creek Industrial Park, Inc., a Virginia corporation, as
their common managing member. All six of the borrowers on the Farm Creek
Mortgage Loans are under common ownership.
Waterview Park Apartments. One of the Mortgage Loans (representing, in the
aggregate, 5.3% of the Mortgage Loans) is secured by the Waterview Park
Apartments located in Richardson, Texas (the "Waterview Park Mortgage Loan").
The Waterview Park Apartments consist of a four phase multifamily project
constructed in conjunction with the University of Texas at Dallas ("UTD") to
provide student housing. The Waterview Park Mortgage Loan consists of four
mortgage loans which are cross-defaulted and cross-collateralized with each
other and are treated as one Mortgage Loan for purposes of this Prospectus
Supplement. Each borrower with respect to each such mortgage loan is a single
purpose Texas limited partnership with common ownership. The University of Texas
System is ground lessor of the Waterview Park Apartments and has the option to
purchase the entirety of the property (i.e., all four phases) at any time
following the expiration of the fifth calendar year of the lease term, which
would occur after the four-year lockout period for the Waterview Park Mortgage
Loan. The option price must at least equal the fair market value of the related
Mortgaged Property, and in any event pay such Mortgage Loan in full. The
Waterview Park Apartments benefit from property tax exemptions based upon use
restrictions contained in the ground lease that require 85% of the property be
dedicated to university housing.
Marina Playa Executive Park and Holiday Inn Kansas City. Two of the
Mortgage Loans representing, in the aggregate, 3.5% of the Mortgage Loans are
secured by Marina Playa Executive Park, located in Santa Clara, California and
Holiday Inn Kansas City, Kansas City, Missouri respectively. The borrowers with
respect to each such Mortgage Loan are entities in which Basic Capital
Management, Inc., a privately held Nevada corporation, directly or indirectly
owns a significant ownership interest. Such Mortgage Loans are not
cross-defaulted or cross-collateralized with each other. The Mortgage Loan
secured by the Marina Playa Mortgaged Property, representing 2.1% of the
Mortgage Pool, is subject to a right of first refusal to purchase the property
in favor of one of the anchor tenants.
Beckelbe Loans. Four of the Mortgage Loans (representing, in the aggregate,
2.3% of the Mortgage Loans) are secured by the Best Western -- Kings Island,
Ohio, Best Western -- Cambridge, Ohio, Days Inn -- Cambridge, Ohio and Days
Inn -- Kings Island, Ohio properties, respectively (collectively, the "Beckelbe
Loans"). The borrower with respect to each of the Beckelbe Loans is Beckelbe,
Ltd., a limited purpose Ohio limited liability company. Beck Hospitality, Inc.,
an Ohio corporation and member of Beckelbe, Ltd., acts as property manager for
each of the properties securing the Beckelbe Loans. Beck Hospitality, Inc. also
acts as property manager for the Best Western -- Kings Quarters, Virginia
property which secures a loan (the "Kings Dominion Loan") to Kings Dominion
Lodge, L.P., a Virginia limited partnership (representing, 1.3% of the Mortgage
Loans). Beck Hospitality, Inc. is also the general partner of Kings Dominion
Lodge, L.P. The Beckelbe Loans are cross-defaulted and cross-collateralized with
each other; however, they are not cross-defaulted or cross-collateralized with
the Kings Dominion Loan.
See Annex A for additional information on the Mortgage Loans.
ESCROWS
All of the Mortgage Loans except for three Mortgage Loans, representing
1.8% of the Mortgage Loans, provide for monthly escrows to cover property taxes
on the Mortgaged Properties. Monthly escrows to cover insurance premiums on the
Mortgaged Properties are also generally required, except with respect to
Mortgage Loans originated by Home Savings of America, FSB where the Servicer
provides force-placed coverage and monitors the related Mortgagor's compliance.
Fifty-six of the Mortgage Loans (including the Crown Participation as a
Mortgage Loan), which represent 61.5% of the Mortgage Loans also require monthly
escrows to cover ongoing replacements and capital repairs.
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Twenty-seven of the Mortgage Loans (including the Crown Participation as a
Mortgage Loan), which represent 32.3% of the Mortgage Loans, also required
upfront or monthly escrows for the full term or a portion of the term of the
related Mortgage Loan to cover anticipated re-leasing costs, including tenant
improvements and leasing commissions.
See Annex A for additional information on the monthly escrows on the
Mortgage Loans.
UNDERWRITING GUIDELINES
MGT has provided each Originator with guidelines establishing certain
procedures with respect to underwriting the Mortgage Loans, as described more
fully below. The Mortgage Loans were generally originated in accordance with
such guidelines. In some instances, one or more provisions of the guidelines
were waived or modified where it was determined not to adversely affect the
Mortgage Loans in any material respect.
Property Analysis. The Originator is required to perform a site inspection
to evaluate the location and quality of each Mortgaged Property. Such inspection
includes an evaluation of functionality, design, attractiveness, visibility, and
accessibility, as well as convenience to major thoroughfares, transportation
centers, employment sources, retail areas and educational or recreational
facilities. The Originator also is required to assess the submarket in which the
property is located to evaluate competitive or comparable properties as well as
market trends. In addition, the Originator is to evaluate the property's age,
physical condition, operating history, leases and tenant mix, and management.
Cash Flow Analysis. The Originator is required to review operating
statements provided by the Mortgagor and to make adjustments in order to
determine the Debt Service Coverage Ratio. See "Description of the Mortgage
Pool -- Certain Characteristics of the Mortgage Loans" above.
Appraisal and Loan-to-Value Ratio. For each Mortgaged Property, the
Originator is required to obtain a current full narrative appraisal conforming
to the requirements of FIRREA. The appraisal must be based on the highest and
best use of the Mortgaged Property and must include an estimate of the current
market value of the property in its current condition. The Originator is
required to determine the loan-to-value ratio of the Mortgage Loan at the date
of origination based on the value set forth in the appraisal.
Evaluation of Borrower. The Originator is required to evaluate the
Mortgagor and its principals with respect to credit history and prior experience
as an owner and operator of commercial real estate properties. The evaluation
generally is to include obtaining and reviewing a credit report or other
reliable indication of the Mortgagor's financial capacity; obtaining and
verifying credit references and/or business and trade references; and obtaining
and reviewing certifications provided by the Mortgagor as to prior real estate
experience and current contingent liabilities. In addition, in general, each
Mortgagor for loans above a minimum loan amount is required to be organized as a
single-purpose, bankruptcy-remote entity, and the Originator is required to
review the organizational documents of the Mortgagor to verify compliance with
such requirement. Finally, although the Mortgage Loans generally are
non-recourse in nature, in the case of certain Mortgage Loans, the Mortgagor and
certain principals thereof may be required to assume legal responsibility for
liabilities relating to fraud, misrepresentation, misappropriation of funds,
breach of environmental or hazardous waste requirements and unauthorized
transfer of title to the property. The Originator is required to evaluate the
financial capacity of the borrower and such principals to meet any obligations
that may arise with respect to such liabilities.
Environmental Site Assessment. The Originator is required to obtain a
current or updated ESA for each Mortgaged Property prepared by a qualified
environmental firm approved by the Originator. The Originator is required to
review the ESA to verify the absence of reported violations of applicable laws
and regulations relating to environmental protection and hazardous waste. In
cases in which the ESA identifies such violations, the Originator must require
the Mortgagor to carry out satisfactory remediation activities prior to the
origination of the Mortgage Loan, or to establish an operations and maintenance
plan and to place sufficient funds in escrow at the time of origination of the
Mortgage Loan to complete such remediation within twelve months.
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Physical Assessment Report. The Originator is required to obtain a current
physical assessment report ("PAR") for each Mortgaged Property prepared by a
qualified structural engineering firm approved by the Originator. The Originator
is required to review the PAR to verify that the property is reported to be in
satisfactory physical condition, and to determine the anticipated costs of
necessary repair, replacement and major maintenance or capital expenditure needs
over the term of the Mortgage Loan. In cases in which the PAR identifies
material repairs or replacements needed immediately, the Originator is generally
obligated to require the Mortgagor to carry out such repairs or replacements
prior to the origination of the Mortgage Loan, or to place sufficient funds in
escrow at the time of origination of the Mortgage Loan to complete such repairs
or replacements within not more than twelve months.
Title Insurance Policy. The Mortgagor is required to provide, and the
Originator is required to review, a title insurance policy for each Mortgaged
Property. The title insurance policy must meet the following requirements: (a)
the risk in connection with any one mortgage loan assumed by one title insurance
company may not be more than 40% of the sum of such company's capital, surplus
and reserves (exceptions can be made where re-insurance or co-insurance by
another title insurance company will cover excess risk), (b) the policy must be
written by a title insurer licensed to do business in the jurisdiction where the
Mortgaged Property is located, (c) the policy must be in an amount equal to the
original principal balance of the loan, (d) the protection and benefits must run
to the mortgagee and its successors and assigns, (e) the policy should be
written on the most current standard policy form of the American Land Title
Association or equivalent policy promulgated in the jurisdiction where the
Mortgaged Property is located and (f) the legal description of the Mortgaged
Property in the title policy must conform to that shown on the survey of the
Mortgaged Property, where a survey has been required.
Property Insurance. The Mortgagor is required to provide, and the
Originator is required to review, certificates of required insurance with
respect to the Mortgaged Property. Such insurance generally may include: (1)
commercial general liability insurance for bodily injury or death and property
damage; (2) an "All Risk of Physical Loss" policy; (3) if applicable, boiler and
machinery coverage; (4) if the Mortgaged Property is located in a flood hazard
area, flood insurance; and (5) such other coverage as the Originator may require
based on the specific characteristics of the Mortgaged Property.
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will include the following ten classes of Offered Certificates
designated as the Class A1, Class A1X, Class A2, Class A2X, Class B, Class BX,
Class C, Class CX, Class D and Class E Certificates. In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class NR,
Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby. The Certificates represent in the aggregate the
entire beneficial ownership interest in a Trust Fund consisting of: (i) a pool
of fixed rate Mortgage Loans (including the Crown Participation) and all
payments under and proceeds of the Mortgage Loans received after the Cut-off
Date (exclusive of payments of principal and interest due on or before the
Cut-off Date); (ii) any Mortgaged Property acquired on behalf of the Trust Fund
through foreclosure or deed in lieu of foreclosure (upon acquisition, an "REO
Property"); (iii) such funds or assets as from time to time are deposited in the
Collection or Distribution Accounts or any account established in connection
with REO Properties (the "REO Account"); and (iv) the rights of the mortgagee
under all insurance policies with respect to the Mortgage Loans. The term
"Mortgage Loan" herein shall include the Crown Participation,
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provided, however, that any calculation based on the principal balance of one or
more Mortgage Loans shall include only the percentage interest in the Crown
Hotel Notes represented by the Crown Participation.
The Class A1, Class A1X, Class A2 and Class A2X Certificates will evidence
approximately an initial 68% undivided interest in the Trust Fund. The Class B
and Class BX Certificates will evidence approximately an initial 6% undivided
interest in the Trust Fund. The Class C and Class CX Certificates will evidence
approximately an initial 6.5% undivided interest in the Trust Fund. The Class D
Certificates will evidence approximately an initial 3.5% undivided interest in
the Trust Fund. The Class E Certificates will evidence approximately an initial
2% undivided interest in the Trust Fund.
The Offered Certificates (the "DTC Registered Certificates") will be
issued, maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC") and its Participants (as defined in the Prospectus). The
DTC Registered Certificates, other than the Interest Only Certificates, will be
issued in minimum denominations of $100,000 and integral multiples of $1 in
excess thereof. The Interest Only Certificates will be issued in denominations
of $100,000 Notional Amount and integral multiples of $1 Notional Amount.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). No person
acquiring an interest in the DTC Registered Certificates (a "Beneficial Owner")
will be entitled to receive a certificate representing such person's interest (a
"Definitive Certificate"), except as set forth below under "-- Book-Entry
Registration of Certain of the Senior Certificates -- Definitive Certificates."
Unless and until Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein, all references to
actions by Certificateholders with respect to the DTC Registered Certificates
shall refer to actions taken by DTC upon instructions from its Participants, and
all references herein to distributions, notices, reports and statements to
Certificateholders with respect to the DTC Registered Certificates shall refer
to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the DTC Registered Certificates, for distribution to
Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Beneficial Owners that are not Participants or Intermediaries (as
defined in the Prospectus) but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the related DTC Registered Certificates may
do so only through Participants and Intermediaries. In addition, Beneficial
Owners will receive all distributions of principal of and interest on the
related DTC Registered Certificates from the Trustee through DTC and
Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued for the
related DTC Registered Certificates, it is anticipated that the only registered
Certificateholder of such DTC Registered Certificates will be Cede, as nominee
of DTC. Beneficial Owners will not be recognized by the Trustee or the Master
Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement; provided, however, that Beneficial Owners will be permitted
to request and receive information furnished to Certificateholders by the
Trustee subject to receipt by the Trustee of a certification in form and
substance acceptable to the Trustee stating that the person requesting such
information is a Beneficial Owner. Otherwise, the Beneficial Owners will be
permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC, its Participants
and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a
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mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive distributions and will be able to transfer their
interests in the DTC Registered Certificates.
None of the Depositor or the Trustee will have any liability for any
actions taken by DTC or its nominee, including, without limitation, actions for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Certificates held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
Upon the occurrence of an event described in the Prospectus in the seventh
paragraph under "Description of the Certificates -- Book-Entry Registration and
Definitive Certificates," the Trustee is required to notify, through DTC,
Participants who have ownership of DTC Registered Certificates as indicated on
the records of DTC of the availability of Definitive Certificates for their DTC
Registered Certificates. Upon surrender by DTC of the definitive certificates
representing the DTC Registered Certificates and upon receipt of instructions
from DTC for re-registration, the Trustee will reissue the DTC Registered
Certificates as Definitive Certificates issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Trustee and
the Master Servicer will recognize the holders of such Definitive Certificates
as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see "Description of the Certificates -- Book-Entry Registration
and Definitive Certificates" in the Prospectus.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the 25th day of each month or, if such 25th day is not a business day, then
on the next succeeding business day, commencing in July 1996 (each, a
"Distribution Date"). All distributions (other than the final distribution on
any Certificate) will be made by the Trustee to the persons in whose names the
Certificates are registered at the close of business on each Record Date, which
will be the last business day of the month preceding the month in which the
related Distribution Date occurs. Such distributions will be made by wire
transfer in immediately available funds to the account specified by the
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Trustee with wiring
instructions as provided in the Pooling and Servicing Agreement and is the
registered holder of Certificates with an initial aggregate denomination of at
least $100,000 or, otherwise, by check. The final distribution on any
Certificate will be made in like manner, but only upon presentment or surrender
of such Certificate at the location specified in the notice to the holder
thereof of such final distribution. All distributions made with respect to a
class of Certificates on each Distribution Date will be allocated pro rata among
the outstanding Certificates of such class based on their respective Percentage
Interests. The "Percentage Interest" evidenced by any Certificate is equal to
the initial denomination thereof as of the Delivery Date, divided by the initial
Class Balance or Notional Amount, as applicable, for such class. The aggregate
distribution to be made on the Certificates on any Distribution Date shall equal
the Available Distribution Amount.
The "Available Distribution Amount" for any Distribution Date is an amount
equal to (a) the sum of (i) the amount on deposit in the Primary Collection
Account (as defined herein) as of the close of business on the related
Determination Date, which amount will include scheduled payments on the Mortgage
Loans due on or prior to the related Due Date immediately preceding, and
collected as of, such Determination Date (to the extent not distributed on
previous Distribution Dates) and unscheduled payments and other collections on
the Mortgage Loans collected during the related Remittance Period and (ii) the
aggregate amount of any P&I Advances made by each Servicer in respect of such
Distribution Date (not otherwise included in clause (i) above) net of (b) the
portion of the amount described in clause (a)(i) hereof that represents (i)
Monthly Payments due on a Due Date subsequent to the end of the related
Remittance Period, (ii) any amounts payable or reimbursable therefrom to any
Servicer or the Trustee or (iii) any servicing and trustee compensation.
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Pass-Through Rate on the Certificates. The "Pass-Through Rates" on the
Class A1, Class A2, Class BX and Class CX Certificates are fixed and are set
forth on the cover hereof. The Pass-Through Rates on the Class A1X, Class A2X,
Class B and Class C Certificates will be equal to the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans minus the
Pass-Through Rates on the Class A1, Class A2, Class BX and Class CX
Certificates, respectively. The Pass-Through Rates on the Class D and Class E
Certificates will be equal to the weighted average of the Remittance Rates in
effect from time to time on the Mortgage Loans. The "Remittance Rate" for any
Mortgage Loan is equal to the excess of the Mortgage Interest Rate thereon
(without giving effect to any modification or other reduction thereof following
the Cut-off Date) over the sum of the applicable Servicing Fee Rate and the fee
payable to the Trustee. The fee payable to the Trustee will be 0.015% per annum.
The Mortgage Interest Rate for each of the Mortgage Loans which provide for the
computation of interest other than on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 basis") (that is the basis on which interest on
the Certificates accrues) will be adjusted to reflect that difference.
Interest Distributions on the Certificates. Subject to the distribution of
the Principal Distribution Amount to the Holders of classes of Certificates of a
higher priority, as described under "Priority of Distributions" below, Holders
of each class of Certificates will be entitled to receive on each Distribution
Date, to the extent of the Available Distribution Amount for such Distribution
Date (net of any interest accrued on any Collateral Value Adjustment
subsequently recovered and any Net Prepayment Premium) (the "Adjusted Available
Distribution Amount"), distributions allocable to interest in an amount (the
"Interest Distribution Amount") equal to the sum of interest accrued during the
period from and including the first day of the month preceding the month of the
Distribution Date) (or from the Cut-off Date in the case of the initial
Distribution Date) to and including the last day of the month preceding the
month of the Distribution Date (calculated on the basis of a 360-day year
consisting of twelve 30-day months) on the Class Balance (or the Notional
Amount, in the case of the Interest Only Certificates) of such class of
Certificates outstanding immediately prior to such Distribution Date, at the
then-applicable Pass-Through Rate (the "Interest Accrual Amount") less such
class' pro rata share, by Interest Accrual Amount, of any interest shortfall not
related to a Mortgagor delinquency or default, such as Prepayment Interest
Shortfalls (as defined herein) and shortfalls associated with exemptions
provided by the Relief Act (as defined in the Prospectus). The Notional Amount
of the Class A1X Certificates will equal the Class Balance of the Class A1
Certificates. The Notional Amount of the Class A2X Certificates will equal the
Class Balance of the Class A2 Certificates. The Notional Amount of the Class BX
Certificates will equal the Class Balance of the Class B Certificates. The
Notional Amount of the Class CX Certificates will equal the Class Balance of the
Class C Certificates. A Notional Amount does not entitle the Interest Only
Certificates to any distributions of principal. If the Adjusted Available
Distribution Amount for any Distribution Date is less than the Interest
Distribution Amount for such Distribution Date, the shortfall will be part of
the Interest Distribution Amount distributable to holders of Certificates
affected by such shortfall on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will bear interest at the related
Pass-Through Rate.
To the extent not necessary to reimburse the Master Servicer for reductions
in its compensation to cover Prepayment Interest Shortfalls, in addition to the
related Interest Distribution Amount, the Interest Only Certificates will
receive 75%, and the remaining Offered Certificates will receive 25%, of any Net
Prepayment Premium paid with respect to the Mortgage Loans. The Net Prepayment
Premium payable to the Interest Only Certificates will be paid to the holders of
the Class A1X Certificates while the Class A1 Certificates are outstanding. On
each Distribution Date after the Distribution Date on which the Class Balances
of the Class A1 Certificates has been reduced to zero, any Net Prepayment
Premium payable to the Interest Only Certificates will be paid to the holders of
the Class A2X Certificates while the Class A2 Certificates are outstanding. On
each Distribution Date after the Distribution Date on which the Class Balances
of the Class A1 and Class A2 Certificates have been reduced to zero, any Net
Prepayment Premium payable to the Interest Only Certificates will be paid to the
holders of the Class BX Certificates while the Class B Certificates are
outstanding. On each Distribution Date after the Distribution Date on which the
Class Balances of the Class A1, Class A2 and Class B Certificates have been
reduced to zero, any Net Prepayment Premium payable to the Interest Only
Certificates will be paid to the holder of the Class CX Certificates while the
Class C Certificates are outstanding. On each Distribution Date, the Net
Prepayment Premium not
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payable to the Master Servicer or the holders of the Interest Only Certificates
will be paid the holders of the class of Offered Certificates then outstanding
with the highest principal payment priority.
To the extent any Mortgage Loan is prepaid in full or in part between a
Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second Distribution
Date following such Determination Date because interest on prepayments in full
or in part will only accrue to the date of payment (such shortfall, a
"Prepayment Interest Shortfall"). To the extent any Mortgage Loan is prepaid in
full or in part between the related Due Date and the Determination Date
immediately following such Due Date, the interest on such prepayment will be
included in the Available Distribution Amount for the immediately succeeding
Distribution Date (the "Prepayment Interest Excess"). If a Mortgage Loan is
prepaid in full or in part during any Remittance Period, any related Prepayment
Interest Shortfall shall be offset to the extent of any Prepayment Interest
Excess and any Prepayment Premium collected during such Remittance Period. If
the Prepayment Interest Shortfall for any Remittance Period exceeds any
Prepayment Interest Excess and any Prepayment Premiums collected during such
period, such shortfall shall only be offset by an amount up to the portion of
the Servicing Fee payable to the Master Servicer on the related Distribution
Date. To the extent that any such shortfall shall have been offset by a portion
of the Servicing Fee, the Master Servicer shall be entitled to any excess of the
Prepayment Interest Excess and Prepayment Premiums over the Prepayment Interest
Shortfall for any subsequent period.
The "Net Prepayment Premium" with respect to any Distribution Date will
equal the excess of (a) the total amount of Prepayment Premiums received during
the related Remittance Period over (b) the Prepayment Interest Shortfall for any
Remittance Period over the Prepayment Interest Excess for any Remittance Period.
The Pass-Through Rates on the Certificates with variable Pass-Through Rates
will not be affected by the deferral of interest or reduction of the Mortgage
Interest Rate on any Mortgage Loan by the Special Servicer or by the occurrence
of either such event in connection with any bankruptcy proceeding involving the
related borrower. The amount of any resulting interest shortfall will be
allocated to the Certificates, in the order described under "Subordination"
below.
Principal Distributions on the Offered Certificates. Holders of the
Certificates will be entitled to receive on each Distribution Date in reduction
of the related Class Balance in the order described herein until the related
Class Balance is reduced to zero, to the extent of the balance of the Adjusted
Available Distribution Amount remaining after the payment of the Interest
Distribution Amount for such Distribution Date for the classes of Certificates
with the highest priority for interest payments (as described under "Priority of
Distributions' below), distributions in respect of principal in an amount (the
"Principal Distribution Amount") equal to the aggregate of (i) all scheduled
payments of principal (other than Balloon Payments) due on the Mortgage Loans on
the related Due Date whether or not received and all scheduled Balloon Payments
received, (ii) if the scheduled Balloon Payment is not received, with respect to
any Balloon Mortgage Loans on and after the Maturity Date thereof, the principal
payment that would need to be received in the related month in order to fully
amortize such Balloon Mortgage Loan with level monthly payments by the end of
the term used to derive scheduled payments of principal due prior to the related
Maturity Date, (iii) to the extent not previously advanced any unscheduled
principal recoveries received during the related Remittance Period in respect of
the Mortgage Loans, whether in the form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts received as a result of the purchase
of any Mortgage Loan out of the Trust Fund and (iv) any other portion of the
Adjusted Available Distribution Amount remaining undistributed after payment of
any interest payable on the Certificates for the related or any prior
Distribution Date, including any Prepayment Interest Excess not offset by any
Prepayment Interest Shortfall occurring during the related Remittance Period or
otherwise required to reimburse the Master Servicer, as described herein, and
interest distributions on the Mortgage Loans, in excess of interest
distributions on the Certificates, resulting from the allocation of amounts
described in this clause (iv) to principal distributions on the Certificates.
The Interest Only Certificates do not have a Class Balance and are therefore not
entitled to any principal distributions.
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PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date will
be applied (a) first to distributions of interest on the classes of Certificates
outstanding with the highest priority for interest payment (as described below),
(b) second to distributions of the Principal Distribution Amount to the classes
of Certificates then entitled to distribution of principal as described below,
and (c) third, to distributions of interest on each class of Certificates other
than the classes described in clause (a), above, in the order of priority
described below; provided that on any Distribution Date on which the Class
Balance of a class of Certificates is reduced to zero pursuant to clause (b)
above, interest distributions pursuant to clause (a) above will be made to the
class of Certificates outstanding with the next highest priority for interest
payments prior to making distributions of the Principal Distribution Amount
thereto pursuant to clause (b) above. The priority for interest payments for
purposes of clauses (a) and (c), above, is: first to distributions of interest
on the Class A1, Class A1X, Class A2 and Class A2X Certificates, pro rata, based
on their respective Interest Accrual Amounts; second to distributions of
interest on the Class B and Class BX Certificates, pro rata, based on their
respective Interest Accrual Amounts; third to distributions of interest on the
Class C and Class CX Certificates, pro rata, based on their respective Interest
Accrual Amounts; fourth to distributions of interest on the Class D
Certificates; fifth to distributions of interest on the Class E Certificates;
and then to the remaining classes of Certificates up to their respective
Interest Accrual Amounts, all as described under "-- Distributions -- Interest
Distributions on the Certificates" above. The Principal Distribution Amount for
such Distribution Date will be applied to distributions of principal of the
Class A1, Class A2, Class B, Class C, Class D and Class E Certificates, in that
order, and then to distributions of principal of the Other Classes of
Certificates until their respective Class Balances have been reduced to zero.
OTHER CERTIFICATES
The Class F, Class G, Class NR, Class R-I, Class R-II and Class R-III
Certificates are not offered hereby. The Pass-Through Rates on the Class F,
Class G and Class NR Certificates will equal the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans. The Class
Balances on the Class F, Class G and Class NR Certificates will equal
$26,069,000, $18,048,000, and $12,036,989, respectively, and approximately
$56,153,989, in the aggregate. The Class R-I, Class R-II and Class R-III
Certificates will not have a Pass-Through Rate or a Class Balance.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Trustee, the Master Servicer,
the Special Servicer, the Primary Servicers, or any affiliate thereof.
In addition to the payment priorities described under "-- Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Realized Losses
on the Mortgage Loans will be allocated, first, to the Other Certificates,
second, to the Class E Certificates, third, to the Class D Certificates, fourth,
to the Class C Certificates, fifth, to the Class B Certificates, in each case
until the related Class Balance is reduced to zero; and thereafter, to the Class
A1 and Class A2 Certificates. The Class Balance of a class of Certificates will
be reduced by the principal portion of any Realized Losses allocated to such
class.
In addition to Realized Losses, shortfalls will also occur as a result of
each Servicer's right to receive payments of interest with respect to
unreimbursed advances, the Special Servicer's right to compensation with respect
to Mortgage Loans which are or have been Specially Serviced Mortgage Loans and
as a result of other Trust Fund expenses. Such shortfalls will be allocated as
described above to the classes of Certificates with the lowest payment priority
for purposes of the application of Available Distribution Amount in the order
described herein.
Within 30 days after the earliest to occur of (i) 90 days after the date on
which an uncured delinquency occurs in respect of a Mortgage Loan, (ii) 60 days
after the date on which a receiver is appointed (if such appointment remains in
effect during such 60-day period) in respect of a Mortgaged Property, (iii) as
soon as
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reasonably practical after the date on which a Mortgaged Property becomes an REO
Property or (iv) the date on which a change in the payment rate, Mortgage
Interest Rate, principal balance, amortization terms or Maturity Date of any
Specially Serviced Mortgage Loan becomes effective, an appraisal will be
obtained by the Special Servicer from an independent MAI appraiser at the
expense of the Trust Fund (except if an appraisal has been conducted within the
12 month period preceding such event). As a result of such appraisal, a
Collateral Value Adjustment may result, which Collateral Value Adjustment will
be allocated, for purposes of determining distributions of interest to the
Certificates, in the manner and priority described above with respect to
Realized Losses. Notwithstanding the foregoing, a Collateral Value Adjustment
will be zero with respect to such a Mortgage Loan if (i) the event giving rise
to such Collateral Value Adjustment is the extension of the maturity of such
Mortgage Loan, (ii) the payments on such Mortgage Loan were not delinquent
during the twelve month period immediately preceding such extension and (iii)
the payments on such Mortgage Loan are then current, provided, that if at any
later date there occurs a delinquency in payment with respect to such Mortgage
Loan, the Collateral Value Adjustment will be recalculated and applied to the
same extent as it would have been previously applied. In addition, in any case,
upon the occurrence of any event giving rise to a subsequent Collateral Value
Adjustment (including the delinquency referred to in the immediately preceding
sentence) more than twelve months after an appraisal was obtained with respect
to a Collateral Value Adjustment, the Special Servicer will order a new
appraisal as described above, within 30 days of the occurrence of any such event
giving rise to a subsequent Collateral Value Adjustment and will adjust the
amount of the Collateral Value Adjustment in accordance therewith.
The "Collateral Value Adjustment" for any Distribution Date with respect to
any Mortgage Loan will be an amount equal to the excess of (a) the principal
balance of such Mortgage Loan over (b) the excess of (i) 90% of the current
appraised value of the related Mortgaged Property as determined by an
independent MAI appraisal of such Mortgaged Property over (ii) the sum of (A) to
the extent not previously advanced by a Servicer, all unpaid interest on such
Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate, (B) all
unreimbursed Advances and interest thereon, and (C) any unpaid Servicing and
Trustee fees and (D) all currently due and delinquent real estate taxes and
assessments, insurance premiums and, if applicable, ground rents in respect of
such Mortgaged Property (net of any amount escrowed or otherwise available for
payment of the amount due on such Mortgage Loan). The excess of the principal
balance of any Mortgage Loan over the related Collateral Value Adjustment is
referred to herein as the "Adjusted Collateral Value." A Collateral Value
Adjustment shall result in a reduction of the Class Balance of any class of
Certificates solely for the purposes specified herein and shall not be a
permanent reduction of the Class Balance of any class of Certificates prior to
the occurrence of a Realized Loss.
A "Realized Loss," in the case of any Mortgage Loan described in clause (a)
or clause (b) of the succeeding sentence, is equal to the sum of (a) the Stated
Principal Balance of any Loss Mortgage Loan, (b) interest thereon not previously
distributed to Certificateholders through the last day of the month in which
such Mortgage Loan became a Loss Mortgage Loan, (c) any advances made by any
Servicer which remain unreimbursed and (d) any interest accrued on such advances
(see "-- Advances" below) as of such time, reduced by any amounts recovered
thereon as of such time and, in the case of any Mortgage Loan described in
clause (c) of the succeeding sentence, is the amount determined to have been
permanently forgiven as described in such clause (c). A "Loss Mortgage Loan" is
any Mortgage Loan (a) which is finally liquidated, (b) with respect to which the
Master Servicer or the Special Servicer has determined that an advance which has
been made or would otherwise be required to be made, is not, or, if made, would
not be, recoverable out of proceeds on such Mortgage Loan or (c) with respect to
which a portion of the principal balance thereof has been permanently forgiven
whether pursuant to a modification or a valuation resulting from a proceeding
initiated under the Bankruptcy Code. The "Stated Principal Balance" of any
Mortgage Loan as of any date of determination is the principal balance as of the
Cut-off Date minus the sum of (i) the principal portion of each Monthly Payment
due on such Mortgage Loan after the Cut-off Date, to the extent received from
the Mortgagor or advanced and distributed to Certificateholders, and (ii) any
unscheduled amounts of principal received with respect to such Mortgage Loans,
to the extent distributed to Certificateholders.
To the extent any amount on a Mortgage Loan with respect to which a
Collateral Value Adjustment was required is recovered in excess of the Adjusted
Collateral Value (after giving effect to all other amounts
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previously collected with respect thereto), such amount will be distributed to
each holder of a class of Certificates to which a Collateral Value Adjustment
has been allocated, in the order of payment described hereinabove up to an
amount equal to interest accrued on the sum of any Collateral Value Adjustment
allocated to such class of Certificates in reduction of the Class Balance
thereof at the Pass-Through Rate in effect during such applicable Collection
Period from the date of such allocation to the end of the Collection Period in
which such an amount is recovered. The Class Balance of each such class shall be
increased by the amount of such excess over such interest payment in the order
of payment described hereinabove. Any reduction of the Class Balance (or
Notional Amount) of a class of Certificates following a Collateral Value
Adjustment and any increase thereof following an excess recovery will affect the
Percentage Interest and the calculation of any interest or voting right of such
class of Certificates.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or funds
held in the Master Collection Account (as defined herein) that are not required
to be part of the Available Distribution Amount for such Distribution Date or to
remit any advances made by the related Primary Servicer or the Special Servicer
(each, a "P&I Advance"), in an amount equal to the excess of all Monthly
Payments (net of the Servicing Fee) due over the amount actually received,
subject to the limitations described herein. In addition, each Servicer will be
required to advance certain property related expenses. The Servicers generally
may not advance any amounts, other than P&I Advances, unless such advance is
contemplated in the related Asset Strategy Report (as defined herein) for the
related Mortgage Loan or such advance is for one of several purposes specified
in the Pooling and Servicing Agreement as "Property Protection Expenses." All
such advances will be reimbursable to the related Servicer from late payments,
insurance proceeds, liquidation proceeds, condemnation proceeds or amounts paid
in connection with the purchase of such Mortgage Loan or, as to any such advance
that is deemed not otherwise recoverable, from any amounts on deposit in the
Primary Collection Account or the Master Collection Account to the extent such
amounts are not required to be otherwise applied pursuant to the terms of the
related Mortgage Loan. Notwithstanding the foregoing, the Master Servicer will
be obligated to make any such advance only to the extent that it determines in
its reasonable good faith judgment that such advance, if made, would be
recoverable out of net proceeds (including any amounts escrowed with respect to
the related Mortgage Loan net of any reasonably anticipated expenses payable
therefrom) on the related Mortgage Loan. None of the Servicers will be required
to advance the full amount of any Balloon Payment not made by the related
Mortgagor. To the extent a Servicer is required to make a P&I Advance on and
after the Due Date for such Balloon Payment, such P&I Advance shall not exceed
an amount equal to a monthly payment calculated by the Special Servicer
necessary to fully amortize the related Mortgage Loan over the period used for
purposes of calculating the scheduled monthly payments thereon prior to the
related Maturity Date. Any failure by the Master Servicer to make an advance as
required under the Pooling and Servicing Agreement will constitute an event of
default thereunder, in which case the Trustee will be obligated to make any
required advance, in accordance with the terms of the Pooling and Servicing
Agreement.
Each Servicer shall be entitled to interest on the aggregate amount of all
advances made by such Servicer at a per annum rate equal to the prime rate
reported in The Wall Street Journal. See "Risk Factors -- Effect of Mortgagor
Delinquencies and Defaults" herein.
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by the
rate of principal payments on the Mortgage Loans including, for this purpose,
prepayments, which may include amounts received by virtue of repurchase,
condemnation, casualty or foreclosure. The rate of principal payments on the
Offered Certificates will correspond to the rate of principal payments
(including prepayments) on the related Mortgage Loans.
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Each Mortgage Loan either prohibits voluntary prepayments during a certain
number of years following the origination thereof and/or allows the related
Mortgagor to prepay the principal balance thereof in whole during a certain
number of years following the origination if accompanied by payment of a
Prepayment Premium. See Annex A hereto and the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under "Description of the Mortgage
Pool -- Certain Characteristics of the Mortgage Loan" herein. Any Net Prepayment
Premium collected on a Mortgage Loan will be distributed to the holders of the
Interest Only Certificates as described herein. See "Special Prepayment
Considerations" below, "Description of the
Certificates -- Distributions -- Interest Distributions on the Certificates" and
"Certain Yield, Prepayment and Maturity Considerations" herein, and "Yield
Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including
prepayments, defaults, liquidations and purchases of Mortgage Loans due to a
breach of a representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Class Balance or Notional Amount of such class.
The yield to maturity on each class of the Offered Certificates will also depend
on the Pass-Through Rate and the purchase price for such Certificates. The yield
to investors on any Class of Offered Certificates will be adversely affected by
any allocation thereto of Prepayment Interest Shortfalls on the Mortgage Loans,
which may result from the distribution of interest only to the date of a
prepayment occurring during any month following the related Determination Date
(rather than a full month's interest) to the extent any such interest shortfall
is not offset by Prepayment Premiums, any Prepayment Interest Excess or the
portion of the Servicing Fee for such Distribution Date allocable to the Master
Servicer.
In general, if a class of Offered Certificates is purchased at a premium
and principal distributions thereon occur at a rate faster than anticipated at
the time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a class of Offered
Certificates is purchased at a discount and principal distributions thereon
occur at a rate slower than that assumed at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase.
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the Special
Servicer may adopt a servicing strategy which affects the yield to maturity of
one or more classes of Offered Certificates.
The Rated Final Distribution Date for the Certificates will be April 25,
2028 which is the second anniversary of the date at which all the Mortgage Loans
have zero balances, assuming no prepayments and that the Mortgage Loans which
are Balloon Loans fully amortize according to their amortization schedule and no
Balloon Mortgage Payment is made.
WEIGHTED AVERAGE LIFE 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. The weighted average life of the Offered Certificates
will be influenced by the rate at which principal payments (including scheduled
payments, principal prepayments and payments made pursuant to any applicable
policies of insurance) on the Mortgage Loans are made. Principal payments on the
Mortgage Loans may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments, partial prepayments
and liquidations due to a default or other dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class A1, Class A2, Class B, Class C, Class D and Class E Certificates at the
respective percentages of CPR set forth below indicates the weighted average
lives of such Certificates and sets forth the percentage of the initial
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated percentages of CPR. The table has been prepared
on the basis of the characteristics of the Mortgage Loans set forth in Annex A
and on the basis of the following assumptions: (i) the Mortgage Loans prepay at
the indicated percentage of CPR when the Mortgage Loans are no longer in their
respective Lock-out Periods; (ii) the maturity date of each of the Balloon
Mortgage Loans is not extended, the Maturity Date for the Crown Hotel Notes is
April 30, 2005 and none of the related Hotel Properties are sold; (iii)
distributions on the Offered Certificates are received in cash, on the 25th day
of each month, commencing in July 1996; (iv) no defaults or delinquencies in, or
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modifications, waivers or amendments respecting, the payment by the Mortgagors
of principal and interest on the Mortgage Loans occur; (v) prepayments represent
payment in full of individual Mortgage Loans and are received on the respective
Due Dates and include a month's interest thereon; (vi) there are no repurchases
of Mortgage Loans due to breaches of any representation and warranty, or
pursuant to an optional termination as described under "Description of the
Pooling and Servicing Agreement -- Termination" or otherwise; and (vii) the
Offered Certificates are purchased on June , 1996.
Based on the foregoing assumptions, the table indicates the weighted
average lives of the Class A1, Class A2, Class B, Class C, Class D and Class E
Certificates and sets forth the percentages of the initial Class Balance of each
such class of Offered Certificates that would be outstanding after the
Distribution Date in June of each of the years indicated, at various percentages
of CPR. Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans included in the Mortgage Pool. Variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentage of initial Class Balance (and weighted
average life) shown in the following table. Such variations may occur even if
the average prepayment experience of all such Mortgage Loans is the same as any
of the specified assumptions.
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A1 CLASS A2 CLASS B CLASS C
DISTRIBUTION --------------------------- --------------------------- --------------------------- ---------------------------
DATE 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6% 0% 2% 4% 6%
- -------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CLASS D CLASS E
DISTRIBUTION --------------------------- ---------------------------
DATE 0% 2% 4% 6% 0% 2% 4% 6%
- -------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) The weighted average life of a class of Offered Certificates is determined
by (i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the total principal
distributions on such class of Certificates.
INTEREST ONLY CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Interest Only Certificates
to both the timing of receipt of prepayments and the overall rate of principal
prepayments and defaults on the Mortgage Loans will be offset to some extent by
the payment of a portion of any Net Prepayment Premium to the Interest Only
Certificates entitled thereto. No such offset is available following a default
on a Mortgage Loan.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Interest Only Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments on
the Interest Only Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in clauses (i) through (vii) in the second paragraph preceding the
table entitled "Percent of Initial Class Balance Outstanding at the Following
Percentages of CPR" under the heading "Certain Yield, Prepayment and Maturity
Considerations -- Weighted Average Life of the Offered Certificates" herein,
including the assumptions regarding the characteristics and performance of the
Mortgage Loans which differ from the actual characteristics and performance
thereof and assuming the aggregate purchase prices and Pass-Through Rates set
forth below and assuming further that the initial Notional Amounts of the
Interest Only Certificates are as set forth herein. The yield maintenance
calculations are based on the market yield on June , 1996 of actively traded
Treasury securities of appropriate maturities. 75% of any Net Prepayment Premium
will be allocated to the Class A1X Certificates through the Distribution Date on
which the Class Balance of the Class A1 Certificates has been reduced to zero.
Thereafter, 75% of any Net Prepayment Premium will be allocated to the Class A2X
Certificates through the Distribution Date on which the Class Balance of the
Class A2 Certificates has been reduced to zero. Thereafter, 75% of any Net
Prepayment Premium will be allocated to the Class BX
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Certificates through the Distribution Date on which the Class Balance of the
Class B Certificates has been reduced to zero. Thereafter, 75% of any Net
Prepayment Premium will be allocated to the Class CX Certificates through the
Distribution Date on which the Class Balance of the Class C Certificates has
been reduced to zero. Any differences between such assumptions and the actual
characteristics and performance of the Mortgage Loans and of the Certificates
may result in yields being different from those shown in such tables.
Discrepancies between assumed and actual characteristics and performance
underscore the hypothetical nature of the tables, which are provided only to
give a general sense of the sensitivity of yields in varying prepayment
scenarios.
PRE-TAX YIELD TO MATURITY OF THE CLASS A1X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE -------------------------------
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE 0% 2% 4% 6%
- ----------------------- ------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS A2X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE -------------------------------
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE 0% 2% 4% 6%
----------------------- ------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS BX CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE -------------------------------
NOTIONAL AMOUNT 0% 2% 4% 6%
----------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
% % % % %
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS CX CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE -------------------------------
NOTIONAL AMOUNT 0% 2% 4% 6%
----------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
% % % % %
</TABLE>
Each pre-tax yield to maturity set forth in the preceding tables was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Interest Only Certificates would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price listed in the corresponding table. Accrued interest
is included in the assumed
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<PAGE> 55
purchase price of each class of Interest Only Certificates and is used in
computing the corporate bond equivalent yields shown. These yields do not take
into account the different interest rates at which investors may be able to
reinvest funds received by them as distributions on the Interest Only
Certificates, and thus do not reflect the return on any investment in the
Interest Only Certificates when, as applicable, any reinvestment rates other
than the discount rates set forth in the preceding tables are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Interest
Only Certificates is likely to differ from those shown in the tables, even if
all of the Mortgage Loans prepay at the indicated constant percentages of CPR
over any given time period or over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Interest Only Certificates will conform
to the yields described herein. Moreover, the various remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of CPR specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that an extremely rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments. In addition, holders of the Class A1X and
Class A2X Certificates generally have rights to relatively larger portions of
interest payments on Mortgage Loans with higher Mortgage Interest Rates; thus,
the yield on the Class A1X and Class A2X Certificates will be materially
adversely affected to a greater extent than on the other Interest Only
Certificates if the Mortgage Loans with higher Mortgage Interest Rates prepay
faster than the Mortgage Loans with lower Mortgage Rates.
For additional considerations relating to the yield on the Certificates,
see "Yield Considerations" in the Prospectus.
CLASS C, CLASS CX, CLASS D AND CLASS E YIELD CONSIDERATIONS
If the Class Balances of the Other Certificates are reduced to zero, the
yield to maturity on the Class E Certificates will become extremely sensitive to
losses on the Mortgage Loans (and the timing thereof), because the entire amount
of such losses will be allocated to the Class E Certificates. The aggregate
initial Class Balance of the Other Certificates is equal to approximately 14% of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If
the Class Balances of the Other Certificates and the Class E Certificates are
reduced to zero, the yield to maturity on the Class D Certificates will become
extremely sensitive to losses on the Mortgage Loans (and the timing thereof),
because the entire amount of such losses will be allocated to the Class D
Certificates. The aggregate initial Class Balance of the Class E and the Other
Certificates is equal to approximately 16% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date. If the Class Balances of the Other
Certificates, the Class E and the Class D Certificates are reduced to zero, the
yield to maturity on the Class C and Class CX Certificates will become extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), because the
entire amount of such losses will be allocated to the Class C and Class CX
Certificates. The aggregate initial Class Balance of the Class D, Class E and
Other Certificates is equal to approximately 19.5% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
The Special Servicer will be entitled to receive, with respect to each
Specially Serviced Mortgage Loan compensation in the form of a percentage of
collections and a percentage of the outstanding principal balance of any
Specially Serviced Mortgage Loan which is returned to a performing status prior
to the right of Certificateholders to receive distributions on the Certificates.
Such compensation will result in shortfalls which will be allocated to the
Certificates in the manner provided for Realized Losses. Consequently it is
possible that shortfalls will be allocated to the Offered Certificates with
respect to any Specially Serviced Mortgage Loan notwithstanding the fact that
such Mortgage Loan is returned to a performing status. See "Servicing --
Servicing and Other Compensation and Payment of Expenses" herein.
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The information set forth herein concerning the services has been provided
by the related Servicer. Neither the Depositor nor any other person makes any
representation or warranty as to the accuracy or completeness of such
information.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of principal payments and Realized
Losses. Investors in the Class C and Class CX Certificates and particularly the
Class D and Class E Certificates should fully consider to risk that Realized
Losses on the Mortgage Loans could result in a failure of such investors to
fully recover their investments. See "Yield Considerations" in the Prospectus.
SERVICING
SERVICERS
AMRESCO Management, Inc. AMRESCO Management, Inc. ("AMI"), a Texas
corporation, will serve as Primary Servicer for all the Mortgage Loans
originated by AMRESCO Capital Corporation, other than the Crown Loan.
AMI is a wholly owned subsidiary of AMRESCO, INC. ("AMRESCO"). The
principal offices of AMI are located at 1845 Woodall Rogers Freeway, Suite 1700,
Dallas, Texas 75201. The servicing of all performing loans will be performed by
the AMRESCO Services Division of AMI located in Atlanta, Georgia. As of April
30, 1996, AMRESCO's portfolio consisted of approximately 11,713 loans with an
aggregate principal balance of approximately $13.7 billion.
Banc One Management and Consulting Corporation. Banc One Management and
Consulting Corporation ("BOMCC"), an Ohio corporation, will serve as Primary
Servicer for all the Mortgage Loans not originated by AMRESCO Capital
Corporation or (except with respect to one such Mortgage Loan) Home Savings of
America, FSB and as Master Servicer and Special Servicer for all the Mortgage
Loans.
BOMCC, a wholly-owned subsidiary of Banc One Corporation, is engaged in the
asset management, servicing, liquidation, collection, asset valuation and
consulting and related activities with nonaffiliated companies and governmental
entities, including the Federal Deposit Insurance Corporation and Resolution
Trust Corporation. BOMCC's operating office is located in Dallas, Texas, and
BOMCC has managed and serviced real estate assets in all 50 states, the District
of Columbia and Puerto Rico.
As of March 31, 1996, BOMCC was responsible for managing and servicing of
approximately 7,104 assets, consisting of loans, foreclosed real estate assets
and other assets with a total principal balance in excess of $4.6 billion of
which $.71 billion is administered under special servicing contracts. BOMCC has
provided servicing in some capacity for 15 portfolios securing commercial
mortgage backed securities.
GMAC Commercial Mortgage Corporation. GMAC Commercial Mortgage Corporation,
a California corporation ("GMACCM"), will act as Primary Servicer with respect
to the Mortgage Loans originated by Home Savings of America, FSB except for one
such Mortgage Loan. As of April 30, 1996, GMACCM had a net worth of
approximately $35.5 million and a total commercial and multifamily mortgage loan
servicing portfolio (including mortgage loans serviced for its own account and
for others) of approximately $15.3 billion. GMACCM's principal executive offices
are located at 650 Dresher Road, P.O. Box 1015, Horsham, Pennsylvania
19044-8015, and its telephone number is (215) 682-GMAC (4622). GMACCM conducts
operations from its headquarters in Pennsylvania and from offices located in
California, Colorado, Maryland, Illinois, Michigan, Minnesota, Missouri,
Nebraska, New York, Ohio, Texas, Virginia, Washington and Wisconsin.
The information set forth herein concerning the Servicers has been provided
by the related Servicer. Neither the Depositor nor any other person makes any
representation or warranty as to the accuracy or completeness of such
information.
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RESPONSIBILITIES OF MASTER SERVICER AND PRIMARY SERVICER
Under the Servicing Agreements, the Master Servicer and each Primary
Servicer are required to service and administer the Mortgage Loans solely on
behalf of and in the best interests of and for the benefit of the
Certificateholders, in accordance with the terms of the Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the higher
of (a) the standard of care, skill, prudence and diligence with which the Master
Servicer and each Primary Servicer, respectively, service and administer
mortgage loans that are held for other portfolios that are similar to the
Mortgage Loans and (b) the standard of care, skill, prudence and diligence with
which the Master Servicer and each Servicer, respectively, service and
administer mortgage loans for their own portfolio and are similar to the
Mortgage Loans, in either case, giving due consideration to customary and usual
standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events (each, a "Servicing Transfer Event"), including the following:
(i) the Mortgage Loan becomes a "Defaulted Mortgage Loan" because it is more
than 60 days delinquent in whole or in part in respect of any monthly payment or
is delinquent in whole or in part in respect of the related Balloon Payment;
(ii) the related Mortgagor has entered into or consented to bankruptcy,
appointment of a receiver or conservator or a similar insolvency or similar
proceeding, or the Mortgagor 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; (iii) the Master Servicer or the Primary Servicer shall
have received notice of the foreclosure or proposed foreclosure of any other
lien on the Mortgaged Property; (iv) in the judgment of the Master Servicer or
the Primary Servicer, a payment default has occurred and is not likely to be
cured by the related Mortgagor within 60 days; (v) the related Mortgagor 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; (vi) any other material default has in the
Master Servicer's or the Primary Servicer's judgment occurred which is not
reasonably susceptible to cure within the time periods and on the conditions
specified in the related mortgage; (vii) the related Mortgaged Property becomes
an REO Property; (viii) if for any reason, the Primary Servicer cannot enter
into an assumption agreement upon the transfer by the related Mortgagor of the
mortgage; or (ix) an event has occurred which has materially and adversely
affected the value of the related Mortgaged Property in the reasonable judgment
of the Master Servicer or the Primary Servicer. A Mortgage Loan serviced by the
Special Servicer is referred to herein as a "Specially Serviced Mortgage Loan".
The Special Servicer will collect certain payments on such Specially Serviced
Mortgage Loans and make certain remittances to, and prepare certain reports for
the Master Servicer with respect to such Mortgage Loans. The Master Servicer
shall have no responsibility for the performance by the Special Servicer of its
duties under the Pooling and Servicing Agreement provided that the Master
Servicer continues to perform certain servicing functions on such Specially
Serviced Mortgage Loans and, based on the information provided to it by the
Special Servicer, prepares certain reports to the Trustee with respect to such
Specially Serviced Mortgage Loans. To the extent that any Mortgage Loan, in
accordance with its original terms or as modified in accordance with the Pooling
and Servicing Agreement, becomes a performing Mortgage Loan for a least three
consecutive months, the Special Servicer will return servicing of such Mortgage
Loan to the Primary Servicer.
Under the Pooling and Servicing Agreement the Special Servicer is required
to service, administer and dispose of Specially Serviced Mortgage Loans solely
in the best interests of and for the benefit of the Certificateholders, in
accordance with the Pooling and Servicing Agreement and the Mortgage Loans and
to the extent consistent with such terms, with the higher of (a) the standard of
care, skill, prudence and diligence with which the Special Servicer services,
administers and disposes of, distressed mortgage loans and related real property
that are held for other portfolios that are similar to the Mortgage Loans,
Mortgaged Property and REO Property and (b) the standard of care, skill,
prudence and diligence with which the Special Servicer services, administers and
disposes of distressed mortgage loans and related real property for its own
portfolio
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and are similar to the Mortgage Loans, Mortgage Property and REO Property,
giving due consideration to customary and usual standards of practice of prudent
institutional multifamily and commercial mortgage lenders, loan servicers and
asset managers, so as to maximize the net present value of recoveries on the
Mortgage Loans.
The Special Servicer shall have full power and authority to do any and all
things in connection with servicing and administering a Mortgage Loan that it
may deem in its best judgment necessary or advisable, including, without
limitation, to execute and deliver on behalf of the Trust Fund any and all
instruments of satisfaction or cancellation or of partial release or full
release or discharge and all other comparable instruments, to reduce the related
Mortgage Interest Rate, and to defer or forgive payment of interest and/or
principal with respect to any Specially Serviced Mortgage Loan or any Mortgaged
Property. The Special Servicer may not permit a modification of any Mortgage
Loan to extend the scheduled maturity date of any Specially Serviced Mortgage
Loan more than three years beyond the scheduled maturity date thereof as of the
Cut-off Date without the consent of the Extension Advisor. See "-- Extension
Advisor" below. Notwithstanding the forgoing, the Special Servicer may not
permit any such modification with respect to a Balloon Mortgage Loan if it
results in the extension of such maturity date beyond the amortization term of
such Balloon Mortgage Loan absent the related Balloon Payment. The Special
Servicer will prepare a report (an "Asset Strategy Report") for each Mortgage
Loan which becomes a Specially Serviced Mortgage Loan not later than thirty (30)
days after the servicing of such Mortgage Loan is transferred to the Special
Servicer. Each Asset Strategy Report will be delivered to each holder of a Class
F, Class G and Class NR Certificate upon request. The holders of the fewest
number of classes of Certificates representing the most subordinate interests in
the Trust Fund that equals at least a 2% interest therein (the "Monitoring
Certificateholders") will designate one Monitoring Certificateholder pursuant to
the Pooling and Servicing Agreement (the "Directing Certificateholder"). Each
Asset Strategy Report will be delivered to the Directing Certificateholder. The
Directing Certificateholder may object to any Asset Strategy Report within 10
business days of receipt. If the Directing Certificateholder does not disapprove
an Asset Strategy Report within 10 business days, the Special Servicer shall
implement the recommended action as outlined in such Asset Strategy Report. If
the Directing Certificateholder disapproves such Asset Strategy Report and the
Special Servicer has not made the affirmative determination described below, the
Special Servicer will revise such Asset Strategy Report as soon as practicable.
The Special Servicer will revise such Asset Strategy Report until the Directing
Certificateholder fails to disapprove such revised Asset Strategy Report;
provided, however, that the Special Servicer shall implement the recommended
action as outlined in such Asset Strategy Report if it makes an affirmative
determination that such objection is not in the best interest of all
Certificateholders. In connection with making such affirmative determination,
the Special Servicer may request a vote by all the Certificateholders. Any
Certificateholder may request and obtain a copy of any Asset Strategy Report
subject to delivery of a certificate acknowledging certain possible limitations
with respect to the use of such report imposed by U.S. securities laws.
EXTENSION ADVISOR
The Extension Advisor will be responsible for approving any proposed
Mortgage Loan modification that extends the maturity date of a Mortgage Loan by
more than three (3) years beyond the scheduled maturity date of such loan as of
the Cut-off Date. The initial Extension Advisor, acting on behalf of the holders
of the Offered Certificates, shall only grant such approvals if it shall have
determined that the decision of the Special Servicer to so modify the Mortgage
Loan is consistent with the Special Servicer standard set forth in the Pooling
and Servicing Agreement. Any subsequent Extension Advisor may grant such
approvals if it shall have determined that the decision of the Special Servicer
to so modify the Mortgage Loan is in the best interest of the Holders of the
Offered Certificates.
The initial Extension Advisor will be State Street Bank and Trust Company.
The responsibility of State Street Bank and Trust Company as Extension Advisor
shall be carried out by the Real Estate Division of the Commercial Banking
Services Area of such bank. At any time, the holders of a majority of the
outstanding aggregate Certificate Principal Balance of the Offered Certificates
may remove the Extension Advisor. In such event, the Trustee will so inform such
Certificateholders, and a majority of Certificate Principal Balance of the
holders of such Certificates shall have the right to appoint a replacement
Extension Advisor.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and each
respective Primary Servicer in respect of their servicing activities will be the
Servicing Fee. The Servicing Fee will be payable monthly and will accrue at the
applicable Servicing Fee Rate and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on such Mortgage Loan is computed. The "Servicing Fee Rate" for any
Mortgage Loan will be the sum of the fee payable to the Master Servicer and the
fee payable to the Primary Servicer as described below. The fee payable to the
Master Servicer with respect to the Mortgage Loans will equal 0.03% per annum.
The fee payable to AMI and BOMCC as Primary Servicer with respect to the
Mortgage Loans will be 0.07% per annum, except with respect to the Crown Loan.
The fee payable to BOMCC as Primary Servicer of the Crown Loan will be 0.125%
per annum. The fee payable to GMACCM as Primary Servicer will be 0.125% per
annum.
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicing Fee. The Special
Servicing Fee will be payable monthly only from amounts received in respect of
each Specially Serviced Mortgage Loan. The Special Servicing Fee will equal
1.00% of all amounts collected with respect to any Specially Serviced Mortgage
Loans and any Mortgage Loan which became a Specially Serviced Mortgage Loan and
was subsequently returned to a performing status.
CONFLICTS OF INTEREST
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans held by the Trust Fund. To the
extent that any mortgage loans owned and/or serviced by the Special Servicer or
its affiliates are similar to the Mortgage Loans held by the Trust Fund, the
mortgaged properties related to such mortgage loans may, depending upon certain
circumstances such as the location of the mortgaged property, compete with the
Mortgaged Properties related to the Mortgage Loans held by the Trust Fund for
tenants, purchasers, financing and similar resources.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of June 1, 1996 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Following are summaries of certain provisions of the
Pooling and Servicing Agreement. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. The Trustee will provide to a
prospective or actual Certificateholder without charge, upon written request, a
copy (without exhibits) of the Pooling and Servicing Agreement. Requests should
be addressed to State Street Bank and Trust Company, 2 International Place,
Boston, Massachusetts, 02110, Attention: Corporate Trust Department.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, MGT will assign or cause to be assigned
the Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. On or prior to the Delivery Date, the Depositor will, as to
each Mortgage Loan (other than the Crown Hotel Notes), deliver to the Trustee
(or the Custodian), among other things, the following documents (collectively,
as to such Mortgage Loan, the "Mortgage Loan File"): (i) the original Mortgage,
and any intervening assignments thereof, in each case with evidence of recording
thereon or in case such documents have not been returned by the applicable
recording office, certified copies thereof; (ii) the original or, if accompanied
by a "lost note" affidavit, a copy of the Mortgage Note, endorsed by MGT,
without recourse, in blank or to the order of Trustee; (iii) an assignment of
the Mortgage, executed by MGT, in blank or to the order of the Trustee, in
recordable form; (iv) originals or certified copies of any related assignment of
leases, rents and profits and any related security agreement (if, in either
case, such item is a document separate from the Mortgage) and any intervening
assignments of each such document or instrument; (v) assignments of any related
assignment of leases, rents and profits and any
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related security agreement (if, in either case, such item is a document separate
from the Mortgage), executed by MGT, in blank or to the order of the Trustee;
(vi) originals or certified copies of all assumption, modification and
substitution agreements in those instances where the terms or provisions of the
Mortgage or Mortgage Note have been modified or the Mortgage or Mortgage Note
has been assumed; and (vii) the originals or certificates of a lender's title
insurance policy issued on the date of the origination of such Mortgage Loan or,
with respect to each Mortgage Loan not covered by a lender's title insurance
policy, an attorney's opinion of title given by an attorney licensed to practice
law in the jurisdiction where the Mortgaged Property is located; (viii)
originals or copies of any UCC financing statements; (ix) originals or copies of
any guaranties related to such Mortgage Loan; (x) originals or copies of
insurance policies related to the Mortgaged Property; (xi) originals or
certified copies of any environmental liabilities agreement; (xii) originals or
copies of any escrow agreements; (xiii) original or certified copies of any
prior assignments of mortgage if the Originator is not the originator of record;
(xiv) any collateral assignments of property management agreements and other
servicing agreements; (xv) the documents specified in the Underwriting
Guidelines for the due diligence investigation to be performed by or on behalf
of the Originator pursuant to the Mortgage Loan Purchase Agreement; (xvi) any
appraisals of the Mortgaged Property; (xvii) a physical assessment report of the
Mortgaged Property; (xviii) an environmental site assessment of the Mortgaged
Property; (xix) originals or certified copies of any lease subordination
agreements and tenant estoppels; and (xx) any opinions of borrower's counsel,
and, as to the Crown Hotel Notes, deliver to the Trustee (or the Custodian), the
Crown Participation and the Participation Agreement. The Pooling and Servicing
Agreement will require the Depositor to cause each assignment of the Mortgage
described in clause (iv) above to be submitted for recording in the real
property records of the jurisdiction in which the related Mortgaged Property is
located. Any such assignment delivered in blank will be completed to the order
of the Trustee prior to recording. The Pooling and Servicing Agreement will also
require the Depositor to cause the endorsements on the Mortgage Notes delivered
in blank to be completed to the order of the Trustee.
TRUSTEE
State Street Bank and Trust Company shall serve as Trustee under the
Pooling and Servicing Agreement pursuant to which the Certificates are being
issued. Except in circumstances such as those involving defaults (when it might
request assistance from other departments in the bank), its responsibilities as
trustee are carried out by its Corporate Trust Department. Its principal
corporate trust office is located at 5th Floor, Two International Place, Boston,
Massachusetts 02110.
COLLECTION ACCOUNTS AND CERTIFICATE ACCOUNT
The Primary Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the Primary
Servicer as additional servicing compensation, into a separate Collection
Account (the "Primary Collection Account") maintained by the Primary Servicer
for the Trust Fund. On the third business day preceding each Distribution Date,
the Primary Servicer shall remit all amounts in the Primary Collection Account
to the Master Servicer for deposit into a separate Collection Account (the
"Master Collection Account") maintained by the Master Servicer for the Trust
Fund. The Master Servicer is required to deposit on the business day preceding
each Distribution Date all amounts received with respect to the Mortgage Loans
into a separate account (the "Certificate Account") maintained with the Trustee.
Interest or other income earned on funds in the Primary Collection Account or
the Master Collection Account will be paid to the Servicer maintaining such
account as additional servicing compensation. See "Description of the Trust
Funds -- Mortgage Loans" and "Description of the Agreements -- Distribution
Account and Other Collection Accounts" in the Prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Trustee shall furnish to each
Certificateholder, to the Depositor and to each Rating Agency a statement
setting forth certain information with respect to the Mortgage Loans and the
Certificates required pursuant to the Pooling and Servicing Agreement and in the
form of Annex B hereto. In addition, within a reasonable period of time after
each calendar year, the Trustee shall furnish to each person
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who at any time during such calendar year was the holder of a Certificate a
statement containing certain information with respect to the Certificates
required pursuant to the Pooling and Servicing Agreement, aggregated for such
calendar year or portion thereof during which such person was a
Certificateholder. Unless and until Definitive Certificates are issued, such
statements or reports will be furnished only to Cede & Co., as nominee for DTC;
provided, however, that the Trustee shall furnish a copy of any such statement
or report to any Beneficial Owner which requests such copy and certifies to the
Trustee that it is the Beneficial Owner of a Certificate. The Trustee shall
furnish a copy of any such statement or report to any person who requests it for
a nominal charge. Any person may call the Master Servicer at 214-290-2674 in
order to inquire as to how to obtain such statement or report. Such statement or
report may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participants. Any Asset Strategy Report shall
be delivered by the Trustee upon request to any Beneficial Owner of an Offered
Certificate subject to the second preceding sentence and the receipt by the
Trustee of a certificate acknowledging certain limitations with respect to the
use of such statement or report. See "Description of the Certificates -- Reports
to Certificateholders" in the Prospectus. The Directing Certificateholder shall
receive all reports prepared or received by the Master Servicer or the Special
Servicer. In addition, each other Certificateholder may obtain all such reports
at its expense from the Master Servicer.
VOTING RIGHTS
At all times during the term of this Agreement, 95.0% of all Voting Rights
shall be allocated among the classes of Certificates (other than the Interest
Only Certificates) in proportion to the respective Class Balances, 1.00% of all
Voting Rights shall be allocated to each class of Interest Only Certificates and
.33 1/3% of all Voting Rights shall be allocated to each class of Residual
Certificates. Voting Rights allocated to a class of Certificates shall be
allocated among the holders of such class in proportion to the Percentage
Interests evidenced by their respective Certificates.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or Indirect
Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the purchase
of all of the assets of the Trust Fund by any of the Master Servicer, the
Special Servicer, any holder of a Class R-I Certificate, the holders of an
aggregate Percentage Interest in excess of 50% of the Most Subordinate Class of
Certificates and (to the extent all of the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) the Primary Servicer. The "Most
Subordinate Class of Certificates" at the time of determination shall be the
class of Certificates to which Realized Losses would be allocated at such time
as described under "Description of the Certificates -- Subordination" herein.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at the office of the
Certificate Registrar specified in such notice of termination.
Any such purchase of all the Mortgage Loans and other assets in the Trust
Fund is required to be made at a price equal to the greater of (1) the aggregate
fair market value of all the Mortgage Loans and REO Properties then included in
the Trust Fund, determined pursuant to the Pooling and Servicing Agreement, and
(2) the aggregate Class Balance of all the Certificates plus accrued and unpaid
interest thereon. Such purchase will effect early retirement of the then
outstanding Certificates, but the right to effect such termination is subject to
the requirement that the aggregate Stated Principal Balance of the Mortgage
Loans then in the Trust Fund is less than 5% of the aggregate principal balance
of the Mortgage Loans as of the Cut-off Date.
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USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Brown & Wood, counsel to the Depositor. This summary
is based on laws, regulations, including the REMIC regulations promulgated by
the Treasury Department (the "REMIC Regulations"), rulings and decisions now in
effect or (with respect to regulations) proposed, all of which are subject to
change either prospectively or retroactively. This summary does not address the
federal income tax consequences of an investment in Offered Certificates
applicable to all categories of investors, some of which (for example, banks and
insurance companies) may be subject to special rules. Prospective investors
should consult their tax advisors regarding the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
Offered Certificates.
Three separate real estate mortgage investment conduit ("REMIC") elections
will be made with respect to the Trust Fund for federal income tax purposes.
Upon the issuance of the Certificates, Brown & Wood, counsel to the Depositor,
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the Pooling and Servicing Agreement, for federal income tax
purposes, the REMIC I, REMIC II and REMIC III (each as defined in the Pooling
and Servicing Agreement) will qualify as a REMIC under the Code.
For federal income tax purposes, the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, the Class R-II Certificates will
be the sole class of "residual interests" in REMIC II, the Offered Certificates
and the Class F, Class G and Class NR Certificates will be "regular interests"
of REMIC III and will be treated as debt instruments of the REMIC III, and the
Class R-III Certificates will be the sole class of "residual interests" in REMIC
III.
See "Certain Federal Income Tax Consequences -- REMICs" in the Prospectus.
The Interest Only Certificates will, and the other classes of Offered
Certificates may, be treated as having been issued with original issue discount
for federal income tax reporting purposes. For purposes of computing the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes it will be assumed that there are no prepayments on
the Mortgage Loans, other than the Crown Loan, and that there are no prepayments
on the Crown Loan until April 30, 2005 when, it is assumed, the Crown Loan will
prepay in full. No representation is made that the Mortgage Loans will not
prepay at another rate. See "Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular Certificates" and
"-- Original Issue Discount" in the Prospectus.
Prepayment Premiums allocated to the Certificates will be taxable to the
holders of such Certificates on the date the amount of such premiums becomes
fixed.
The Offered Certificates may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of such a class of
Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular Certificates" and
"-- Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code generally in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Offered Certificates are treated as
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"real estate assets" under Section 856(c)(6)(B) of the Code. Moreover, the
Offered Certificates will be "obligation[s]...which... [are] principally secured
by an interest in real property" within the meaning of Section 860G(a)(3)(C) of
the Code. The Offered Certificates will not be considered to represent an
interest in "loans...secured by an interest in real property" within the meaning
of Section 7701 (a)(19)(C)(v) of the Code except in the proportion that the
assets of the Trust Fund are represented by Mortgage Loans secured by
multifamily apartment buildings. See "Certain Federal Income Tax
Consequences -- REMICs -- Characterization of Investments in REMIC Certificates"
in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences" in
the Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered 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 tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code should carefully review with its legal advisors whether the purchase or
holding of any Class of Offered Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA or Section
4975 of the Code.
The U.S. Department of Labor issued an individual exemption, Prohibited
Transaction Exemption 90-23 (the "Exemption"), on May 17, 1990 to J.P. Morgan
Securities Inc., which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Sections 4975(a) and (b) of the Code
and Section 501(i) of ERISA, certain transactions, among others, relating to the
servicing and operation of mortgage pools and the purchase, sale and holding of
mortgage pass-through certificates underwritten by an Underwriter (as
hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. For purposes of this Section "ERISA Considerations",
the term "Underwriter" shall include (a) J.P. Morgan Securities Inc., (b) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with J.P. Morgan Securities Inc. and (c)
any member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to the Class A1,
Class A1X, Class A2 and Class A2X Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of such Classes of
Offered Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of such Classes of Offered Certificates by certain employee benefit
plans subject to Section 4975 of the Code (each, a "Plan"), must be on terms
(including the price) that are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated party. Second, the rights
and interests evidenced by such Classes of Offered Certificates must not be
subordinate to the rights and interests evidenced by the other certificates of
the same trust. Third, such Classes of Offered Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic rating
categories by Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc. Fourth, the
Trustee cannot be an affiliate of any member of the "Restricted Group," which
consists of the Underwriter, the Depositor, the Master Servicer, the Special
Servicer, each Primary Servicer and any Mortgagor with respect to Mortgage Loans
constituting more than 5% of the aggregate
S-59
<PAGE> 64
unamortized principal balance of the Mortgage Loans as of the date of initial
issuance of such Classes of Offered Certificates. Fifth, the sum of all payments
made to and retained by the Underwriter must represent not more than reasonable
compensation for underwriting such Classes of Offered Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the assignment of
the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer, the Special Servicer and any Primary Servicer
must represent not more than reasonable compensation for such person's services
under the Agreements and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501 (a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class A1, Class A1X, Class A2 and Class A2X Certificates are
not subordinate to any other class of Certificates, the second general condition
set forth above is satisfied with respect to such Certificates. It is a
condition of the issuance of such Classes of Certificates that they be rated
"AAA" by Fitch and either "AAA" or "AAAr" by Standard & Poor's. A fiduciary of a
Plan contemplating purchasing any such Class of Certificates in the secondary
market must make its own determination that at the time of such acquisition, any
such Class of Certificates continues to satisfy the third general condition set
forth above. The Depositor expects that the fourth general condition set forth
above will be satisfied with respect to each of such Classes of Certificates. A
fiduciary of a Plan contemplating purchasing any such Class of Certificate must
make its own determination that the first, third, fifth and sixth general
conditions set forth above will be satisfied with respect to any such Class of
Certificate.
The Class B, Class BX, Class C, Class CX, Class D and Class E do not
satisfy the second condition described above because they are subordinated to
the Class A1, Class A1X, Class A2 and Class A2X Certificates, and furthermore
the Class D and Class E Certificates are not expected to satisfy the third
condition described above.
Before purchasing any such Class of Certificate, a fiduciary of a Plan
should itself confirm (a) that such Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions.
Purchasers using insurance company general account funds to effect such
purchase should consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any such Class of
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA Considerations"
in the Prospectus.
LEGAL INVESTMENT
Upon issuance, the Offered Certificates will not be "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA").
In addition, institutions whose investment activities are subject to review
by certain regulatory authorities may be or may become subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain forms of mortgage-backed securities.
The Depositor makes no representations as to the proper characterization of
the Offered Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase the Offered Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Certificates. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
S-60
<PAGE> 65
should consult with their own legal advisors in determining whether and to what
extent the Offered Certificates constitute a legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter, the Depositor has agreed to sell to
the Underwriter and the Underwriter has agreed to purchase from the Depositor,
upon issuance, the Offered Certificates.
The obligations of the Underwriter under the Underwriting Agreement are
subject to certain conditions precedent and the Underwriter will be obligated to
purchase all of the Offered Certificates if any are purchased.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor from the Offered
Certificates will be % of the initial aggregate principal balance thereof
as of the Cut-off Date, plus accrued interest from the Cut-off Date before
deducting expenses payable by the Depositor. In connection with the purchase and
sale of the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts,
commissions or concessions.
The Depositor also has been advised by the Underwriter that it currently
expects to make a market in the Offered Certificates; however, it has no
obligation to do so, any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop, or if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933.
The Underwriter has agreed to pay the expenses of the Depositor in
connection with the purchase of the Mortgage Loans and the issuance of the
Certificates. The Underwriter is an affiliate of the Depositor.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for the
Underwriter by Brown & Wood, New York, New York; and certain legal matters will
be passed upon for the Depositor and the Underwriter by Andrews & Kurth L.L.P.,
Dallas, Texas.
RATING
It is a condition of issuance of the Class A1 and Class A2 Certificates be
rated "AAA" by Fitch Investors Service, L.P. ("Fitch") and Standard & Poor's
Ratings Services ("Standard & Poor's"). It is a condition of the issuance of the
Class A1X and Class A2X Certificates that they be rated "AAA" by Fitch and
"AAAr" by Standard & Poor's. It is a condition of the issuance of the Class B
Certificates that they be rated not lower than "AA" by Fitch and Standard &
Poor's. It is a condition to the issuance of the Class BX Certificates that they
be rated not lower than "AA" by Fitch and "AAr" by Standard & Poor's. It is a
condition of the issuance of the Class C Certificates that they be rated not
lower than "A" by Fitch and "A-" by Standard & Poor's. It is a condition to the
issuance of the Class CX Certificates that they be rated not lower than "A" by
Fitch and "A-r" by Standard & Poor's. It is a condition of the issuance of the
Class D Certificates that they be rated not lower than "BBB" by Fitch and
Standard & Poor's. It is a condition to the issuance of the Class E Certificates
that they be rated not lower than "BBB-" by Fitch and Standard & Poor's.
The ratings on mortgage pass-through certificates address the likelihood of
the receipt by holders thereof of payments to which they are entitled including
the receipt of all principal payments by the Rated Final Distribution Date. Such
ratings take into consideration the credit quality of the mortgage pool,
structural and
S-61
<PAGE> 66
legal aspects associated with the certificates, and the extent to which the
payment stream in the mortgage pool is adequate to make payments required under
the certificates. Such ratings on the Offered Certificates do not, however,
constitute a statement regarding frequency or likelihood of prepayments (whether
voluntary or involuntary) of the Mortgage Loans, or the degree to which such
prepayments might differ from those originally anticipated, or the likelihood of
the collection of Prepayment Premiums, and do not address the possibility that
Certificateholders might suffer a lower than anticipated yield. The ratings of
the Interest Only Certificates does not address the possibility that the holders
of such Certificates may fail to fully recover their initial investments due to
a rapid rate of prepayments, defaults or liquidations. See "Risk Factors"
herein.
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 Depositor to do so may be lower than
the rating assigned by Fitch or Standard & Poor's pursuant to the Depositor's
request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. Each security rating
should be evaluated independently of any other security rating. A security
rating does not address the frequency or likelihood of prepayments (whether
voluntary or involuntary) of Mortgage Loans, or the corresponding effect on the
yield to investors.
The ratings do not address the fact that the Pass-Through Rates on the
Offered Certificates, to the extent determined based on the Remittance Rates,
may be affected by changes therein.
S-62
<PAGE> 67
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
30/360 Basis........................................................ S-4, S-43
Adjusted Available Distribution Amount.............................. S-4, S-43
Adjusted Collateral Value........................................... S-46
AMI................................................................. S-52
Asset Strategy Report............................................... S-54
Available Distribution Amount....................................... S-42
Balloon Mortgage Loan............................................... S-3
Balloon Payment..................................................... S-3
Beckelbe Loans...................................................... S-38
Beneficial Owner.................................................... S-2, S-41
BOMCC............................................................... S-1, S-52
CAC................................................................. S-35
CAHC................................................................ S-36
CAP................................................................. S-35
Cede................................................................ S-41
CERCLA.............................................................. S-16
Certificate Account................................................. S-56
Certificates........................................................ Cover, S-1
CDHC................................................................ S-35
CHHC................................................................ S-35
Class Balance....................................................... Cover-ii
Code................................................................ S-10
Collateral Value Adjustment......................................... S-46
Crown............................................................... S-34
Crown Hotel Notes................................................... S-34
Crown Loan.......................................................... S-34
Crown Participation................................................. Cover-ii, S-34
Custodian........................................................... S-37
Cut-off Date........................................................ Cover
Cut-off Date LTV Ratio.............................................. S-26
Debt Service Coverage Ratio......................................... S-27
DSCR................................................................ S-27
Defaulted Mortgage Loan............................................. S-53
Definitive Certificate.............................................. S-2, S-41
Depositor........................................................... Cover-ii
Determination Date.................................................. S-5
Directing Certificateholder......................................... S-54
Distribution Date................................................... Cover-ii, S-1, S-42
DTC................................................................. Cover-iii, S-2, S-41
DTC Registered Certificates......................................... S-2, S-41
Due Date............................................................ S-3
ERISA............................................................... S-11, S-59
ESA................................................................. S-16
Exemption........................................................... S-59
Extension Advisor................................................... S-54
Farm Creek Mortgage Loans........................................... S-37
Farm Creek Pool A Loans............................................. S-37
</TABLE>
S-63
<PAGE> 68
<TABLE>
<S> <C>
Farm Creek Pool B Loans............................................. S-38
FCIP................................................................ S-38
FIP................................................................. S-37
Fitch............................................................... Cover-ii, S-11, S-61
FIRREA.............................................................. S-27
Form 8-K............................................................ S-40
GMACCM.............................................................. S-1, S-52
Home Mortgage Loans................................................. S-55
Hotel Properties.................................................... S-34
Interest Accrual Amount............................................. S-4, S-43
Interest Distribution Amount........................................ S-4, S-43
Interest Only Certificates.......................................... Cover-ii
Kings Dominion Loan................................................. S-38
Loan Agreement...................................................... S-34
Loan Sale Agreement................................................. S-21
Lock-out Date....................................................... S-33
Lock-out Period..................................................... S-33
Loss Mortgage Loan.................................................. S-46
Majority Percentage................................................. S-37
Master Collection Account........................................... S-56
Master Servicer..................................................... Cover-ii
Maturity Date LTV Ratio............................................. S-26
Monitoring Certificateholders....................................... S-54
Monthly Payments.................................................... S-3
Mortgage............................................................ S-20
Mortgage Loan File.................................................. S-55
Mortgage Loan Purchase Agreement.................................... S-20
Mortgage Loan(s).................................................... Cover-ii, S-2, S-40
Mortgage Note....................................................... S-20
Mortgage Pool....................................................... Cover-ii, S-2
Mortgaged Properties................................................ S-2
Mortgaged Property.................................................. S-20
Mortgagor........................................................... S-3
Most Subordinate Class of Certificates.............................. S-57
Net Operating Income................................................ S-28
Net Prepayment Premium.............................................. S-44
Notes............................................................... S-34
Notional Amount..................................................... Cover-ii
Offered Certificates................................................ Cover
Originators......................................................... Cover-ii, S-20
Other Certificates.................................................. S-7
P&I Advance(s)...................................................... S-7, S-47
PAR................................................................. S-40
Participant(s)...................................................... S-2, S-37
Participation....................................................... S-37
Participation Agreement............................................. S-34, S-37
Participation Servicer.............................................. S-37
Pass-Through Rate(s)................................................ Cover-ii, S-43
Percentage Interest................................................. S-42
</TABLE>
S-64
<PAGE> 69
<TABLE>
<S> <C>
Plan................................................................ S-59
Pooling and Servicing Agreement..................................... S-3, S-55
Prepayment.......................................................... S-48
Prepayment Interest Excess.......................................... S-44
Prepayment Interest Shortfall....................................... S-44
Prepayment Premium.................................................. S-3, S-33
Primary Collection Account.......................................... S-56
Principal Distribution Amount....................................... S-5, S-44
Properties.......................................................... S-34
Property Protection Expenses........................................ S-47
Rated Final Distribution Date....................................... S-48
Realized Loss....................................................... S-46
Record Date......................................................... S-1
REMIC............................................................... Cover-iii, S-10, S-58
REMIC Regulations................................................... S-58
Remittance Period................................................... S-5
Remittance Rate..................................................... S-43
REO Account......................................................... S-40
REO Property........................................................ S-40
Restricted Group.................................................... S-59
Rules............................................................... S-41
Seller.............................................................. S-37
Servicer............................................................ S-7
Servicing Agreement................................................. S-21
Servicing Fee....................................................... S-55
Servicing Fee Rate.................................................. S-55
Servicing Transfer Event............................................ S-53
SMMEA............................................................... S-12, S-60
Special Servicer.................................................... Cover-ii
Specially Serviced Mortgage Loan.................................... S-10, S-53
Standard & Poor's................................................... Cover-ii, S-11, S-61
Starwood............................................................ S-36
Stated Principal Balance............................................ S-46
Trust Fund.......................................................... Cover-ii
Underwriter......................................................... Cover, S-59
UTD................................................................. S-38
Waterview Park Mortgage Loans....................................... S-38
</TABLE>
S-65
<PAGE> 70
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 71
<TABLE>
<CAPTION>
LOAN PROP
NUMBER PROPERTY NAME PROPERTY ADDRESS PROPERTY CITY STATE
- ------- ------------------------------- -------------------------------------------------- --------------------- -----
<C> <S> <C> <C> <C>
1 Waterview Park Apts 2400 Waterview Parkway Richardson TX
2 The Village at Waterman 715 Putnam Pike Greenville RI
3 Hampden Centre Sporting Hill Rd & Carlisle Pike Mechanicsburg PA
4 Farm Creek Industrial Park 1-4 14830 Persistence Drive Woodbridge VA
5 Delmar Gardens of Smyrna 404 King Springs Village Parkway Smyrna GA
6 St. James Apartments 1710 and 1720 North Fuller Avenue Los Angeles CA
7 Good Homes Plaza 8805-8995 W. Colonial Dr Ocoee FL
8 Chesapeake Village Outlet Ctr Perryville Rd & I-95 Perryville MD
9 Marina Playa Executive Park 1333 Lawrence Expressway Santa Clara CA
10 Plaza at Mountainside 4025 East Chandler Blvd. Phoenix AZ
11 Center Square Plaza 1301 Skippack Pike Blue Bell PA
12 Springfield Hilton Hotel 6550 Loisdale Road Springfield VA
13 Marketfair North S/C 4100-4160 Route 31 Clay NY
14 The Park at Sugar Bush 14015 Southwest Freeway Sugar Land TX
15 University Square Shopping Ctr NWC Walton Blvd & Adams Rochester Hills MI
16 Bel-Kirk Office Center 11120 & 11130 N.E.33RD Bellevue WA
17 Holiday Inn Kansas City 18832 Plaza Circle Kansas City MO
18 Prospect Tower Apartments 1626 N. Prospect Ave. Milwaukee WI
19 Northridge Apartments 4152 Harvest Hill Dallas TX
20 Farm Creek Industrial Park 5-6 15481 Farm Creek Drive Woodridge VA
21 Best Western -- Kings Quarters 16102 Theme Park Way Doswell VA
22 Woodside Apartments 200 North Santa Rosa Street San Louis Obispo CA
23 College Circle Apartments 1033-1035 Danby Road Ithaca NY
24 Bointon Beach Promenade 901 North Congress Avenue Boynton Beach FL
25 Olive Tree Apts. 16031 Pioneer Blvd Norwalk CA
26 Mountain View Apartments 1375 W. San Bernardino Road Covina CA
27 Bank One Tower 4245 Kemp Street Wichita Falls TX
28 Sutton House Apartments 11840, 11855, 12150 NE 19th Drive and 1885 & 1855
N.E. 12 North Miami FL
29 The Landing Apartments 3400 Northeast Parkway San Antonio TX
30 Sea and Surf Building 303 Worcester Road Framingham MA
31 Exton Plaza Route 100 & Swedesford Road Exton PA
32 Summers Bend Apartments 123 East Walnut Road Seguin TX
33 Metro Exchange Building Two Vantage Way Nashville TN
34 Ticknor Terrace Apartments 800 E. Walnut Street Grapevine TX
35 Bennett Street Shopping Center 22 Bennett Street Atlanta GA
36 Holiday Inn-Green Bay 2580 South Ashland Avenue Green Bay WI
37 Shops at West*Dale 7031 Little River Trnpike Annandale VA
38 Glen Oaks Plaza 1401-1435 Waukegan Rd Glenview IL
39 Ocean Village Square 4190 South Atlantic Avenue New Smyrna Beach FL
40 Willowbrook Point Apartments 14150 Tomball Parkway Houston TX
41 Williamsburg Village Apartments 681 North Saginaw Blvd Saginaw TX
42 Signature Inn Hotel 7610 Old Trails Road Indianapolis IN
43 Country Hills of Perris Apts 250 Wilkerson Avenue Perris CA
44 Casitas del Valle 651-675 Alvarado Avenue Davis CA
45 Park Drive Shopping Center 8412 Park Drive Omaha NE
46 Rock Springs Business Park 1910-1936 Rock Springs Dr Las Vegas NV
<CAPTION>
LOAN ANCHOR YEAR YEAR # OF UNITS/
NUMBER PROPERTY TYPE ANCHOR SQ.FT. BUILT RENOVATED(1) SQ.FT.(2)
- ------- ------------------ ----------------------- ------- ----- ------------ -------------
<C> <C> <C> <C> <C> <C> <C>
1 Multi-Family -- 1989 -- 696
2 Nursing Home -- 1991 -- 188
3 Retail-Anchor Superfresh 39,571 1988 -- 234,562
4 Industrial -- 1987 -- 396,790
5 Nursing Home -- 1983 1988 300
6 Multi-Family -- 1987 -- 298
7 Retail-Anchor Publix Supermarkets 42,132 1990 -- 165,877
8 Retail-Unanchored -- 1990 -- 148,134
9 Office -- 1973 -- 124,205
10 Retail-Anchor Safeway 49,173 1986 -- 124,051
11 Retail-Anchor Clemens 48,500 1978 1994 83,182
12 Hotel -- 1978 1992 245
13 Retail-Anchor Marshalls 26,878 1990 -- 136,989
14 Retail-Anchor Louis Shanks Furniture 30,506 1985 -- 134,250
15 Retail-Anchor L&L Shop Rite 45,752 1987 -- 120,414
16 Office -- 1988 -- 92,512
17 Hotel -- 1973 1994 196
18 Multi-Family -- 1964 -- 200
19 Multi-Family -- 1969 1994 286
20 Industrial -- 1989 -- 173,099
21 Hotel -- 1977 1994 248
22 Multi-Family -- 1975 -- 84
23 Multi-Family -- 1989 -- 89
24 Retail-Anchor Office Max 22,652 1986 -- 56,057
25 Multi-Family -- 1972 -- 144
26 Multi-Family -- 1971 -- 139
27 Office -- 1981 -- 124,356
28 Multi-Family -- 1964 1987 149
29 Multi-Family -- 1982 -- 216
30 Retail-Unanchored -- 1990 -- 34,193
31 Retail-Anchor Leeward's 22,315 1978 -- 77,440
32 Multi-Family -- 1981 -- 204
33 Office -- 1976 -- 94,822
34 Multi-Family -- 1963 -- 211
35 Retail-Unanchored -- 1940 -- 64,221
36 Hotel -- 1963 1986 147
37 Retail-Unanchored -- 1990 -- 34,706
38 Retail-Anchor Sears 22,760 1968 1982 59,340
39 Retail-Anchor Food Lion 29,000 1990 -- 60,631
40 Multi-Family -- 1979 1994 151
41 Multi-Family -- 1985 -- 152
42 Hotel -- 1985 -- 101
43 Multi-Family -- 1985 -- 192
44 Multi-Family -- 1973 -- 89
45 Retail-Unanchored -- 1966 -- 96,790
46 Retail-Unanchored -- 1995 -- 25,917
</TABLE>
- ----------------------------
(1) The Renovation Date is the date on which the Mortgaged Property most
recently underwent some degree of capital improvement.
(2) Number of units/square feet represents the number of units for multifamily,
nursing home, hotel, mobile home park, and self storage properties and square
feet for all other properties.
A-1
<PAGE> 72
<TABLE>
<CAPTION>
LOAN PROP
NUMBER PROPERTY NAME PROPERTY ADDRESS PROPERTY CITY STATE
- ------ ------------------------------- ------------------------------------------------------ --------------------- -----
<C> <S> <C> <C> <C>
47 InnSuites Hotel -- Baseline 1651 W. Baseline Road Tempe AZ
48 Campbell Business Center 2050 N. Plano Rd. Richardson TX
49 Cimarron Crossing Apartments 2014 Remington Drive Arlington TX
50 Best Western -- Kings Island 9847 Escort Dr. Mason OH
51 Summer Breeze Apartments 6736-56 Clybourn Avenue North Hollywood CA
52 Village Shires Shopping Center East Village Road Northampton Township PA
53 Aspen Townhouse Apartments 4215 Pikes Peak Avenue Colorado Springs CO
54 Burbank Blvd. 14639 Burbank Blvd Van Nuys CA
55 Best Western -- Cambridge 1945 Southgate Parkway Cambridge OH
56 Stone Creek Apartments 4541 N.E. Stallings Drive Nacogdoches TX
57 Palm Desert Mobile Estates 43 N Portola Ave Palm Desert CA
58 Days Inn -- Cambridge 2328 Southgate Parkway Cambridge OH
59 Wilshire Detroit Building 5351-5361 Wilshire Blvd Los Angeles CA
60 Gordonhurst Village Apartments 160 Gordonhurst Avenue Upper Montclair NJ
61 Days Inn -- Kings Island 9735 Mason-Montgomery Rd. Mason OH
62 Arrow Self Storage Center 1055 West Guadalupe Road Mesa AZ
63 Del Prado Apartments 7215 Hillside Ave Los Angeles CA
64 Sierra West Center 22222 South Main Street & 111 and 117 223rd Street Carson CA
65 Atlantic Centre 1000-38 E. Atlantic Ave. Delray Beach FL
66 Lake Royal Apartments 501 Camino Aguajito 401 Monterey CA
67 Park Pointe Plaza Shopping 23561-91 Via Linda Mission Viejo CA
Center
68 Rosegate Apartments 4221 Rosehill Road Garland TX
69 Stonecreek Apartments 100 Stone Creek Drive Marshall TX
70 Palm Villas 362-74 Moss Street Chula Vista CA
71 Greenspoint Crossing Apts. 501 Greens Road Houston TX
72 Manor Park Apartments 158-166 Grand Avenue Englewood NJ
73 Woodbrook Village Apartments 215 South Park Drive Woodbridge NJ
74 452 West Company 452 West 19th Street New York NY
75 Cielo Vista Apartments 81820 Shadow Palm Avenue Indio CA
76 Hampshire Apts. 676 Geary St San Francisco CA
77 Minnesota Lofts 601 Minnesota Street San Francisco CA
78 Carter's Grove Apartments 3405 North Shepherd Houston TX
79 Cedar Ridge Shopping Center 111 South Cedar Ridge Dr Duncanville TX
80 Berkshire Gardens Apartments 90 New England Avenue Summit NJ
81 Fernmar North Apts. 208 Holly Ave San Francisco CA
82 Glen Hollow Apartments 505 Danville Road Kilgore TX
83 Palm Gardens 1037-97 Imperial Beach Blvd Imperial Beach CA
84 Raymond Apartments 1461 Alice Street Oakland CA
85 1450 4th Street 1450 4th St Berkeley CA
86 Alabama Manor 3822 36 Alabama St San Diego CA
87 Serrano Apartments 945 North Serrano Avenue Los Angeles CA
88 Hollywood Apartments 7130 Hollywood Blvd Los Angeles CA
89 The Grendier/Sherman Way Apt. 20251 Sherman Way Winnetka CA
90 333 S. New Hampshire Ave. 333 S New Hampshire Avenue Los Angeles CA
91 J&M Self Storage 1939 Oak Tree Road Edison NJ
92 Shields West 1501-29 West Shields Avenue Fresno CA
93 Tumwater Mobile Estates 930 SW Trosper Rd Tumwater WA
<CAPTION>
# OF
LOAN ANCHOR YEAR YEAR UNITS/
NUMBER PROPERTY TYPE ANCHOR SQ.FT. BUILT RENOVATED(1) SQ.FT.(2)
- ------ ------------------ ----------------------- ------- ----- ------------ ----------
<C> <C> <C> <C> <C> <C> <C>
47 Hotel -- 1982 1985 170
48 Industrial -- 1985 1993 76,000
49 Multi-Family -- 1983 -- 248
50 Hotel -- 1973 -- 124
51 Multi-Family -- 1980 -- 104
52 Retail-Unanchored -- 1985 -- 36,622
53 Multi-Family -- 1969 1993 76
54 Multi-Family -- 1985 -- 52
55 Hotel -- 1974 1992 95
56 Multi-Family -- 1984 -- 120
57 Mobile Home Park -- 1964 -- 144
58 Hotel -- 1974 -- 103
59 Retail-Unanchored -- 1939 1995 17,112
60 Multi-Family -- 1947 -- 65
61 Hotel -- 1973 -- 124
62 Self Storage -- 1986 -- 83,405
63 Multi-Family -- 1955 -- 48
64 Retail-Unanchored -- 1991 -- 16,925
65 Multi-Family -- 1940 1983 30,734
66 Multi-Family -- 1960 -- 44
67 Retail-Unanchored -- 1988 -- 20,108
68 Multi-Family -- 1984 -- 72
69 Multi-Family -- 1983 -- 80
70 Multi-Family -- 1990 -- 42
71 Multi-Family -- 1979 1994 179
72 Multi-Family -- 1950 -- 61
73 Multi-Family -- 1956 -- 66
74 Multi-Family -- NAV 1987 20
75 Multi-Family -- 1979 -- 112
76 Multi-Family -- 1922 -- 56
77 Multi-Family -- 1937 1989 32
78 Multi-Family -- 1977 1994 136
79 Retail-Anchor Duncanville Athletic 26,447 1985 -- 65,126
80 Multi-Family -- 1955 -- 22
81 Multi-Family -- 1965 -- 66
82 Multi-Family -- 1978 -- 124
83 Multi-Family -- 1967 1979 42
84 Multi-Family -- 1913 -- 72
85 Multi-Family -- 1991 -- 15
86 Multi-Family -- 1985 -- 67
87 Multi-Family -- 1989 -- 44
88 Multi-Family -- 1953 1975 38
89 Multi-Family -- 1964 -- 49
90 Multi-Family -- 1968 -- 56
91 Self Storage -- 1988 -- 57,329
92 Multi-Family -- 1966 -- 57
93 Mobile Home Park -- 1967 -- 115
</TABLE>
- ---------------
(1) The Renovation Date is the date on which the Mortgaged Property most
recently underwent some degree of capital improvement.
(2) Number of units/square feet represents the number of units for multifamily,
nursing home, hotel, mobile home park, and self storage properties and
square feet for all other properties.
A-2
<PAGE> 73
<TABLE>
<CAPTION>
LOAN PROP
NUMBER PROPERTY NAME PROPERTY ADDRESS PROPERTY CITY STATE
- ------ ------------------------------- ------------------------------------------------------ --------------------- -----
<C> <S> <C> <C> <C>
94 ITI Office Building 4233 Charter Ave. Oklahoma City OK
95 Gonzales Family Villa 8037-8063 Orange St, 8034-8040 Alameda St Downey CA
96 Alvin Terrace Apartments 702-706 & 616-620 West Alvin Avenue Santa Maria CA
97 Oxboro Place 325-327 W. 98th St. Bloomington MN
98 West Crosstimbers Apartments 500 West Crosstimbers Houston TX
99 511 South Carondolet Street 511 South Carondolet Street Los Angeles CA
100 Baldwin Manor Apartments 3916 34 1/2 Crenshaw Blvd Los Angeles CA
101 Casa De Ville Apartments 445 S Los Robles Ave Pasadena CA
102 Taurus Square Shopping Center 2529 San Mateo Boulevard Albuquerque NM
103 Villa Granada 310 S. St. Andrews Place Los Angeles CA
CROWN PROPERTIES(3):
104 Atlanta Downtown Comfort Inn 101 International Boulevard Atlanta GA
Holiday Inn Holidome and
105 Conference Ctr 200 Loucks Rd. York PA
Holiday Inn-Holidome and
106 Conference Ctr 5400 Holiday Inn Drive Frederick MD
107 Holiday Inn, Charlotte 8520 University Executive Park Charlotte NC
108 UnionTown Holiday Inn 700 West Main Street Uniontown PA
109 Holiday Inn 250 Market Street Johnstown PA
Holiday Inn Holidome and
110 Conference Ctr Route 119 & Indian Springs Rd. Indiana PA
111 Asheville, Comfort Suites 890 Brevard Road Asheville NC
112 Hotel Crown Park Best Western 4620 South Miami Boulevard Durham NC
113 Comfort Inn Newport News,Va 12330 Jefferson Ave Newport News VA
114 Pottstown, Pa -Comfort Inn Route 100 and Shoemaker Road Pottstown PA
115 Super 8 Motel 5579 Spectrum Ave Frederick MD
116 Best Western Hotel Crown Park 765 Eisenhower Blvd Harrisburg PA
117 Comfort Inn Hotel 4021 Union Deposit Road Harrisburg PA
118 Macon Comfort Inn 2690 Riverside Dr. Macon GA
119 Oak Ridge Comfort Inn 433 S. Rutgers Avenue Oak Ridge TN
Holiday Inn -Holidome and
120 Conference Ctr Route 68 and I80 (Exit 9 ) Clarion PA
121 Marriot Courtyard 3327 Street Road Bensalem PA
122 Johnstown Super 8 Hotel 1440 Scalp Ave(Route 56) Johnstown PA
Holiday Inn Holidome and
123 Conference Ctr Route 18 North Beaver Falls PA
124 Holiday Inn 100 South George Street Cumberland MD
<CAPTION>
LOAN ANCHOR YEAR YEAR # OF UNITS
NUMBER PROPERTY TYPE ANCHOR SQ.FT. BUILT RENOVATED(1) SQ.FT.(2)
- ------ ------------------ ----------------------- ------- ----- ------------ ----------
<C> <C> <C> <C> <C> <C> <C>
94 Office -- 1980 1995 44,682
95 Multi-Family -- 1988 -- 14
96 Multi-Family -- 1959 -- 48
97 Multi-Family -- 1967 -- 42
98 Multi-Family -- 1972 1994 98
99 Multi-Family -- 1991 1995 29
100 Multi-Family -- 1941 -- 28
101 Multi-Family -- 1968 -- 25
102 Retail-Unanchored -- 1988 -- 9,097
103 Multi-Family -- 1969 -- 24
CROWN
104 Hotel -- 1987 -- 260
105 Hotel -- 1982 1990 181
106 Hotel -- 1980 -- 155
107 Hotel -- 1990 -- 177
108 Hotel -- 1968 1993 180
109 Hotel -- 1973 1991 164
110 Hotel -- 1965 1990 159
111 Hotel -- 1989 -- 125
112 Hotel -- 1990 -- 177
113 Hotel -- 1988 -- 125
114 Hotel -- 1989 -- 121
115 Hotel -- 1986 -- 104
116 Hotel -- 1988 1990 167
117 Hotel -- 1990 -- 116
118 Hotel -- 1988 -- 120
119 Hotel -- 1989 -- 122
120 Hotel -- 1976 1986 122
121 Hotel -- 1988 1991 167
122 Hotel -- 1988 -- 105
123 Hotel -- 1966 1991 156
124 Hotel -- 1972 1986 130
</TABLE>
- ----------------------------
(1) The Renovation Date is the date on which the Mortgaged Property most
recently underwent some degree of capital improvement.
(2) Number of units/square feet represents the number of units for multifamily,
nursing home, hotel, mobile home park, and self storage properties and square
feet for all other properties.
(3) All amounts were calculated based on a 100% participation interest in the
Crown Hotel Notes.
A-3
<PAGE> 74
<TABLE>
<CAPTION>
LOAN OCCUPANCY OCCUPANCY APPRAISED APPRAISAL ORIGINAL ORIGINAL CURRENT CUT-OFF
NUMBER PERCENTAGE AS OF DATE VALUE DATE LTV BALANCE BALANCE BALANCE
- ------ ---------- ------------ ---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 96.2% Apr-96 29,450,000 Oct-95 72.5% 21,363,000 21,295,675
2 89.4% Dec-95 19,200,000 Oct-95 72.9% 14,000,000 13,923,895
3 90.9% May-96 16,200,000 Oct-95 75.9% 12,300,000 11,945,747
4 100.0% Dec-95 16,250,000 Nov-95 70.5% 11,450,000 11,394,873
5 92.4% Mar-96 16,600,000 Nov-95 65.4% 10,850,000 10,798,819
6 87.9% Feb-96 14,000,000 Jan-96 72.1% 10,100,000 10,087,401
7 89.3% Feb-96 13,500,000 Oct-95 74.0% 9,990,000 9,942,130
8 91.8% Apr-96 17,900,000 Aug-95 55.9% 10,000,000 9,932,107
9 97.3% Dec-95 13,400,000 Nov-95 61.9% 8,300,000 8,257,526
10 96.8% May-96 11,000,000 Nov-95 75.0% 8,250,000 8,220,801
11 97.0% Mar-96 11,375,000 Nov-95 69.5% 7,900,000 7,890,394
12 71.5% 1995 Average 15,600,000 Oct-95 49.7% 7,750,000 7,706,213
13 94.8% Jan-96 11,900,000 Dec-95 62.2% 7,400,000 7,376,022
14 100.0% Mar-96 10,100,000 Feb-96 72.8% 7,350,000 7,339,693
15 100.0% Oct-95 12,000,000 Jan-96 60.4% 7,250,000 7,234,550
16 100.0% Dec-95 9,090,000 Dec-95 68.8% 6,250,000 6,231,283
17 75.5% 1995 Average 8,800,000 Aug-95 68.2% 6,000,000 5,939,204
18 94.5% Dec-95 9,600,000 Jan-96 59.9% 5,750,000 5,730,605
19 90.2% Mar-96 7,500,000 Sep-95 76.7% 5,750,000 5,712,367
20 100.0% Feb-96 7,950,000 Nov-95 71.7% 5,700,000 5,672,557
21 52.2% 1995 Average 9,000,000 Nov-95 58.1% 5,225,000 5,188,883
22 100.0% Jan-96 7,000,000 Nov-95 71.4% 5,000,000 4,990,276
23 100.0% Nov-95 6,630,000 Sep-95 75.0% 4,972,500 4,946,219
24 95.0% Jan-96 6,200,000 Dec-95 72.6% 4,500,000 4,494,241
25 92.4% Nov-95 5,625,000 Dec-95 80.2% 4,510,000 4,486,733
26 90.6% Dec-95 5,550,000 Oct-95 80.4% 4,460,000 4,440,276
27 94.8% Dec-95 6,400,000 Oct-95 68.0% 4,350,000 4,326,823
28 91.3% Feb-96 7,400,000 Dec-95 58.1% 4,300,000 4,291,289
29 84.7% Mar-96 5,600,000 Nov-95 76.8% 4,300,000 4,285,262
30 100.0% Dec-95 6,100,000 Dec-95 69.7% 4,250,000 4,243,321
31 100.0% Nov-95 6,250,000 Nov-95 64.0% 4,000,000 3,978,688
32 92.6% Mar-96 5,787,000 Jan-96 67.2% 3,886,000 3,886,000
33 94.1% Oct-95 5,400,000 Aug-95 71.3% 3,850,000 3,824,905
34 90.0% Feb-96 5,120,000 Jan-96 73.6% 3,770,000 3,759,187
35 100.0% Apr-96 5,375,000 Aug-95 69.3% 3,727,000 3,716,311
36 58.3% 1995 Average 5,600,000 Jan-95 65.2% 3,650,000 3,605,972
37 100.0% Dec-95 5,500,000 Oct-95 63.6% 3,500,000 3,482,448
38 95.1% Nov-95 4,700,000 Dec-95 72.3% 3,400,000 3,389,142
39 95.1% Dec-95 5,535,000 Sep-95 57.8% 3,200,000 3,196,491
40 94.7% Jan-96 4,000,000 Dec-95 80.0% 3,200,000 3,191,542
41 96.7% Dec-95 4,000,000 Nov-95 75.0% 3,000,000 2,989,446
42 67.5% 1995 Average 4,800,000 Oct-95 62.5% 3,000,000 2,977,907
43 87.5% Jan-96 3,660,000 Oct-95 79.2% 2,900,000 2,890,603
44 100.0% Jan-96 4,225,000 Nov-95 66.3% 2,800,000 2,791,108
45 93.6% Dec-95 4,700,000 Nov-95 59.6% 2,800,000 2,788,201
46 100.0% Dec-95 3,800,000 Sep-95 73.7% 2,800,000 2,781,749
<CAPTION>
MORTGAGE ANNUAL REMAINING MAT. DATE
LOAN INTEREST DEBT REMAINING AM ORIG MATURITY BALLOON LTV
NUMBER RATE SERVICE TERM TERM(1) DATE DATE BALANCE(2) RATIO(3)
- ------ -------- --------- --------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 8.375% 1,948,491 115 355 12/29/95 1/1/2006 18,882,304 64.1%
2 7.875% 1,282,771 115 295 12/21/95 1/1/2006 11,270,766 58.7%
3 8.000% 1,139,201 116 275 1/25/96 2/1/2006 9,281,138 57.3%
4 8.625% 1,117,980 79 295 12/29/95 1/1/2003 10,202,499 62.8%
5 8.750% 1,070,431 115 295 12/26/95 1/1/2006 8,925,179 53.8%
6 8.375% 921,208 118 358 3/11/96 4/1/2006 8,927,177 63.8%
7 8.000% 879,637 113 353 11/16/95 11/1/2005 8,763,698 64.9%
8 8.625% 976,402 112 293 10/18/95 10/1/2005 8,223,893 45.9%
9 8.250% 785,296 115 295 12/29/95 1/1/2006 6,745,556 50.3%
10 7.800% 712,672 115 355 12/22/95 1/1/2006 7,207,127 65.5%
11 8.500% 728,930 118 358 3/28/96 4/1/2006 6,999,602 61.5%
12 8.875% 791,358 115 271 12/22/95 1/1/2006 6,091,953 39.1%
13 7.875% 678,036 117 297 2/16/96 3/1/2006 5,957,404 50.1%
14 9.250% 741,479 82 322 3/19/96 4/1/2003 6,746,603 66.8%
15 7.750% 623,279 117 357 2/14/96 3/1/2006 6,326,814 52.7%
16 8.625% 583,342 115 355 12/28/95 1/1/2006 5,550,878 61.1%
17 9.450% 668,785 113 233 10/31/95 11/1/2005 4,316,171 49.0%
18 7.625% 515,527 117 297 2/28/96 3/1/2006 4,598,998 47.9%
19 7.875% 526,852 114 294 11/6/95 12/1/2005 4,629,064 61.7%
20 8.625% 556,549 79 295 12/29/95 1/1/2003 5,078,973 63.9%
21 9.750% 594,720 235 235 12/29/95 1/1/2016 -- --
22 8.500% 483,136 298 298 3/1/96 4/1/2021 -- --
23 8.050% 462,521 115 295 12/7/95 1/1/2006 4,021,050 60.6%
24 8.250% 405,684 118 358 3/8/96 4/1/2006 3,967,652 64.0%
25 8.200% 424,903 295 295 12/1/95 1/1/2021 -- --
26 7.750% 404,252 116 296 1/3/96 2/1/2006 3,578,937 64.5%
27 8.000% 402,888 114 295 12/4/95 12/1/2005 3,523,290 55.1%
28 8.250% 406,840 58 298 3/18/96 4/1/2001 3,978,957 53.8%
29 7.960% 377,185 115 355 12/15/95 1/1/2006 3,769,046 67.3%
30 8.625% 406,493 118 322 3/25/96 4/1/2006 3,619,544 59.3%
31 8.000% 370,472 115 295 12/28/95 1/1/2006 3,230,532 51.7%
32 8.875% 387,350 120 300 5/9/96 6/1/2006 3,205,976 55.4%
33 8.875% 383,762 77 293 10/31/95 11/1/2002 3,443,715 63.8%
34 8.625% 368,103 117 297 2/23/96 3/1/2006 3,092,016 60.4%
35 8.625% 363,905 117 297 2/9/96 3/1/2006 3,056,749 56.9%
36 10.125% 426,313 75 231 8/11/95 9/1/2002 3,075,251 54.9%
37 8.375% 334,665 115 295 12/28/95 1/1/2006 2,853,283 51.9%
38 7.965% 313,956 81 297 2/23/96 3/1/2003 2,997,430 63.8%
39 9.000% 308,975 82 358 3/13/96 4/1/2003 2,996,494 54.1%
40 8.125% 285,119 116 356 1/25/96 2/1/2006 2,814,367 70.4%
41 7.830% 259,901 115 355 12/28/95 1/1/2006 2,622,434 65.6%
42 9.250% 329,712 115 235 12/29/95 1/1/2006 2,146,015 44.7%
43 7.875% 265,717 117 297 2/2/96 3/1/2006 2,334,659 63.8%
44 8.000% 259,330 117 297 2/23/96 3/1/2006 2,261,373 53.5%
45 8.050% 260,444 116 296 1/19/96 2/1/2006 2,264,242 48.2%
46 8.875% 279,099 113 293 10/27/95 11/1/2005 2,310,019 60.8%
</TABLE>
- ------------------------------
(1) Number of months required to fully amortize the Cut-off Date Balance using
current payment amount and mortgage interest rate.
(2) Balloon Balance is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments. See Balloon Mortgage Loans Remaining
Amortization Term.
(3) The Maturity Date LTV Ratio is a fraction, expressed as a percentage, the
numerator of which is the Balloon Balance and the denominator of which is
the appraised value of the related Mortgage Property as determined by an
appraisal thereof obtained in connection with the origination of such
Mortgage Loan.
A-4
<PAGE> 75
<TABLE>
<CAPTION>
LOAN OCCUPANCY OCCUPANCY APPRAISED APPRAISAL ORIGINAL ORIGINAL CURRENT
NUMBER PERCENTAGE AS OF DATE VALUE DATE LTV BALANCE BALANCE
- ------ ---------- ----------------------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
47 73.5% 10 Mon Avg Ending 10/95 7,100,000 Oct-95 39.4% 2,800,000
48 100.0% Dec-95 3,750,000 Dec-95 70.9% 2,660,000
49 94.0% Oct-95 4,900,000 Nov-95 54.4% 2,665,000
50 56.0% 9 Mon Avg Ending 9/95 4,300,000 Jul-95 62.2% 2,675,000
51 90.4% Apr-95 3,550,000 Oct-95 74.6% 2,650,000
52 94.6% Aug-95 3,700,000 May-95 71.6% 2,650,000
53 100.0% Mar-96 3,700,000 Mar-96 64.9% 2,400,000
54 92.3% Apr-96 3,030,000 Sep-95 77.6% 2,350,000
55 75.0% 1995 Average 4,000,000 Jul-95 57.5% 2,300,000
56 99.2% Feb-96 3,000,000 Jan-96 75.8% 2,275,000
57 98.6% Apr-96 2,780,000 Sep-95 82.0% 2,280,000
58 56.1% 1995 Average 4,100,000 Jul-95 54.4% 2,229,000
59 100.0% Feb-96 3,100,000 Jan-96 71.0% 2,200,000
60 100.0% Mar-96 3,670,000 Jan-96 59.9% 2,200,000
61 54.0% 1995 Average 4,200,000 Jul-95 51.7% 2,170,000
62 84.2% Sep-95 2,880,000 Oct-95 71.2% 2,050,000
63 100.0% Feb-96 2,800,000 Nov-95 72.5% 2,030,000
64 100.0% Dec-95 2,800,000 Jan-96 71.4% 2,000,000
65 89.8% Jan-96 2,750,000 Dec-95 72.7% 2,000,000
66 97.7% Oct-95 3,090,000 Dec-95 64.7% 2,000,000
67 100.0% Feb-96 2,675,000 Jan-96 71.0% 1,900,000
68 94.4% Feb-96 2,400,000 Jan-96 77.1% 1,850,000
69 92.5% Dec-95 2,320,000 Nov-95 79.7% 1,850,000
70 97.6% Nov-95 2,350,000 Sep-95 76.6% 1,800,000
71 96.6% Dec-95 2,775,000 Oct-95 64.9% 1,800,000
72 98.3% Mar-96 2,950,000 Dec-95 59.3% 1,750,000
73 95.4% Mar-96 2,720,000 Jan-96 64.3% 1,750,000
74 100.0% Oct-95 2,400,000 Jan-96 70.8% 1,700,000
75 92.0% Jan-96 2,140,000 Oct-95 75.0% 1,605,000
76 96.4% Nov-95 2,200,000 Dec-95 72.7% 1,600,000
77 96.9% Aug-95 3,385,000 Sep-95 47.3% 1,600,000
78 93.9% Dec-95 2,220,000 Oct-95 71.6% 1,590,000
79 86.3% Feb-96 2,525,000 Nov-95 59.4% 1,500,000
80 100.0% Mar-96 2,350,000 Jan-96 63.8% 1,500,000
81 100.0% Nov-95 3,800,000 Dec-95 39.5% 1,500,000
82 93.5% Feb-96 2,200,000 Feb-96 64.5% 1,420,000
83 97.6% Nov-95 1,900,000 Oct-95 73.7% 1,400,000
84 97.1% Nov-95 1,750,000 Oct-95 80.0% 1,400,000
85 100.0% Oct-95 1,910,000 Aug-95 70.9% 1,355,000
86 86.6% Dec-95 1,665,000 Dec-95 80.0% 1,332,000
87 93.0% Oct-95 1,600,000 Aug-95 75.0% 1,200,000
88 100.0% Dec-95 1,575,000 Dec-95 73.7% 1,160,000
89 98.0% Dec-95 1,500,000 Oct-95 75.0% 1,125,000
90 92.9% Oct-95 1,500,000 Dec-95 75.0% 1,125,000
91 92.1% Feb-96 3,365,000 Nov-95 32.7% 1,100,000
92 98.2% Sep-95 1,720,000 Oct-95 64.0% 1,100,000
<CAPTION>
MORTGAGE ANNUAL REMAINING MAT. DATE
LOAN CUT-OFF INTEREST DEBT REMAINING AM ORIG MATURITY BALLOON LTV
NUMBER BALANCE RATE SERVICE TERM TERM(1) DATE DATE BALANCE(2) RATIO(3)
- ------ ---------- -------- --------- --------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
47 2,760,751 8.500% 330,873 115 175 12/29/95 1/1/2006 1,343,926 18.9%
48 2,652,371 8.625% 259,723 117 297 2/2/96 3/1/2006 2,181,635 58.2%
49 2,650,220 7.750% 241,554 115 295 12/1/95 1/1/2006 2,138,535 43.6%
50 2,647,636 9.375% 296,599 233 233 10/20/95 11/1/2015 -- --
51 2,635,303 7.750% 240,195 115 295 12/8/95 1/1/2006 2,126,499 59.9%
52 2,634,318 8.500% 256,062 114 294 11/1/95 12/1/2005 2,166,920 58.6%
53 2,397,577 8.250% 227,074 119 299 4/24/96 5/1/2006 1,950,522 52.7%
54 2,342,010 8.000% 206,922 115 355 12/1/95 1/1/2006 2,061,531 68.0%
55 2,276,474 9.375% 255,020 233 233 10/10/95 11/1/2015 -- --
56 2,272,234 8.500% 209,913 118 358 3/26/96 4/1/2006 2,015,708 67.2%
57 2,268,797 8.500% 220,310 115 295 12/6/95 1/1/2006 1,864,369 67.1%
58 2,206,200 9.375% 247,147 233 233 10/20/95 11/1/2015 -- --
59 2,195,894 8.750% 217,046 118 298 3/25/96 4/1/2006 1,809,714 58.4%
60 2,195,543 8.250% 208,151 118 298 3/29/96 4/1/2006 1,787,979 48.7%
61 2,147,804 9.375% 240,605 233 233 10/30/95 11/1/2015 -- --
62 2,040,526 8.875% 204,341 115 295 12/26/95 1/1/2006 1,691,264 58.7%
63 2,023,935 8.375% 194,106 117 297 2/2/96 3/1/2006 1,654,905 59.1%
64 1,996,030 8.375% 191,237 118 298 3/11/96 4/1/2006 1,630,447 58.2%
65 1,989,556 8.125% 187,228 115 295 12/29/95 1/1/2006 1,620,375 58.9%
66 1,989,344 8.000% 185,236 175 295 12/1/95 1/1/2011 1,272,285 41.2%
67 1,894,438 8.500% 183,592 81 297 2/29/96 3/1/2003 1,689,677 63.2%
68 1,847,633 8.250% 166,781 118 358 3/6/96 4/1/2006 1,631,145 68.0%
69 1,843,867 8.125% 164,834 115 355 12/19/95 1/1/2006 1,627,056 70.1%
70 1,793,237 7.500% 151,030 115 355 12/4/95 1/1/2006 1,562,311 66.5%
71 1,790,215 7.875% 164,928 115 295 12/7/95 1/1/2006 1,449,098 52.2%
72 1,746,455 8.250% 165,575 118 298 3/29/96 4/1/2006 1,422,255 48.2%
73 1,746,455 8.250% 165,575 118 298 3/29/96 4/1/2006 1,422,255 52.3%
74 1,698,284 8.250% 160,844 119 299 4/17/96 5/1/2006 1,381,620 57.6%
75 1,597,759 7.625% 143,899 116 296 1/10/96 2/1/2006 1,283,721 60.0%
76 1,592,074 8.450% 153,957 115 295 12/1/95 1/1/2006 1,306,746 59.4%
77 1,590,141 8.250% 151,383 294 294 11/6/95 12/1/2020 -- --
78 1,581,697 8.125% 148,846 115 295 12/7/95 1/1/2006 1,288,198 58.0%
79 1,495,332 8.125% 140,421 81 297 2/23/96 3/1/2003 1,325,916 52.5%
80 1,493,715 8.250% 141,921 118 296 3/29/96 4/1/2006 1,211,791 51.6%
81 1,478,273 8.125% 173,319 175 175 12/11/95 1/1/2011 -- --
82 1,418,273 8.500% 131,023 118 358 3/26/96 4/1/2006 1,258,156 57.2%
83 1,394,995 7.750% 120,357 115 355 12/4/95 1/1/2006 1,221,731 64.3%
84 1,391,920 7.500% 124,151 115 295 12/1/95 1/1/2006 1,116,046 63.8%
85 1,349,130 8.500% 125,025 113 353 10/17/95 11/1/2005 1,200,565 62.9%
86 1,327,694 8.250% 120,083 115 355 12/13/95 1/1/2006 1,174,426 70.5%
87 1,195,210 8.125% 106,920 114 354 11/8/95 12/1/2005 1,055,388 66.0%
88 1,153,819 8.000% 107,437 295 295 12/1/95 1/1/2021 -- --
89 1,121,712 7.625% 95,552 116 356 1/2/96 2/1/2006 979,114 65.3%
90 1,119,243 8.250% 106,441 295 295 12/1/95 1/1/2021 -- --
91 1,094,139 8.000% 101,880 115 295 12/28/95 1/1/2006 888,397 26.4%
92 1,093,652 7.500% 97,547 115 295 12/4/95 1/1/2006 876,893 51.0%
</TABLE>
- ----------------------------
(1) Number of months required to fully amortize the Cut-off Date Balance using
current payment amount and mortgage interest rate.
(2) Balloon Balance is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments. See Balloon Mortgage Loans Remaining
Amortization Term.
(3) The Maturity Date LTV Ratio is a fraction, expressed as a percentage, the
numerator of which is the Balloon Balance and the denominator of which is
the appraised value of the related Mortgage Property as determined by an
appraisal thereof obtained in connection with the origination of such
Mortgage Loan.
A-5
<PAGE> 76
<TABLE>
<CAPTION>
LOAN OCCUPANCY OCCUPANCY APPRAISED APPRAISAL ORIGINAL ORIGINAL CURRENT CUT-OFF
NUMBER PERCENTAGE AS OF DATE VALUE DATE LTV BALANCE BALANCE BALANCE
- ------ ---------- ------------ ---------- --------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
93 98.3% Aug-95 2,450,000 Nov-95 42.9% 1,050,000 1,046,598
94 100.0% Dec-95 1,525,000 Nov-95 67.2% 1,025,000 1,019,860
95 100.0% Jan-96 1,350,000 Oct-95 74.1% 1,000,000 997,760
96 95.8% Jan-96 1,430,000 Oct-95 69.8% 997,500 993,089
97 100.0% Feb-96 1,540,000 Jan-96 60.4% 930,000 927,047
98 93.9% Dec-95 1,275,000 Nov-95 71.4% 910,000 905,248
99 100.0% Feb-96 1,050,000 Nov-95 74.0% 777,000 772,593
100 100.0% Jul-95 950,000 Dec-95 80.0% 760,000 757,416
101 100.0% Nov-95 1,670,000 Oct-95 44.3% 740,000 736,856
102 100.0% Oct-95 1,170,000 Aug-95 59.8% 700,000 695,773
103 91.7% Sep-95 640,000 Aug-95 75.0% 480,000 476,982
CROWN PROPERTIES(4):
104 61.6% 1995 Average 16,500,000 Jan-95 47.9% 7,903,000 7,834,995 2,694,547
105 69.3% 1995 Average 9,400,000 Jan-95 53.5% 5,033,000 4,989,692 1,716,014
106 78.2% 1995 Average 9,000,000 Jan-95 55.4% 4,983,000 4,940,122 1,698,966
107 69.6% 1995 Average 8,400,000 Jan-95 55.6% 4,668,000 4,627,832 1,591,566
108 68.1% 1995 Average 8,100,000 Jan-95 55.4% 4,488,000 4,449,381 1,530,195
109 67.8% 1995 Average 8,400,000 Jan-95 53.1% 4,457,000 4,418,648 1,519,625
110 64.7% 1995 Average 6,900,000 Jan-95 59.2% 4,087,000 4,051,832 1,393,473
111 79.7% 1995 Average 6,100,000 Jan-95 65.2% 3,975,000 3,940,795 1,355,286
112 72.0% 1995 Average 7,200,000 Jan-95 54.9% 3,950,000 3,916,011 1,346,762
113 83.0% 1995 Average 7,200,000 Jan-95 50.2% 3,616,000 3,584,885 1,232,884
114 69.5% 1995 Average 6,000,000 Jan-95 53.1% 3,184,000 3,156,602 1,085,593
115 77.7% 1995 Average 5,300,000 Jan-95 54.8% 2,905,000 2,880,003 990,467
116 63.9% 1995 Average 5,000,000 Jan-95 54.4% 2,718,000 2,694,612 926,709
117 72.6% 1995 Average 4,600,000 Jan-95 55.2% 2,537,000 2,515,169 864,996
118 81.7% 1995 Average 4,100,000 Jan-95 61.7% 2,531,000 2,509,221 862,951
119 76.3% 1995 Average 5,100,000 Jan-95 49.5% 2,526,000 2,504,264 861,246
120 69.9% 1995 Average 4,200,000 Jan-95 58.5% 2,457,000 2,435,858 837,720
121 69.8% 1995 Average 5,000,000 Jan-95 44.6% 2,230,000 2,210,811 760,324
122 59.5% 1995 Average 3,600,000 Jan-95 53.8% 1,936,000 1,919,341 660,084
123 67.5% 1995 Average 4,200,000 Jan-95 45.8% 1,924,000 1,907,444 655,993
124 90.6% 1995 Average 3,300,000 Jan-95 36.8% 1,216,000 1,205,536 414,598
---------- ---------- ------------ ----------
CROWN TOTALS(4): 137,600,000 73,324,000 72,693,054 25,000,000
---------- ---------- ------------ ----------
<CAPTION>
MORTGAGE ANNUAL REMAINING MAT. DATE
LOAN INTEREST DEBT REMAINING AM ORIG MATURITY BALLOON LTV
NUMBER RATE SERVICE TERM TERM(1) DATE DATE BALANCE(2) RATIO(3)
- ------ -------- --------- --------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
93 7.875% 96,208 117 297 2/1/96 3/1/2006 845,308 34.5%
94 8.375% 98,009 79 295 12/15/95 1/1/2003 909,727 59.7%
95 7.500% 83,906 117 357 2/1/96 3/1/2006 867,950 64.3%
96 7.750% 90,413 116 296 1/2/96 2/1/2006 800,447 56.0%
97 8.000% 86,135 117 297 2/21/96 3/1/2006 751,099 48.8%
98 8.125% 85,189 115 295 12/7/95 1/1/2006 737,271 57.8%
99 8.250% 90,456 178 178 3/5/96 4/1/2011 -- --
100 8.000% 66,919 79 355 12/1/95 1/1/2003 702,830 74.0%
101 8.000% 68,537 296 296 1/3/96 2/1/2021 -- --
102 8.375% 66,933 114 294 10/31/95 12/1/2005 570,657 48.8%
103 8.125% 44,935 114 294 11/2/95 12/1/2005 388,891 60.8%
CROWN PROPERTIES(4):
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
-------- --------- --- --- -------- ---------- ----------
CROWN
TOTALS 9.820% 7,884,175 107 304 4/24/95 4/30/2005 63,516,593 46.2%
(4): -------- --------- --- --- -------- ---------- ----------
</TABLE>
- ------------------------------
(1) Number of months required to fully amortize the Cut-off Date Balance using
current payment amount and mortgage interest rate.
(2) Balloon Balance is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments. See Balloon Mortgage Loans Remaining
Amortization Term.
(3) The Maturity Date LTV Ratio is a fraction, expressed as a percentage, the
numerator of which is the Balloon Balance and the denominator of which is
the appraised value of the related Mortgage Property as determined by an
appraisal thereof obtained in connection with the origination of such
Mortgage Loan.
(4) Except for the Cut-off Balance, all amounts and terms were calculated based
on a 100% participation interest in the Crown Hotel Notes.
A-6
<PAGE> 77
<TABLE>
<CAPTION>
1993
LOAN REQUIRED NOI
NUMBER PREPAYMENT PROVISIONS(1) STMT FREQ (2)(3)
- ------ ---------------------------------------------------------------------------------------------------- --------- ---------
<C> <S> <C> <C>
1 LO-45,5%-12,4%-12,3%-12,2%-12,1%-16,0%-6 Quarterly 1,303,196
2 LO-43,YM- 66,0%-6 Quarterly 824,767
3 LO-32,YM- 72,0%-12 Quarterly 1,226,449
4 LO-21,YM- 52,0%-6 Quarterly 1,356,897
5 LO-43,5%-12,4%-12,3%-12,2%-12,1%-18,0%-6 Quarterly 1,146,921
6 LO-46,YM- 60,0%-12 Quarterly --
7 LO-43,YM- 64,0%-6 Quarterly 989,711
8 LO-41,YM- 65,0%-6 Quarterly 1,826,975
9 LO-43,YM- 66,0%-6 Quarterly 1,025,965
10 LO-19,5%-12,4%-12,3%-12,2%-12,1%-42,0%-6 Quarterly 1,005,875
11 LO-46,YM- 66,0%-6 Quarterly --
12 LO-8,5%-12,4%-12,3%-12,2%-12,1%-53,0%-6 Quarterly 1,457,144
13 LO-45,YM- 66,0%-6 Quarterly 932,528
14 YM-76,0%-6 Quarterly --
15 LO-45,YM- 66,0%-6 Quarterly 919,683
16 LO-45,YM- 64,0%-6 Quarterly 1,019,743
17 LO-41,YM- 66,0%-6 Quarterly --
18 LO-45,YM- 66,0%-6 Quarterly 727,760
19 LO-42,YM- 66,0%-6 Quarterly --
20 LO-21,YM- 52,0%-6 Quarterly 824,437
21 LO-79,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-72 Quarterly 698,775
22 LO-82,YM- 204,0%-12 Quarterly --
23 LO-45,5%-12,4%-12,3%-12,2%-12,1%-16,0%-6 Quarterly 652,039
24 LO-46,YM- 66,0%-6 Quarterly --
25 LO-79,YM- 204,0%-12 Quarterly 699,937
26 LO-44,YM- 60,0%-12 Quarterly 438,014
27 LO-43,YM- 65,0%-6 Quarterly 489,285
28 LO-22,YM- 30,0%-6 Quarterly 666,789
29 LO-43,YM- 66,0%-6 Quarterly 503,979
30 LO-46,YM- 66,0%-6 Quarterly 659,395
31 LO-43,YM- 66,0%-6 Quarterly 189,524
32 LO-48,YM- 66,0%-6 Quarterly --
<CAPTION>
UPFRONT RESERVES
1994 1995 1995 1995 ----------------------------------------------------------
LOAN NOI 1995 END NOI DSCR REPAIR &
NUMBER (2)(3) MONTHS DATE (2)(3) (2)(3) REMEDIATION TI/LC P&I ENVIRON. TOTAL
- ------ --------- ------ -------- --------- ----- ----------- ----------- ----------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,357,570 12 Dec-95 2,529,792 1.30 -- -- -- -- --
2 1,014,038 12 Dec-95 1,557,963 1.21 42,300 -- -- -- 42,300
3 1,322,501 12 Dec-95 1,479,072 1.30 30,875 -- -- -- 30,875
4 1,123,375 12 Dec-95 1,369,550 1.23 -- -- -- -- --
5 1,420,571 11 Feb-96 1,461,769 1.49 21,250 -- -- -- 21,250
6 1,242,035 12 Dec-95 1,451,461 1.58 145,250 -- -- -- 145,250
7 989,707 12 Dec-95 982,037 1.12 21,625 182,340 -- -- 203,965
8 1,950,290 12 Dec-95 1,903,819 1.95 -- 115,216 325,000 -- 440,216
9 1,036,614 12 Dec-95 1,294,166 1.65 3,250 625,000 -- -- 628,250
10 942,638 12 Dec-95 1,015,769 1.43 -- -- -- -- --
11 775,017 12 Dec-95 764,096 1.05 -- -- -- -- --
12 1,117,780 12 Dec-95 1,768,907 2.24 -- -- -- -- --
13 1,051,241 12 Dec-95 1,049,147 1.55 31,188 -- -- -- 31,188
14 1,021,750 12 Dec-95 1,168,118 1.58 14,725 65,717 -- -- 80,442
15 882,666 12 Dec-95 1,131,815 1.82 83,626 -- -- -- 83,626
16 907,879 12 Dec-95 1,046,409 1.79 -- 395,180 -- -- 395,180
17 630,790 12 Dec-95 953,516 1.43 75,813 -- -- -- 75,813
18 804,167 12 Dec-95 867,975 1.68 687,500 -- -- 12,500 700,000
19 641,317 12 Dec-95 768,429 1.46 39,063 -- -- -- 39,063
20 714,508 12 Dec-95 857,377 1.54 -- -- -- -- --
21 808,768 12 Dec-95 813,389 1.37 229,988 -- 267,108 -- 497,095
22 -- 12 Dec-95 670,464 1.39 12,844 -- -- -- 12,844
23 685,848 12 Dec-95 765,683 1.66 -- -- 75,000 -- 75,000
24 382,973 12 Dec-95 619,693 1.53 -- 35,000 -- -- 35,000
25 638,986 12 Dec-95 666,916 1.57 12,000 -- -- -- 12,000
26 527,289 12 Dec-95 505,905 1.25 -- -- -- -- --
27 590,484 12 Dec-95 676,583 1.68 7,868 -- -- -- 7,868
28 768,368 12 Dec-95 816,906 2.01 4,438 -- -- -- 4,438
29 522,821 12 Dec-95 470,163 1.25 91,438 -- -- -- 91,438
30 668,633 12 Dec-95 692,302 1.70 -- -- -- -- --
31 336,498 12 Dec-95 417,835 1.13 -- 500,000 -- -- 500,000
32 -- 12 Dec-95 622,074 1.61 -- -- -- -- --
</TABLE>
- ----------------------------
(1) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM = Yield
Maintenance; Example: LO-45, YM-12, 3%-12, 2%-12, 1%-12, 0%-3; Means that as
of the Cut-off date, a Mortgage Loan has a 45-month Lock-out Period followed
by a 12 month period where Prepayment Premium is calculated based on Yield
Maintenance, followed by three 12 month periods where the Prepayment Premium
is 3%, 2% and 1%, respectively, of amount prepaid followed by 3 month period
where there is no Prepayment Premium. See discussion of Prepayment Lock-out
Prepayment Premium Analysis.
(2) Net Operating Income for a Mortgaged Property equals the operating revenues
for such Mortgaged Property minus its operating expenses and replacement
reserves, but without giving effect to debt service, depreciation,
non-recurring capital expenditures, tenant improvements, leasing commissions
and similar items.
(3) Net Operating Income represents in the case of 1993 and 1994 NOI, operating
income based on a 12 month fiscal operating statement and in the case of
1995 NOI, operating income based on an operating statement covering 12
months or annualized income based on an operating statement covering the
period indicated.
A-7
<PAGE> 78
<TABLE>
<CAPTION>
1993
LOAN REQUIRED NOI
NUMBER PREPAYMENT PROVISIONS(1) STMT FREQ (2)(3)
- ------ ---------------------------------------------------------------------------------------------- --------- ---------
<C> <S> <C> <C>
33 LO-17,YM- 54,0%-6 Quarterly 579,785
34 LO-45,YM- 66,0%-6 Quarterly 496,205
35 LO-45,YM- 66,0%-6 Quarterly 447,555
36 LO-9,3%-24,2%-12,1%-24,0%-6 Quarterly 519,603
37 LO-45,5%-12,4%-12,3%-12,2%-12,1%-16,0%-6 Quarterly 357,250
38 LO-21,YM- 54,0%-6 Quarterly 218,504
39 LO-22,YM- 54,0%-6 Quarterly 385,436
40 LO-44,YM- 66,0%-6 Quarterly --
41 LO-43,YM- 66,0%-6 Quarterly 295,172
42 LO-43,YM- 66,0%-6 Quarterly 521,810
43 LO-45,YM- 60,0%-12 Quarterly 349,113
44 LO-45,YM- 60,0%-12 Quarterly 383,410
45 LO-44,YM- 66,0%-6 Quarterly --
46 LO-41,YM- 66,0%-6 Quarterly --
47 YM-109,0%-6, Quarterly --
48 LO-45,YM- 66,0%-6 Quarterly --
49 LO-42,YM- 67,0%-6 Quarterly --
50 LO-77,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-72 Quarterly 248,057
51 LO-43,YM- 60,0%-12 Quarterly --
52 LO-30,YM- 72,0%-12 Quarterly 406,694
53 LO-47,YM- 66,0%-6 Quarterly 239,179
54 YM-43,3%-12,2%-12,1%-36,0%-12 Quarterly 269,870
55 LO-77,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-72 Quarterly 307,681
56 LO-46,YM- 66,0%-6 Quarterly 271,525
57 LO-43,YM- 60,0%-12 Quarterly 343,781
58 LO-77,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-72 Quarterly 323,158
59 LO-48,YM- 64,0%-6 Quarterly 291,065
60 LO-46,YM- 66,0%-6 Quarterly 368,998
61 LO-77,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-72 Quarterly 374,518
<CAPTION>
UPFRONT RESERVES
1994 1995 1995 1995 -------------------------------------------------
LOAN NOI 1995 END NOI DSCR REPAIR &
NUMBER (2)(3) MONTHS DATE (2)(3) (2)(3) REMEDIATION TI/LC P&I ENVIRON. TOTAL
- ------ ---------- ------ -------- --------- ----- ----------- ------- ------- -------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33 593,073 12 Dec-95 564,826 1.47 -- 515,000 -- -- 515,000
34 467,146 12 Dec-95 614,991 1.67 77,625 -- -- 5,000 82,625
35 555,339 12 Dec-95 572,710 1.57 17,500 8,100 -- -- 25,600
36 706,916 12 Dec-95 553,259 1.30 931,200 -- -- -- 931,200
37 504,099 12 Dec-95 606,589 1.81 8,950 2,747 -- -- 11,697
38 234,791 12 Dec-95 263,776 0.84 99,180 20,000 -- -- 119,180
39 452,807 12 Dec-95 392,019 1.27 -- 105,000 -- -- 105,000
40 -53,505 12 Dec-95 315,786 1.11 10,538 -- -- -- 10,538
41 -- 12 Dec-95 411,957 1.59 10,000 -- -- -- 10,000
42 507,196 12 Dec-95 493,074 1.50 3,750 -- -- -- 3,750
43 333,810 12 Dec-95 338,950 1.28 13,140 -- -- -- 13,140
44 304,839 12 Dec-95 464,909 1.79 270,000 -- -- 62,500 332,500
45 -- 12 Nov-95 390,989 1.50 101,875 -- -- -- 101,875
46 -- 3 Dec-95 68,755 0.99 -- -- -- -- --
47 909,544 12 Dec-95 713,962 2.16 22,000 -- -- -- 22,000
48 596,606 12 Dec-95 594,783 2.29 6,600 2,763 -- -- 9,363
49 -- 12 Dec-95 438,175 1.81 91,500 -- -- -- 91,500
50 334,138 12 Dec-95 429,638 1.45 91,913 -- 211,596 -- 303,509
51 392,051 12 Dec-95 310,568 1.29 44,475 -- -- -- 44,475
52 443,499 12 Dec-95 415,436 1.62 12,562 -- -- -- 12,562
53 284,266 12 Dec-95 274,747 1.21 7,338 -- -- -- 7,338
54 276,079 12 Dec-95 277,293 1.34 -- -- -- -- --
55 375,938 12 Dec-95 457,071 1.79 70,000 -- -- -- 70,000
56 260,006 12 Dec-95 321,881 1.53 -- -- -- -- --
57 349,487 12 Dec-95 369,749 1.68 448,914 -- -- -- 448,914
58 358,526 12 Dec-95 391,941 1.59 80,550 -- 80,120 -- 160,670
59 340,186 12 Dec-95 369,341 1.70 -- -- -- -- --
60 308,445 12 Dec-95 366,697 1.76 16,250 -- -- 1,500 17,750
61 362,940 12 Dec-95 330,322 1.37 98,100 -- 214,664 -- 312,764
</TABLE>
- ----------------------------
(1) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM = Yield
Maintenance; Example: LO-45, YM-12, 3%-12, 2%-12, 1%-12, 0%-3; Means that as
of the Cut-off Date, a Mortgage Loan has a 45-month Lock-out Period,
followed by 12 month period where Prepayment Premium is calculated based on
Yield Maintenance, followed by three 12 month periods where the Prepayment
Premium is 3%, 2% and 1%, respectively; of amount prepaid, followed by 3
month period where there is no Prepayment Premium. See discussion of
Prepayment Lock-out/Prepayment Premium Analysis.
(2) Net Operating Income for a Mortgaged Property equals the operating revenues
for such Mortgaged Property minus its operating expenses and replacement
reserves, but without giving effect to debt service, depreciation,
non-recurring capital expenditures, tenant improvements, leasing commissions
and similar items.
(3) Net Operating Income represents in the case of 1993 and 1994 NOI, operating
income based on a 12 month fiscal operating statement and in the case of
1995 NOI, operating income based on an operating statement covering 12
months or annualized income based on an operating statement covering the
period indicated.
A-8
<PAGE> 79
<TABLE>
<CAPTION>
1993
LOAN REQUIRED NOI
NUMBER PREPAYMENT PROVISIONS(1) STMT FREQ (2)(3)
- ------ ---------------------------------------------------------------------------------------------- --------- ---------
<C> <S> <C> <C>
62 YM-109,0%-6, Quarterly 244,963
63 LO-45,YM- 60,0%-12 Quarterly 178,168
64 LO-46,3%-12,2%-12,1%-42,0%-6 Quarterly 310,627
65 LO-43,YM- 66,0%-6 Quarterly 302,390
66 LO-19,YM- 144,0%-12 Quarterly 261,618
67 LO-21,YM- 54,0%-6 Quarterly --
68 LO-46,YM- 66,0%-6 Quarterly --
69 LO-43,YM- 66,0%-6 Quarterly 205,999
70 LO-43,YM- 60,0%-12 Quarterly --
71 LO-43,YM- 66,0%-6 Quarterly --
72 LO-46,YM- 66,0%-6 Quarterly 244,783
73 LO-46,YM- 66,0%-6 Quarterly 192,338
74 LO-47,YM- 60,0%-12 Quarterly 282,688
75 LO-44,YM- 60,0%-12 Quarterly 233,214
76 LO-43,YM- 66,0%-6 Quarterly 214,300
77 LO-78,YM- 216 Quarterly 232,235
78 LO-43,YM- 66,0%-6 Quarterly --
79 LO-21,YM- 54,0%-6 Quarterly --
80 LO-46,YM- 66,0%-6 Quarterly 206,436
81 LO-79,YM- 84,0%-12 Quarterly 316,273
82 LO-46,YM- 66,0%-6 Quarterly --
83 LO-43,YM- 60,0%-12 Quarterly --
84 LO-43,YM- 60,0%-12 Quarterly --
85 LO-41,3%-12,2%-12,1%-42,0%-6 Quarterly 160,155
86 LO-43,YM- 60,0%-12 Quarterly --
87 LO-18,YM- 84,0%-12 Quarterly --
88 LO-79,YM- 204,0%-12 Quarterly 236,779
89 LO-44,YM- 60,0%-12 Quarterly --
90 LO-79,YM- 204,0%-12 Quarterly --
91 LO-43,YM- 66,0%-6 Quarterly 177,712
<CAPTION>
UPFRONT RESERVES
1994 1995 1995 1995 -------------------------------------------------
LOAN NOI 1995 END NOI DSCR REPAIR &
NUMBER (2)(3) MONTHS DATE (2)(3) (2)(3) REMEDIATION TI/LC P&I ENVIRON. TOTAL
- ------ ---------- ------ -------- --------- ----- ----------- ------- ------- -------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
62 288,422 12 Dec-95 306,766 1.50 -- -- -- -- --
63 206,656 8 Aug-95 206,167 1.59 -- -- -- -- --
64 330,038 12 Dec-95 302,725 1.58 -- -- -- -- --
65 298,954 12 Dec-95 256,205 1.37 -- -- -- -- --
66 237,308 8 Aug-95 148,213 1.20 52,375 -- -- 5,750 58,125
67 -- -- -- -- -- 1,563 -- -- -- 1,563
68 275,587 10 Jan-96 258,486 1.86 50,875 -- -- -- 50,875
69 223,019 11 Dec-95 224,242 1.48 6,701 -- -- -- 6,701
70 -- 11 Nov-95 231,594 1.67 -- -- -- -- --
71 -- 12 Dec-95 238,741 1.45 33,748 -- -- -- 33,748
72 248,890 12 Dec-95 290,161 1.75 37,575 -- -- 3,000 40,575
73 214,571 12 Dec-95 269,880 1.63 51,030 -- -- 15,000 66,030
74 282,778 12 Dec-95 269,703 1.68 7,312 -- -- -- 7,312
75 293,281 12 Dec-95 307,421 2.14 5,750 -- -- -- 5,750
76 172,009 5 May-95 91,989 1.43 -- -- -- 50,000 50,000
77 217,945 12 Dec-95 291,594 1.93 144,653 -- -- -- 144,653
78 191,571 12 Dec-95 288,151 1.94 56,189 -- -- -- 56,189
79 288,241 12 Dec-95 303,306 2.16 32,581 90,000 -- -- 122,581
80 207,664 12 Dec-95 233,452 1.64 21,288 -- -- 7,800 29,088
81 225,306 12 Dec-95 252,806 1.46 -- -- -- -- --
82 164,882 12 Dec-95 194,062 1.48 1,438 -- -- -- 1,438
83 -- 11 Nov-95 194,965 1.77 -- -- -- -- --
84 -- 12 Dec-95 161,455 1.30 -- -- -- 8,750 8,750
85 175,509 12 Dec-95 178,330 1.43 -- -- -- -- --
86 186,174 11 Nov-95 168,665 1.53 -- -- -- -- --
87 -- 12 Mar-96 163,989 1.53 -- -- -- -- --
88 233,655 9 Sep-95 180,064 2.23 -- -- -- -- --
89 -- 11 Dec-95 101,502 1.16 -- -- -- -- --
90 -- -- -- -- -- -- -- -- -- --
91 252,554 12 Dec-95 208,071 2.04 3,313 -- -- -- 3,313
</TABLE>
- ----------------------------
(1) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM = Yield
Maintenance, Example: LO-45, YM-12, 3%-12, 2%-12, 1%-12, 0%-3; Means that as
of the Cut-off date, a Mortgage Loan has a 45-month Lock-out Period,
followed by a 12 month period where Prepayment Premium is calculated based
on Yield Maintenance; followed by three 12 month periods where the
Prepayment Premium is 3%, 2% and 1%, respectively; of amount prepaid
followed by 3 month period where there is no Prepayment Premium. See
discussion of Prepayment Lock-out/Prepayment Premium Analysis.
(2) Net Operating Income for a Mortgaged Property equals the operating revenues
for such Mortgaged Property minus its operating expenses and replacement
reserves, but without giving effect to debt service, depreciation,
non-recurring capital expenditures, tenant improvements, leasing commissions
and similar items.
(3) Net Operating Income represents in the case of 1993 and 1994 NOI, operating
income based on a 12 month fiscal operating statement and in the case of
1995 NOI, operating income based on an operating statement covering 12
months or annualized income based on an operating statement covering the
period indicated.
A-9
<PAGE> 80
<TABLE>
<CAPTION>
1993
LOAN REQUIRED NOI
NUMBER PREPAYMENT PROVISIONS(1) STMT FREQ (2)(3)
- ------ -------------------------------------------------------------------------------------------------- --------- ----------
<C> <S> <C> <C>
92 LO-43,YM-60,0%-12 Quarterly 161,990
93 LO-21,YM-24,3%-12,2%-12,1%-36,0%-12 Quarterly 149,861
94 LO-17,YM-56,0%-6 Quarterly --
95 LO-45,YM-60,0%-12 Quarterly 140,562
96 LO-44,YM- 60,0%-12 Quarterly --
97 LO-45,YM- 66,0%-6 Quarterly 101,161
98 LO-43,YM-66,0%-6 Quarterly --
99 LO-82,YM-84,0%-12 Quarterly --
100 YM-19,3%-12,2%-12,1%-24,0%-12 Quarterly 101,591
101 LO-80,YM- 204,0%-12 Quarterly 112,338
102 LO-41,YM- 67,0%-6 Quarterly 93,245
103 LO-42,YM-60,0%- 12 Quarterly --
CROWN TOTALS(4)
LO-35,3%-24, 2%-24, 1%-24 Monthly 11,597,995
<CAPTION>
UPFRONT RESERVES
1994 1995 1995 1995 -------------------------------------------------
LOAN NOI 1995 END NOI DSCR REPAIR &
NUMBER (2)(3) MONTHS DATE (2)(3) (2)(3) REMEDIATION TI/LC P&I ENVIRON. TOTAL
- ------ ----------- ------ -------- --------- ----- ----------- ------- ------- -------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
92 162,659 12 Dec-95 163,788 1.68 14,500 -- -- 3,125 17,625
93 155,828 12 Dec-95 168,430 1.75 7,000 -- -- -- 7,000
94 -- 11 Dec-95 143,115 1.59 -- -- -- -- --
95 136,330 12 Dec-95 125,638 1.50 22,575 -- -- -- 22,575
96 -- 12 Dec-95 147,064 1.63 71,750 -- -- -- 71,750
97 113,756 12 Dec-95 145,379 1.69 -- -- -- -- --
98 -- 12 Dec-95 171,449 2.01 20,693 -- -- -- 20,693
99 -- 12 Dec-95 147,327 1.63 -- -- -- -- --
100 100,370 12 Dec-95 105,709 1.58 62,688 -- -- -- 62,688
101 -- 12 Dec-95 134,443 1.96 -- -- -- -- --
102 84,467 12 Dec-95 92,216 1.38 15,063 26,700 -- -- 41,763
103 -- 8 Aug-95 11,610 0.39 -- -- -- -- --
CROWN TOTALS(4)
12,762,100 12 Jan-96 13,857,022 1.76 869,515 -- -- -- 869,515
</TABLE>
- ----------------------------
(1) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM = Yield
Maintenance; Example: LO-45, YM-12, 3%-12, 2%-12, 1%-12, 0%-3; Means that as
of the Cut-off date, a Mortgage Loan has a 45-month Lock-out Period,
followed by a 12 month period where Prepayment Premium is calculated based
on Yield Maintenance, followed by three 12 month periods where the
Prepayment Premium is 3%, 2% and 1%, respectively, of amount prepaid
followed by 3 month period where there is no Prepayment Premium. See
discussion of Prepayment Lock-out Prepayment Premium Analysis.
(2) Net Operating Income for a Mortgaged Property equals the operating revenues
for such Mortgaged Property minus its operating expenses and replacement
reserves, but without giving effect to debt service, depreciation,
non-recurring capital expenditures, tenant improvements, leasing commissions
and similar items.
(3) Net Operating Income represents in the case of 1993 and 1994 NOI, operating
income based on a 12 month fiscal operating statement and in the case of
1995 NOI, operating income based on an operating statement covering 12
months or annualized income based on an operating statement covering the
period indicated.
(4) Except for the Cut-off Balance, all amounts and terms were calculated based
on a 100% participation interest in the Crown Hotel Notes.
A-10
<PAGE> 81
<TABLE>
<CAPTION>
ONGOING RESERVES(1)
LOAN ---------------------------------------------------------------------
NUMBER REPLACE. TAXES INSURANCE TI/LC ORIGINATOR SERVICER
- -------- -------- -------------------- --------------------- ------- ---------- -------
<C> <C> <C> <C> <C> <C> <S>
1 17,400 1/12 of annual taxes -- -- A AMI
2 -- 1/12 of annual taxes -- -- J BOMCC
3 -- 1/12 of annual taxes 1/12 of annual amount 5,140 M BOMCC
4 3,307 1/12 of annual taxes 1/12 of annual amount 7,669 A AMI
5 7,500 1/12 of annual taxes 1/12 of annual amount -- J BOMCC
6 -- 1/12 of annual taxes -- -- H GMACCM
7 2,074 1/12 of annual taxes 1/12 of annual amount 6,000 A AMI
8 -- 1/12 of annual taxes -- 13,172 A AMI
9 2,070 1/12 of annual taxes 1/12 of annual amount 13,783 B BOMCC
10 -- 1/12 of annual taxes -- -- A AMI
11 -- 1/12 of annual taxes -- -- J BOMCC
12 24,750 1/12 of annual taxes -- -- A AMI
13 2,283 1/12 of annual taxes 1/12 of annual amount 6,009 A AMI
14 84 1/12 of annual taxes 1/12 of annual amount 6,342 B BOMCC
15 -- 1/12 of annual taxes 1/12 of annual amount -- A AMI
16 1,542 1/12 of annual taxes 1/12 of annual amount 2,708 A AMI
17 15,057 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
18 4,167 1/12 of annual taxes -- -- N BOMCC
19 5,958 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
20 1,442 1/12 of annual taxes 1/12 of annual amount 3,364 A AMI
21 12,795 1/12 of annual taxes -- -- A AMI
22 -- 1/12 of annual taxes -- -- H GMACCM
23 3,338 1/12 of annual taxes 1/12 of annual amount -- A AMI
24 701 1/12 of annual taxes 1/12 of annual amount 2,292 B BOMCC
25 -- 1/12 of annual taxes -- -- H GMACCM
26 -- 1/12 of annual taxes -- -- H GMACCM
27 2,367 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
28 3,471 1/12 of annual taxes 1/12 of annual amount -- A AMI
29 4,538 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
30 -- 1/12 of annual taxes -- 6,488 J BOMCC
31 -- -- -- 3,500 J BOMCC
32 -- 1/12 of annual taxes 1/12 of annual amount -- J BOMCC
33 1,580 1/12 of annual taxes 1/12 of annual amount 2,508 B BOMCC
34 5,419 1/12 of annual taxes 1/12 of annual amount -- A AMI
35 807 1/12 of annual taxes 1/12 of annual amount 2,917 R AMI
36 10,300 1/12 of annual taxes -- -- A AMI
37 651 1/12 of annual taxes 1/12 of annual amount 2,747 A AMI
38 -- 1/12 of annual taxes 1/12 of annual amount 2,108 A AMI
39 -- 1/12 of annual taxes 1/12 of annual amount 2,001 A AMI
40 2,831 1/12 of annual taxes 1/12 of annual amount -- A AMI
41 3,230 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
42 5,036 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
43 -- 1/12 of annual taxes -- -- H GMACCM
44 -- 1/12 of annual taxes -- -- H GMACCM
45 1,667 1/12 of annual taxes 1/12 of annual amount 3,958 N BOMCC
46 -- 1/12 of annual taxes 1/12 of annual amount 1,567 A AMI
47 9,836 1/12 of annual taxes 1/12 of annual amount -- N BOMCC
48 1,332 1/12 of annual taxes 1/12 of annual amount 2,763 A AMI
49 5,167 1/12 of annual taxes 1/12 of annual amount -- A AMI
50 4,399 1/12 of annual taxes -- -- A AMI
51 -- 1/12 of annual taxes -- -- H GMACCM
52 923 1/12 of annual taxes 1/12 of annual amount 1,538 M BOMCC
53 1,267 1/12 of annual taxes 1/12 of annual amount -- A AMI
<CAPTION>
ONGOING RESERVES(1)
LOAN ---------------------------------------------------------------------
NUMBER REPLACE. TAXES INSURANCE TI/LC ORIGINATOR SERVICER
- -------- -------- -------------------- --------------------- ------- ---------- -------
<C> <C> <C> <C> <C> <C> <S>
54 -- 1/12 of annual taxes -- -- H GMACCM
55 4,170 1/12 of annual taxes -- -- A AMI
56 3,165 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
57 -- 1/12 of annual taxes -- -- H GMACCM
58 3,783 1/12 of annual taxes -- -- A AMI
59 285 1/12 of annual taxes 1/12 of annual amount 870 A AMI
60 -- 1/12 of annual taxes 1/12 of annual amount -- M BOMCC
61 4,641 1/12 of annual taxes -- -- A AMI
62 -- 1/12 of annual taxes 1/12 of annual amount -- N BOMCC
63 1,333 1/12 of annual taxes -- -- H GMACCM
64 174 1/12 of annual taxes 1/12 of annual amount 1,148 B BOMCC
65 767 1/12 of annual taxes -- 1,250 A AMI
66 -- 1/12 of annual taxes -- -- H GMACCM
67 251 1/12 of annual taxes -- 458 B BOMCC
68 1,752 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
69 1,667 1/12 of annual taxes 1/12 of annual amount -- A AMI
70 -- -- -- -- H GMACCM
71 3,729 1/12 of annual taxes 1/12 of annual amount -- A AMI
72 -- 1/12 of annual taxes 1/12 of annual amount -- M BOMCC
73 -- 1/12 of annual taxes 1/12 of annual amount -- M BOMCC
74 -- 1/12 of annual taxes 1/12 of annual amount -- H BOMCC
75 -- 1/12 of annual taxes -- -- H GMACCM
76 -- 1/12 of annual taxes -- -- H GMACCM
77 -- 1/12 of annual taxes -- -- H GMACCM
78 2,833 1/12 of annual taxes 1/12 of annual amount -- A AMI
79 1,085 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
80 -- 1/12 of annual taxes 1/12 of annual amount -- M BOMCC
81 -- 1/12 of annual taxes -- -- H GMACCM
82 3,121 1/12 of annual taxes 1/12 of annual amount -- B BOMCC
83 -- -- -- -- H GMACCM
84 -- 1/12 of annual taxes -- -- H GMACCM
85 -- 1/12 of annual taxes -- -- H GMACCM
86 -- 1/12 of annual taxes -- -- H GMACCM
87 -- 1/12 of annual taxes -- -- H GMACCM
88 -- 1/12 of annual taxes -- -- H GMACCM
89 -- 1/12 of annual taxes -- -- H GMACCM
90 -- 1/12 of annual taxes -- -- H GMACCM
91 672 1/12 of annual taxes 1/12 of annual amount -- M BOMCC
92 -- 1/12 of annual taxes -- -- H GMACCM
93 -- 1/12 of annual taxes -- -- H GMACCM
94 374 1/12 of annual taxes -- -- A AMI
95 -- 1/12 of annual taxes 1/12 of annual amount -- H GMACCM
96 1,100 1/12 of annual taxes -- -- H GMACCM
97 875 1/12 of annual taxes -- -- N BOMCC
98 2,352 1/12 of annual taxes 1/12 of annual amount -- A AMI
99 -- 1/12 of annual taxes -- -- H GMACCM
100 -- 1/12 of annual taxes -- -- H GMACCM
101 -- 1/12 of annual taxes -- -- H GMACCM
102 184 1/12 of annual taxes -- 438 A AMI
103 -- 1/12 of annual taxes 1/12 of annual amount -- H GMACCM
CROWN
TOTAL(2) 352,411 1/12 of annual taxes -- -- A BOMCC
</TABLE>
--------------------------------------
(1) Represents the monthly payment.
(2) Represents average monthly amount. See "Description of the
Mortgage Pool -- The Crown Participation -- Reserves."
Key: A: AMRESCO Capital Corporation B: Bank One Commercial Loan H:
Home Savings of America J: John Hancock Real Estate M: Midlantic
Bank N: Norwest Bank Minnesota
A-11
<PAGE> 82
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 83
FORM OF MONTHLY REPORTS -- ANNEX B
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C3
PAYMENT DATE:
REPORT TO CERTIFICATEHOLDERS
QUICK REFERENCE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED
BEGINNING PRINCIPAL ENDING
BALANCE CERTIFICATE INTEREST DISTRIBUTION PRINCIPAL INTEREST BALANCE
CLASS FACTOR RATE TYPE PERCENTAGES DISTRIBUTION DISTRIBUTION FACTOR
------- --------- ----------- -------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A1
A1X
A2
A2X
B
BX
C
CX
D
E
F
G
NR
R-I
R-II
R-III
Total
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAYMENT SUMMARY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL INTEREST INTEREST TOTAL
CLASS PAYABLE ADJUSTMENTS PAYABLE ADJUSTMENTS PAYABLE
------- --------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
A1
A1X
A2
A2X
B
BX
C
CX
D
E
F
G
NR
R-I
R-II
R-III
Total
- ----------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE> 84
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C3
PAYMENT DATE:
REPORT TO CERTIFICATEHOLDERS (CONTINUED)
PRINCIPAL DISTRIBUTION DETAIL
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED UNSCHEDULED
PRINCIPAL COLLATERAL PRINCIPAL DISTRIBUTION
BEGINNING DISTRIBUTION VALUATION DISTRIBUTION REALIZED CERTIFICATE PREPAYMENT ENDING
CLASS BALANCE AMOUNT ADJUSTMENT AMOUNT LOSSES PRINCIPAL PREMIUM BALANCE
------- --------- ------------ ---------- ------------ -------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A1
A1X
A2
A2X
B
BX
C
CX
D
E
F
G
NR
R-I
R-II
R-III
Total
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTEREST DISTRIBUTION DETAIL
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION
CERTIFICATE UNPAID
ACCRUED PREPAYMENT PREPAYMENT INTEREST DISTRIBUTION DISTRIBUTABLE
CERTIFICATE INTEREST INTEREST FOR PRIOR CERTIFICATE PREPAYMENT CERTIFICATE
CLASS INTEREST EXCESS SHORTFALL DISTRIBUTION DATES INTEREST PREMIUM INTEREST
------- ----------- ---------- ---------- ------------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A1
A1X
A2
A2X
B
BX
C
CX
D
E
F
G
NR
R-I
R-II
R-III
Total
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE> 85
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C3
PAYMENT DATE:
REPORT TO CERTIFICATEHOLDERS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIAL
SERVICING SERVICING CURRENT CUMULATIVE REIMBURSEMENT
CLASS FEES FEES ADVANCES ADVANCES ON ADVANCES
---- ------- ------- ------- --------- -------------
A1
A1X
A2
A2X
B
BX
C
CX
D
E
F
G
NR
R-I
R-II
R-III
Total
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE> 86
J. P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C3
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS
<TABLE>
<CAPTION>
WTD AVE
AVERAGE PERCENT OF AT PERCENT OF REM MONTHS
NUMBER CURRENT CURRENT CURRENT ISSUE AT ISSUE WTD AVE TO
OF LOANS BALANCE BALANCE BALANCE BALANCE BALANCE COUPON(1) MATURITY(1)
-------- ------- ------- ---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY:
- ---------------------------------------------------------------------------------------------------------------------------------
At Issue
Current
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WTD AVE
REM MONTHS WTD AVE
TO WTD AVE AMORTIZED
AMORTIZE(1) DSCR(1)(2) LTV(1)(2)
---------- ---------- ---------
<S> <C> <C> <C> <C>
SUMMARY:
- ---------------------------------------------------------------------------------------------------------------------------------
At Issue
Current
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Weighted averages based on the current principal balance.
(2)DSCR based on most current available information.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS COUPONS:
- ---------------------------------------------------------------------------------------------------------------------------------
7.50 - 7.75%
7.76 - 8.00
8.01 - 8.25
8.00 - 8.25
8.26 - 8.50
8.51 - 8.75
8.76 - 9.00
9.01 - 9.25
9.26 - 9.50
9.51 - 9.75
9.76 - 10.00
10.51 - 10.75%
- ---------------------------------------------------------------------------------------------------------------------------------
PROPERTY TYPES:
- ---------------------------------------------------------------------------------------------------------------------------------
Multi-Family
Retail -- with anchor
tenant(2)
Hotel
Retail -- without
anchor tenant(2)
Nursing Home
Office
Industrial
Mobile Home Park
Self Storage
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-4
<PAGE> 87
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS (CONTINUED)
<TABLE>
<CAPTION>
WTD AVE WTD AVE
AVERAGE PERCENT OF AT PERCENT OF REM MONTHS REM MONTHS
NUMBER CURRENT CURRENT CURRENT ISSUE AT ISSUE WTD AVE TO TO
OF LOANS BALANCE BALANCE BALANCE BALANCE BALANCE COUPON(1) MATURITY(1) AMORTIZE(1)
-------- ------- ------- ---------- ------- ---------- --------- ----------- -----------
MONTHS TO MATURITY:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
97 - 108
109 - 120
Over 120
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
WTD AVE
WTD AVE AMORTIZED
DSCR(1)(2) LTV(1)(2)
---------- ---------
MONTHS TO MATURITY:
- --------------------------------------------
<S> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
97 - 108
109 - 120
Over 120
- --------------------------------------------
</TABLE>
(1) Weighted averages based on the current principal balance.
(2) DSCR based on most current available information.
<TABLE>
<CAPTION>
CURRENT BALANCES:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
$ 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
8,000,001 - 9,000,000
9,000,001 -10,000,000
10,000,001 -11,000,000
12,000,001 -13,000,000
Over $13,000,001
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED LTV:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
50.00% or less
50.01% - 55.00%
55.01% - 60.00%
60.01% - 65.00%
65.01% - 70.00%
70.01% - 75.00%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE> 88
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS (CONTINUED)
<TABLE>
<CAPTION>
WTD AVE WTD AVE
AVERAGE PERCENT OF AT PERCENT OF REM MONTHS REM MONTHS WTD AVE
NUMBER CURRENT CURRENT CURRENT ISSUE AT ISSUE WTD AVE TO TO WTD AVE AMORTIZED
OF LOANS BALANCE BALANCE BALANCE BALANCE BALANCE COUPON(1) MATURITY(1) AMORTIZE(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ---------- ------- ---------- --------- ----------- ----------- ---------- ---------
STATE:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Texas
California
Pennsylvania
Florida
Georgia
Arizona
Wisconsin
Colorado
Kansas
Washington
Indiana
Utah
Ohio
Maryland
Iowa
New Jersey
Oregon
South Dakota
Connecticut
North Carolina
Oklahoma
Kentucky
New York
Louisiana
New Mexico
Virginia
Massachusetts
Tennessee
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Weighted averages based on the current principal balance.
(2) DSCR based on most current available information.
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Over 2.000x
1.901 to 2.000x
1.801 to 1.900x
1.701 to 1.800x
1.601 to 1.700x
1.501 to 1.600x
1.401 to 1.500x
1.301 to 1.400x
1.251 to 1.300x
1.200 to 1.250x
Under 1.200x
Not Available
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-6
<PAGE> 89
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS (CONTINUED)
<TABLE>
<CAPTION>
WTD AVE WTD AVE
AVERAGE PERCENT OF AT PERCENT OF REM MONTHS REM MONTHS WTD AVE
NUMBER CURRENT CURRENT CURRENT ISSUE AT ISSUE WTD AVE TO TO WTD AVE AMORTIZED
OF LOANS BALANCE BALANCE BALANCE BALANCE BALANCE COUPON(1) MATURITY(1) AMORTIZE(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ---------- ------- ---------- --------- ----------- ----------- ---------- ---------
PROPERTY AGE (IN YEARS):
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Under 5
6 - 10
11 - 15
16 - 20
21 - 25
26 - 30
Over 30
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CURRENT DELINQUENCY STATUS:
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current
31 - 60 Days
61 - 90 Days
91 - 180 Days
Over 180 Days
Foreclosure
REO
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Weighted averages based on the current principal balance.
(2) DSCR based on most current available information
B-7
<PAGE> 90
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS (CONTINUED)
DELINQUENCY TREND:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CURRENT CURRENT 31-60 DAYS 61-90 DAYS 91-180 DAYS OVER 180 DAYS FORECLOSURE REO
AND EACH --------- ---------- ---------- ----------- ------------- ----------- ---------
PRIOR
DISTRIBUTION $ % # $ % # $ % # $ % # $ % # $ % # $ % #
DATE - - - - - - - - - - - - - - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
PREPAYMENT PENALTY:
- -------------------------------------------------------------------------------------------------------------------
CURRENT + 1 YEAR + 2 YEARS + 3 YEARS + 4 YEARS + 5 YEARS
------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
L/O
YM1
YM2
YM3
YM4
5%
4%
3%
2%
1%
None
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Stated as a Percentage of Current Principal Outstanding
B-8
<PAGE> 91
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
PORTFOLIO SUMMARY STATISTICS (CONTINUED)
OCCUPANCY:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE OCCUPANCY MOST PERCENT OF
PER MOST RECENT RECENT CURRENT CURRENT
PROPERTY TYPE RENT ROLL AVE RENT BALANCE BALANCE
------------- ----------------- -------- ------- ----------
<S> <C> <C> <C> <C>
Multi-Family
Retail
Hotel
Office
Industrial
Retail/Office
Self Storage
Nursing Home
Mobile Home Part
Warehouse/Distribution Center
Multi-Family/Retail
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LOAN PAYOFF/PROPERTY DISPOSITION DETAIL:
- ------------------------------------------------------------------------------------------------------------------------------
PAYOFF/ NATURE OF PAYOFF/ PAYOFF/ DISPOSITION PROCEEDS
PROPERTY DISPOSITION PAYOFF/ DISPOSITION DISPOSITION REIMBURSABLE TO SERVICER REALIZED
NAME DATE DISPOSITION BALANCE PROCEEDS (UNPAID FEES, ADVANCES, INTEREST) LOSS
-------- ----------- ----------- ----------- ----------- --------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE> 92
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
COLLATERAL PERFORMANCE REPORT(1)(2)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LEASE
MOST RECENT DATA QUARTERLY TRENDS EXPIRATION
------------------------------------ ---------------------------------------------------- ---------------
LOAN PROPERTY LTV/ CHANGE PRIOR PRIOR PRIOR PRIOR % OF
NUMBER IDENTIFICATION DESCRIPTION DATE AMOUNT DSCR IN: CURRENT QTR-1 QTR-2 QTR-3 QTR-4 YEAR SQ. FT.
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0000 Name Appraisal mm/yy $ % Occupancy % % % % % Curr %
Address NOI mm/yy $ X +1 %
Type/Units Trailing NOI mm/yy $ X Average % % % % % +2 %
Rent
SF/Year Built Occupancy mm/yy % +3 %
Loan per Unit Avg mm/yy $ EGI % % % % % +4 %
Rent/Unit/MO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The above information will be provided on a monthly basis for each loan and
will be updated to the extent current information is made available.
(2) The above information with respect to the Crown Hotel Properties will be
provided as if one property.
B-10
<PAGE> 93
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
SPECIALLY SERVICED ASSET/REO REPORT
Primary Loan ID Number
Related Owner Loan ID Number
Specially Serviced Loan Status
Servicing Transfer Date
REO Date of Acquisition
Date of Note
Lien Position Code
Cross Collateralization Provision
Cross Default Terms
Maturity Date
Paid-To-Date
Number of Days Past Due
Current Principal Balance
Mortgage Interest Rate
Mortgagor
Name of Mortgaged Property
Property Street Address
Property City
Property County
Property State
Property Zip Code
Property Type Code
Property Type Sub-Code
Occupancy as of Most Recent Rent Roll
Date of Most Recent Rent Roll
Net Rentable Building Area (S.F.)
# of Units/Pads/Beds/Rooms
Cumulative Outstanding Servicing Advance
Most Recent Annual NOI
Date of Most Recent Annual NOI
Annual NOI Statement Type
Trailing NOI
Trailing NOI Date
Trailing Effective Gross Income
Trailing Effective Gross Income Date
B-11
<PAGE> 94
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-C2
PAYMENT DATE:
SPECIALLY SERVICED ASSET/REO REPORT (CONTINUED)
Most Recent Appraised Value
Most Recent Appraised Value Date
Current LTV Ratio
Non-Recoverable Advance Flag
Cumulative Outstanding Non-Recoverable
Sales Contract Due Diligence Expiration Date
Ad Valorum Assessed Value
Executed Sales Contract
Executed Sales Contract Amount
Executed Sales Contract Estimated Closing Date
Issues/Action
Estimated Gain/Loss at REO Sale
Overall Inspection Evaluation at Last Property Inspection Report
Date of Last Property Inspection Report
Net Expense Since Date of REO Acquisition
Number of Pending Offer(s)
Amount of Pending Offer(s)
Prospective Purchaser's Name(s)
Asset Officer
Asset Officer Phone Number
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-12
<PAGE> 95
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more series
(each, a "Series"). Each Series of Certificates will represent in the aggregate
the entire beneficial ownership interest in a trust fund (with respect to any
Series, the "Trust Fund") consisting of one or more segregated pools of various
types of multifamily or commercial mortgage loans (the "Mortgage Loans"),
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by multifamily or
commercial mortgage loans (collectively, the "CMBS") or a combination of
Mortgage Loans and/or CMBS (with respect to any Series, collectively, the
"Mortgage Assets"). If so specified in the related Prospectus Supplement, some
or all of the Mortgage Loans will include assignments of the leases of the
related Mortgaged Properties (as defined herein) and/or assignments of the
rental payments due from the lessees under such leases (each type of assignment,
a "Lease Assignment"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on certain
Series of Certificates, will be such rent payments. If so specified in the
related Prospectus Supplement, the Trust Fund for a Series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
Series, collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Each Series of Certificates will consist of one or more classes of Certificates
that may (i) provide for the accrual of interest thereon based on fixed,
variable or floating rates; (ii) be senior or subordinate to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions; (iv) be entitled to interest
distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
(Continued on next page)
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 OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE CAPTION
"RISK FACTORS" HEREIN AND SUCH INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION
"RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY
OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates of any
Series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement.
JUNE 10, 1996
<PAGE> 96
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any Series will be made only from the assets of the related
Trust Fund.
The Certificates of each Series will not represent an obligation of or
interest in the Depositor, any Master Servicer, any Primary Servicer, any
Special Servicer or any of their respective affiliates, except to the limited
extent described herein and in the related Prospectus Supplement. Neither the
Certificates nor any assets in the related Trust Fund will be guaranteed or
insured by any governmental agency or instrumentality or by any other person,
unless otherwise provided in the related Prospectus Supplement. The Assets in
each Trust Fund will be held in trust for the benefit of the holders of the
related Series of Certificates pursuant to a Pooling and Servicing Agreement and
one or more Servicing Agreements, or a Trust Agreement, as more fully described
herein.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein and
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" for federal income tax purposes. See
also "Certain Federal Income Tax Consequences" herein.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement................................................................. 3
Available Information................................................................. 3
Incorporation of Certain Information by Reference..................................... 4
Summary of Prospectus................................................................. 5
Risk Factors.......................................................................... 12
Description of the Trust Funds........................................................ 19
Use of Proceeds....................................................................... 25
Yield Considerations.................................................................. 25
The Depositor......................................................................... 29
Description of the Certificates....................................................... 29
Description of the Agreements......................................................... 37
Description of Credit Support......................................................... 52
Certain Legal Aspects of the Mortgage Loans and the Leases............................ 54
Certain Federal Income Tax Consequences............................................... 69
State Tax Considerations.............................................................. 93
ERISA Considerations.................................................................. 94
Legal Investment...................................................................... 95
Plan of Distribution.................................................................. 97
Legal Matters......................................................................... 98
Financial Information................................................................. 98
Rating................................................................................ 98
Index of Principal Definitions........................................................ 99
</TABLE>
2
<PAGE> 97
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other shall the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each Series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
class or classes of Certificates, the payment provisions with respect to each
such class and the Pass-Through Rate or method of determining the Pass-Through
Rate with respect to each such class; (ii) the aggregate principal amount and
distribution dates relating to such Series and, if applicable, the initial and
final scheduled distribution dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of the
assets included therein, including the Mortgage Assets and any Credit Support
and Cash Flow Agreements (with respect to the Certificates of any Series, the
"Trust Assets"); (iv) the circumstances, if any, under which the Trust Fund may
be subject to early termination; (v) additional information with respect to the
method of distribution of such Certificates; (vi) whether one or more REMIC
elections will be made and designation of the regular interests and residual
interests; (vii) the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Certificates; (viii) information as
to any Master Servicer, any Primary Servicer, any Special Servicer (or provision
for the appointment thereof) and the Trustee, as applicable; (ix) information as
to the nature and extent of subordination with respect to any class of
Certificates that is subordinate in right of payment to any other class; and (x)
whether such Certificates will be initially issued in definitive or book-entry
form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
Series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W, Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade Center, New
York, New York 10048.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may be secured by an assignment of the lessors' (i.e., the
related Mortgagors') rights in one or more leases (each, a "Lease") on the
related Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, no Series of Certificates will represent interests in or obligations
of any lessee (each, a "Lessee") under a Lease. If indicated, however, in the
Prospectus Supplement for a given Series, a significant or the sole source
3
<PAGE> 98
of payments on the Mortgage Loans in such Series, and, therefore, of
distributions on such Certificates, will be rental payments due from the Lessees
under the Leases. Under such circumstances, prospective investors in the related
Series of Certificates may wish to consider publicly available information, if
any, concerning the Lessees. Reference should be made to the related Prospectus
Supplement for information concerning the Lessees and whether any such Lessees
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended.
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or unless otherwise provided in the related Prospectus
Supplement, such reports will be sent on behalf of the related Trust Fund to
Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC") and
registered holder of the Offered Certificates, pursuant to the applicable
Agreement. Such reports may be available to Beneficial Owners (as defined
herein) in the Certificates upon request to their respective DTC Participants or
Indirect Participants (as defined herein). See "Description of the
Certificates -- Reports to Certificateholders" and "Description of the
Agreements -- Evidence as to Compliance."
The Depositor 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. The Depositor intends to make a
written request to the staff of the Commission that the staff either (i) issue
an order pursuant to Section 12(h) of the Exchange Act exempting the Depositor
from certain reporting requirements under the Exchange Act with respect to each
Trust Fund or (ii) state that the staff will not recommend that the Commission
take enforcement action if the Depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the Depositor will
file or cause to be filed with the Commission as to each Trust Fund the periodic
unaudited reports to holders of the Offered Certificates referenced in the
preceding paragraph; however, because of the nature of the Trust Funds, it is
unlikely that any significant additional information will be filed. In addition,
because of the limited number of Certificateholders expected for each series,
the Depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Offered Certificates evidencing interests therein. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or more
classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to J.P. Morgan Commercial Mortgage Finance Corp., c/o J.P
Morgan Securities Inc., 60 Wall Street, New York, New York 10260-0060,
Attention: Secretary. The Depositor has determined that its financial statements
are not material to the offering of any Offered Certificates.
4
<PAGE> 99
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each Series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such "Series." An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates...... Mortgage Pass-Through Certificates, issuable in
Series (the "Certificates").
Depositor.................. J.P. Morgan Commercial Mortgage Finance Corp., an
indirect wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated. See "The Depositor."
Master Servicer............ The master servicer (the "Master Servicer"), if
any, for each Series of Certificates, which may be
an affiliate of the Depositor, will be named in the
related Prospectus Supplement. See "Description of
the Agreements -- Collection and Other Servicing
Procedures."
Special Servicer........... The special servicer (the "Special Servicer"), if
any, for each Series of Certificates, which may be
an affiliate of the Depositor, will be named, or
the circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus Supplement.
See "Description of the Agreements -- Special
Servicers."
Primary Servicer........... The primary servicer (the "Primary Servicer"), if
any, for each Series of Certificates, which may be
an affiliate of the Depositor, will be named in the
related Prospectus Supplement. See "Description of
the Agreements -- Collection and Other Servicing
Procedures."
Trustee.................... The trustee (the "Trustee") for each Series of
Certificates will be named in the related
Prospectus Supplement. See "Description of the
Agreements -- The Trustee."
The Trust Assets........... Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest
in a Trust Fund consisting primarily of:
(a) Mortgage Assets...... The Mortgage Assets with respect to each Series of
Certificates will consist of a pool of multifamily
and/or commercial mortgage loans (collectively, the
"Mortgage Loans") and mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in
or secured by Mortgage Loans (collectively, the
"CMBS") or a combination of Mortgage Loans and
CMBS. The Mortgage Loans will not be guaranteed or
insured by the Depositor or any of its affiliates
or, unless otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. The CMBS may be
guaranteed or insured by an affiliate of the
Depositor, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage
Association, the Government National Mortgage
Association, or any other person specified in the
related Prospectus Supplement. As more specifically
described herein, the Mortgage Loans will be
secured by first or junior liens on, or security
interests in, properties consisting of (i)
residential properties consisting of five or more
rental or cooperatively owned dwelling units (the
"Multifamily Properties") or (ii) office buildings,
retail centers, hotels or motels, nursing homes,
congregate care facilities, industrial properties,
mini-
5
<PAGE> 100
warehouse facilities or self-storage facilities,
mobile home parks, mixed use or other types of
commercial properties (the "Commercial
Properties"). The term "Mortgaged Properties" shall
refer to Multifamily Properties or Commercial
Properties, or both.
To the extent described in the related Prospectus
Supplement, some or all of the Mortgage Loans may
also be secured by an assignment of one or more
leases (each, a "Lease") of one or more lessees
(each, a "Lessee") of all or a portion of the
related Mortgaged Properties. Unless otherwise
specified in the related Prospectus Supplement, a
significant or the sole source of payments on
certain Commercial Loans (as defined herein) will
be the rental payments due under the related
Leases. In certain circumstances, with respect to
Commercial Properties, the material terms and
conditions of the related Leases may be set forth
in the related Prospectus Supplement. See
"Description of the Trust Funds -- Mortgage
Loans -- Leases" and "Risk Factors -- Limited
Assets" herein.
The Mortgaged Properties may be located in or
outside the United States. All Mortgage Loans will
have individual principal balances at origination
of not less than $250,000 and original terms to
maturity of not more than 40 years. All Mortgage
Loans will have been originated by persons other
than the Depositor, and all Mortgage Assets will
have been purchased, either directly or indirectly,
by the Depositor on or before the date of initial
issuance of the related Series of Certificates. The
related Prospectus Supplement will indicate if any
such persons are affiliates of the Depositor.
Each Mortgage Loan may provide for no accrual of
interest or for accrual of interest thereon at an
interest rate (a "Mortgage Interest Rate") that is
fixed over its term or that adjusts from time to
time, or is partially fixed and partially floating
or that may be converted from a floating to a fixed
Mortgage Interest Rate, or from a fixed to a
floating Mortgage Interest Rate, from time to time
at the Mortgagor's election, in each case as
described in the related Prospectus Supplement. The
floating Mortgage Interest Rates on the Mortgage
Loans in a Trust Fund may be based on one or more
indices. Each Mortgage Loan may provide for
scheduled payments to maturity, payments that
adjust from time to time to accommodate changes in
the Mortgage Interest Rate or to reflect the
occurrence of certain events, and may provide for
negative amortization or accelerated amortization,
in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due on its
stated maturity date, in each case as described in
the related Prospectus Supplement. Each Mortgage
Loan may contain prohibitions on prepayment or
require payment of a premium or a yield maintenance
penalty in connection with a prepayment, in each
case as described in the related Prospectus
Supplement. The Mortgage Loans may provide for
payments of principal, interest or both, on due
dates that occur monthly, quarterly, semi-annually
or at such other interval as is specified in the
related Prospectus Supplement. See "Description of
the Trust Funds--Assets."
(b) Collection
Accounts................... Each Trust Fund will include one or more accounts
established and maintained on behalf of the
Certificateholders into which the person or persons
designated in the related Prospectus Supplement
will, to the
6
<PAGE> 101
extent described herein and in such Prospectus
Supplement, deposit all payments and collections
received or advanced with respect to the Mortgage
Assets and other assets in the Trust Fund. Such an
account may be maintained as an interest bearing or
a non-interest bearing account, and funds held
therein may be held as cash or invested in certain
short-term, investment grade obligations, in each
case as described in the related Prospectus
Supplement. See "Description of the Agreements--
Distribution Account and Other Collection
Accounts."
(c) Credit Support....... If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage Assets
in the related Trust Fund may be provided to one or
more classes of Certificates of the related Series
in the form of subordination of one or more other
classes of Certificates of such Series, which other
classes may include one or more classes of Offered
Certificates, or by one or more other types of
credit support, such as a letter of credit,
insurance policy, guarantee, reserve fund or
another type of credit support, or a combination
thereof (any such coverage with respect to the
Certificates of any Series, "Credit Support"). The
amount and types of coverage, the identification of
the entity providing the coverage (if applicable)
and related information with respect to each type
of Credit Support, if any, will be described in the
Prospectus Supplement for a Series of Certificates.
The Prospectus Supplement for any Series of
Certificates evidencing an interest in a Trust Fund
that includes CMBS will describe any similar forms
of credit support that are provided by or with
respect to, or are included as part of the trust
fund evidenced by or providing security for, such
CMBS. See "Risk Factors -- Credit Support
Limitations" and "Description of Credit Support."
(d) Cash Flow
Agreements................. If so provided in the related Prospectus
Supplement, the Trust Fund may include guaranteed
investment contracts pursuant to which moneys held
in the funds and accounts established for the
related Series will be invested at a specified
rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange
agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements
provided to reduce the effects of interest rate or
currency exchange rate fluctuations on the Mortgage
Assets of one or more classes of Certificates. The
principal terms of any such guaranteed investment
contract or other agreement (any such agreement, a
"Cash Flow Agreement"), including, without
limitation, provisions relating to the timing,
manner and amount of payments thereunder and
provisions relating to the termination thereof,
will be described in the Prospectus Supplement for
the related Series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor under any
such Cash Flow Agreement. The Prospectus Supplement
for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will
describe any cash flow agreements that are included
as part of the trust fund evidenced by or providing
security for such CMBS. See "Description of the
Trust Funds -- Cash Flow Agreements."
Description of
Certificates............... Each Series of Certificates evidencing an interest
in a Trust Fund that includes Mortgage Loans as
part of its assets will be issued pursuant to a
pooling and servicing agreement, and each Series of
Certificates evidenc-
7
<PAGE> 102
ing an interest in a Trust Fund that does not
include Mortgage Loans will be issued pursuant to a
trust agreement. The Mortgage Loans shall be
serviced pursuant to a pooling and servicing
agreement and a servicing agreement. Pooling and
servicing agreements, servicing agreements and
trust agreements are referred to herein as the
"Agreements." Each Series of Certificates will
include one or more classes. Each Series of
Certificates (including any class or classes of
Certificates of such Series not offered hereby)
will represent in the aggregate the entire
beneficial ownership interest in the Trust Fund.
Each class of Certificates (other than certain
Stripped Interest Certificates, as defined below)
will have a stated principal amount (a "Certificate
Balance") and (other than certain Stripped
Principal Certificates, as defined below), will
accrue interest thereon based on a fixed, variable
or floating interest rate (a "Pass-Through Rate").
The related Prospectus Supplement will specify the
Certificate Balance, if any, and the Pass-Through
Rate, if any, for each class of Certificates or, in
the case of a variable or floating Pass-Through
Rate, the method for determining the Pass-Through
Rate.
Distributions on
Certificates............... Each Series of Certificates will consist of one or
more classes of Certificates that may (i) provide
for the accrual of interest thereon based on fixed,
variable or floating rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes of
Certificates in respect of certain distributions on
the Certificates; (iii) be entitled to principal
distributions, with disproportionately low, nominal
or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be
entitled to interest distributions, with
disproportionately low, nominal or no principal
distributions (collectively, "Stripped Interest
Certificates"); (v) provide for distributions of
accrued interest thereon commencing only following
the occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such Series (collectively, "Accrual
Certificates"); (vi) provide for distributions of
principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii)
provide for distributions based on a combination of
two or more components thereof with one or more of
the characteristics described in this paragraph,
including a Stripped Principal Certificate
component and a Stripped Interest Certificate
component, to the extent of available funds, in
each case as described in the related Prospectus
Supplement. Any such classes may include classes of
Offered Certificates. With respect to Certificates
with two or more components, references herein to
Certificate Balance, notional amount and Pass-
Through Rate refer to the principal balance, if
any, notional amount, if any, and the Pass-Through
Rate, if any, for any such component.
The Certificates will not be guaranteed or insured
by the Depositor or any of its affiliates, by any
governmental agency or instrumentality or by any
other person, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors -- Limited Assets" and "Description of the
Certificates."
(a) Interest............. Interest on each class of Offered Certificates
(other than Stripped Principal Certificates and
certain classes of Stripped Interest Certificates)
of each Series will accrue at the applicable
Pass-Through Rate on the outstanding Certificate
Balance thereof and will be distributed to
8
<PAGE> 103
Certificateholders as provided in the related
Prospectus Supplement (each of the specified dates
on which distributions are to be made, a
"Distribution Date"). Distributions with respect to
interest on Stripped Interest Certificates may be
made on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of interest
with respect to one or more classes of Certificates
may be reduced to the extent of certain
delinquencies, losses, prepayment interest
shortfalls, and other contingencies described
herein and in the related Prospectus Supplement.
Stripped Principal Certificates with no stated
Pass-Through Rate will not accrue interest. See
"Risk Factors -- Average Life of Certificates;
Prepayments; Yields," "Yield Considerations" and
"Description of the Certificates -- Distributions
of Interest on the Certificates."
(b) Principal............ The Certificates of each Series initially will have
an aggregate Certificate Balance no greater than
the outstanding principal balance of the Mortgage
Assets as of, unless the related Prospectus
Supplement provides otherwise, the close of
business on the first day of the month of formation
of the related Trust Fund (the "Cut-off Date"),
after application of scheduled payments due on or
before such date, whether or not received. The
Certificate Balance of a Certificate outstanding
from time to time represents the maximum amount
that the holder thereof is then entitled to receive
in respect of principal from future cash flow on
the assets in the related Trust Fund. Unless
otherwise provided in the related Prospectus
Supplement, distributions of principal will be made
on each Distribution Date to the class or classes
of Certificates entitled thereto until the
Certificate Balances of such Certificates have been
reduced to zero. Unless otherwise specified in the
related Prospectus Supplement, distributions of
principal of any class of Certificates will be made
on a pro rata basis among all of the Certificates
of such class or by random selection, as described
in the related Prospectus Supplement or otherwise
established by the related Trustee. Stripped
Interest Certificates with no Certificate Balance
will not receive distributions in respect of
principal. See "Description of the
Certificates -- Distributions of Principal of the
Certificates."
Advances................... Unless otherwise provided in the related Prospectus
Supplement, the Primary Servicer, the Special
Servicer or the Master Servicer (each, a
"Servicer") will be obligated as part of its
servicing responsibilities to make certain advances
with respect to delinquent scheduled payments on
the Whole Loans in such Trust Fund which it deems
recoverable. Any such advances will be made under
and subject to any determinations or conditions set
forth in the related Prospectus Supplement. Neither
the Depositor nor any of its affiliates will have
any responsibility to make such advances. Advances
made by a Master Servicer are reimbursable
generally from subsequent recoveries in respect of
such Whole Loans and otherwise to the extent
described herein and in the related Prospectus
Supplement. If and to the extent provided in the
Prospectus Supplement for any "Series," each
Servicer will be entitled to receive interest on
its outstanding advances, payable from amounts in
the related Trust Fund. The Prospectus Supplement
for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will
describe any corresponding advancing obligation of
any person in connection with
9
<PAGE> 104
such CMBS. See "Description of the
Certificates -- Advances in Respect of
Delinquencies."
Termination................ If so specified in the related Prospectus
Supplement, a Series of Certificates may be subject
to optional early termination through the
repurchase of the Mortgage Assets in the related
Trust Fund by the party specified therein, under
the circumstances and in the manner set forth
therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate
Balance of a specified class or classes of
Certificates by a specified percentage or amount or
on and after a date specified in such Prospectus
Supplement, the party specified therein will
solicit bids for the purchase of all of the
Mortgage Assets of the Trust Fund, or of a
sufficient portion of such Mortgage Assets to
retire such class or classes, or purchase such
Mortgage Assets at a price set forth in the related
Prospectus Supplement. In addition, if so provided
in the related Prospectus Supplement, certain
classes of Certificates may be purchased subject to
similar conditions. See "Description of the
Certificates -- Termination."
Registration of
Certificates............... If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Certificates will initially be represented by one
or more Certificates registered in the name of Cede
& Co., as the nominee of DTC. No person acquiring
an interest in Offered Certificates so registered
will be entitled to receive a definitive
certificate representing such person's interest
except in the event that definitive certificates
are issued under the limited circumstances
described herein. See "Risk Factors -- Book-Entry
Registration" and "Description of the
Certificates -- Book-Entry Registration and
Definitive Certificates."
Tax Status of the
Certificates............... The Certificates of each Series will constitute
either (i) "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC
Residual Certificates") in a Trust Fund treated as
a real estate mortgage investment conduit ("REMIC")
under Sections 860A through 860G of the Code, or
(ii) interests ("Grantor Trust Certificates") in a
Trust Fund treated as a grantor trust under
applicable provisions of the Code.
(a) REMIC................ REMIC Regular Certificates generally will be
treated as debt obligations of the applicable REMIC
for federal income tax purposes. Certain REMIC
Regular Certificates may be issued with original
issue discount for federal income tax purposes. See
"Certain Federal Income Tax Consequences" in the
Prospectus Supplement.
The Offered Certificates will be treated as (i)
"qualifying real property loans" within the meaning
of section 593(d)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), (ii) assets
described in section 7701(a)(19)(C) of the Code and
(iii) "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code, in each case to
the extent described herein and in the Prospectus.
See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
(b) Grantor Trust........ If no election is made to treat the Trust Fund
relating to a Series of Certificates as a REMIC,
the Trust Fund will be classified as a grantor
trust and not as an association taxable as a
corporation for federal income tax purposes, and
therefore holders of Certificates will be treated
as the
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owners of undivided pro rata interest in the
Mortgage Pool or pool of securities and any other
assets held by the Trust Fund.
Investors are advised to consult their tax advisors
and to review "Certain Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA Considerations....... A fiduciary of an employee benefit plan and certain
other retirement plans and arrangements, including
individual retirement accounts, annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities
or arrangements are invested, that is subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its legal
advisors whether the purchase or holding of Offered
Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in the related
Prospectus Supplement. Certain classes of
Certificates may not be transferred unless the
Trustee and the Depositor are furnished with a
letter of representations or an opinion of counsel
to the effect that such transfer will not result in
a violation of the prohibited transaction
provisions of ERISA and the Code and will not
subject the Trustee, the Depositor or the Master
Servicer to additional obligations. See
"Description of the Certificates -- General" and
"ERISA Considerations."
Legal Investment........... The related Prospectus Supplement will specify
whether the Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984.
Investors whose investment authority is subject to
legal restrictions should consult their own legal
advisors to determine whether and to what extent
the Offered Certificates constitute legal
investments for them. See "Legal Investment" herein
and in the related Prospectus Supplement.
Rating..................... At the date of issuance, as to each Series, each
class of Offered Certificates will be rated not
lower than investment grade by one or more
nationally recognized statistical rating agencies
(each, a "Rating Agency"). See "Rating" herein and
in the related Prospectus Supplement.
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.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the related Agreement as described herein under the heading
"Description of the Certificates -- Reports to Certificateholders,"
"-- Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements -- Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and the
Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates -- Termination."
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations with
respect to the Certificates or the Mortgage Assets will be the obligations (if
any) of the Depositor (or, if otherwise provided in the related Prospectus
Supplement, the person identified therein as the person making certain
representations and warranties with respect to the Mortgage Loans, as
applicable, the "Warrantying Party") pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans. Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, any Servicer or any affiliate thereof will
have any obligation with respect to representations or warranties made by any
other entity. Unless otherwise specified in the related Prospectus Supplement,
neither the Certificates nor the underlying Mortgage Assets will be guaranteed
or insured by any governmental agency or instrumentality, or by the Depositor,
any Servicer or any of their affiliates. Proceeds of the assets included in the
related Trust Fund for each Series of Certificates (including the Mortgage
Assets and any form of credit enhancement) will be the sole source of payments
on the Certificates, and there will be no recourse to the Depositor or any other
entity in the event that such proceeds are insufficient or otherwise unavailable
to make all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a Series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other Series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Trust Master
Collection Account, Trust Primary Collection Account and Trust REO Account and
any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event of
such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. If so provided in the Prospectus
Supplement for a Series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Trust Assets have been incurred, the amount of
such losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by
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<PAGE> 107
the remaining classes of Certificates in the priority and manner and subject to
the limitations specified in such Prospectus Supplement.
PREPAYMENTS AND EFFECT ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A Series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such Series may be more sensitive to prepayments on Mortgage Assets. A Series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A Series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or floating Pass-Through Rate, changes in such rate. See
"Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related Series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such "Series." Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans.
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<PAGE> 108
Moreover, there is no assurance that appreciation of real estate values
generally will limit loss experiences on the Mortgaged Properties. If the
commercial or multifamily residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Mortgage Loans underlying or comprising the Mortgage Assets in a
particular Trust Fund and any secondary financing on the related Mortgaged
Properties become equal to or greater than the value of the Mortgaged
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced by institutional lenders. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by Mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by the Credit Support, if any, described in the related
Prospectus Supplement, such losses will be borne, at least in part, by the
holders of one or more classes of the Certificates of the related Series. See
"Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds -- Assets." The ability of a
Mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the Mortgagor; thus, the value of an income-
producing property is directly related to the net operating income derived from
such property. In contrast, the ability of a Mortgagor to repay a single family
loan typically is dependent primarily upon the Mortgagor's household income,
rather than the capacity of the property to produce income; thus, other than in
geographical areas where employment is dependent upon a particular employer or
an industry, the Mortgagor's income tends not to reflect directly the value of
such property. A decline in the net operating income of an income-producing
property will likely affect both the performance of the related loan as well as
the liquidation value of such property, whereas a decline in the income of a
Mortgagor on a single family property will likely affect the performance of the
related loan but may not affect the liquidation value of such property.
Moreover, a decline in the value of a Mortgaged Property will increase the risk
of loss particularly with respect to any related junior Mortgage Loan. See
"-- Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing property
leased by the Mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans included
in any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable, as to which, in the event of Mortgagor default,
recourse may be had only against the specific property and such other assets, if
any, as have been pledged to secure the related Mortgage Loan. With respect to
those Mortgage Loans that provide for recourse against the Mortgagor and its
assets generally, there can be no assurance that such recourse will ensure a
recovery in respect of a defaulted Mortgage Loan greater than the liquidation
value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a single or limited number of Mortgage Loans and/or relate
to Leases to only a single Lessee or a limited number of Lessees.
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<PAGE> 109
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each Mortgagor under
a Commercial Loan may be an entity created by the owner or purchaser of the
related Commercial Property solely to own or purchase such property, in part to
isolate the property from the debts and liabilities of such owner or purchaser.
Unless otherwise specified, each such Commercial Loan will represent a
nonrecourse obligation of the related Mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the Mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the Lessees.
Such rental payments will, in turn, depend on continued occupancy by, and/or the
creditworthiness of, such Lessees, which in either case may be adversely
affected by a general economic downturn or an adverse change in their financial
condition. Moreover, to the extent a Commercial Property was designed for the
needs of a specific type of tenant (e.g., a nursing home, hotel or motel), the
value of such property in the event of a default by the Lessee or the early
termination of such Lease may be adversely affected because of difficulty in
re-leasing the property to a suitable substitute lessee or, if re-leasing to
such a substitute is not possible, because of the cost of altering the property
for another more marketable use. As a result, without the benefit of the
Lessee's continued support of the Commercial Property, and absent significant
amortization of the Commercial Loan, if such loan is foreclosed on and the
Commercial Property liquidated following a lease default, the net proceeds might
be insufficient to cover the outstanding principal and interest owing on such
loan, thereby increasing the risk that holders of the Certificates will suffer
some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Loans with balloon payments involve a greater degree
of risk because the ability of a Mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a Mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the Mortgagor's equity in the related Mortgaged Property, the financial
condition and operating history of the Mortgagor and the related Mortgaged
Property, tax laws, rent control laws (with respect to certain Multifamily
Properties and mobile home parks), reimbursement rates (with respect to certain
nursing homes), renewability of operating licenses, prevailing general economic
conditions and the availability of credit for commercial or multifamily real
properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "-- Risks Associated with
Mortgage Loans and Mortgaged Properties."
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OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer or a Special Servicer
will be permitted (within prescribed parameters) to extend and modify Whole
Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a Master
Servicer or a Special Servicer may receive a workout fee based on receipts from
or proceeds of such Whole Loans. While any such entity generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery on a present value basis than liquidation,
there can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Whole Loans that are in default or as to which a
payment default is imminent. Additionally, if so specified in the related
Prospectus Supplement, certain of the Mortgage Loans included in the Mortgage
Pool for a Series may have been subject to workouts or similar arrangements
following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a Series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such Series has been repaid. As a result, the impact of
significant losses and shortfalls on the Trust Assets may fall primarily upon
those classes of Certificates having a lower priority of payment. Moreover, if a
form of Credit Support covers more than one Series of Certificates (each, a
"Covered Trust"), holders of Certificates evidencing an interest in a Covered
Trust will be subject to the risk that such Credit Support will be exhausted by
the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Mortgage Assets will not
exceed such assumed levels. See "-- Limited Nature of Ratings," "Description of
the Certificates" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any Series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any Series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially
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in excess of the levels contemplated by such Rating Agency at the time of its
initial rating analysis. None of the Depositor, the Master Servicer or any of
their affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any Series of
Certificates.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the Mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
Mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of 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.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
Mortgagor defaults, the license terminates and the lender is entitled to collect
rents. Such assignments are typically not perfected as security interests prior
to actual possession of the cash flows. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the Mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases -- Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the Mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage.
Each Pooling and Servicing Agreement will provide that no Servicer, acting on
behalf of the Trust Fund, may acquire title to a Mortgaged Property securing a
Mortgage Loan or take over its operation unless such Servicer has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that: (i) the Mortgaged Property is in compliance with
applicable environmental laws or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely to
produce a greater recovery on a percent value basis, after taking into account
any risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the Mortgaged Property relating to the use,
management or disposal of any Hazardous Materials (as defined herein) for which
investigation, testing, monitoring, containment, cleanup or remediation could be
required under any federal, state or local law or regulation, or that, if any
Hazardous Materials are present for which such action would be required, taking
such actions with respect to the affected Mortgaged Property is reasonably
likely to produce a greater recovery on a percent value basis, after taking into
account any risks associated therewith, than not taking such actions. Any
additional restrictions on acquiring title to a Mortgaged Property may be set
forth in the related Prospectus Supplement. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Environmental Legislation."
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DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. Unless otherwise described in the related Prospectus
Supplement, the servicing of such Mortgage Loans as to which a specified number
of payments are delinquent will be performed by the Special Servicer; however,
the same entity may act as both Master Servicer and Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or nonperforming Mortgage Loans, and
investors should consider the risk that the inclusion of such Mortgage Loans in
the Trust Fund may adversely affect the rate of defaults and prepayments on the
Mortgage Assets in such Trust Fund and the yield on the Certificates of such
series.
RISKS ASSOCIATED WITH MORTGAGED PROPERTIES NOT LOCATED IN THE UNITED STATES
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans secured by
Mortgaged Properties not located in the United States. The related Prospectus
Supplement will set forth certain material risks associated with such Mortgage
Loans which are different and additional to those associated with similar
properties in the United States including restrictions on enforcement of the
rights of the holder of the related Mortgage Notes, currency exchange rate
fluctuations, currency exchange controls and general trends or conditions in the
related real estate market.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
Series.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Certain Federal Income Tax
Consequences -- REMICs." Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. Individual holders of
REMIC Residual Certificates may be limited in their ability to deduct servicing
fees and other expenses of the REMIC. In addition, REMIC Residual Certificates
are subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a given
year on a REMIC Residual Certificate will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the REMIC Residual Certificate may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow characteristics.
Additionally, prospective purchasers of a REMIC Residual Certificate should be
aware that recently issued temporary regulations provide restrictions on the
ability to mark-to-market certain "negative value" REMIC residual interests. See
"Certain Federal Income Tax Consequences -- REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such Series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description of
the
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Agreements -- Events of Default," "-- Rights Upon Event of Default,"
"-- Amendment" and "-- List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Beneficial Owners or their nominees. Because of this, unless
and until Definitive Certificates are issued, Beneficial Owners will not be
recognized by the Trustee as "Certificateholders" (as that term is to be used in
the related Agreement). Hence, until such time, Beneficial Owners will be able
to exercise the rights of Certificateholders only indirectly through DTC and its
participating organizations. See "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities (collectively, the
"CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying CMBS. Mortgage Loans that secure, or interests in which are evidenced
by, CMBS are herein sometimes referred to as "Underlying Mortgage Loans."
Mortgage Loans that are not Underlying Mortgage Loans are sometimes referred to
as "Whole Loans." Any mortgage participations, pass-through certificates or
other asset-backed certificates in which an CMBS evidences an interest or which
secure an CMBS are sometimes referred to herein also as CMBS or as "Underlying
CMBS." Mortgage Loans and CMBS are sometimes referred to herein as "Mortgage
Assets." No CMBS originally issued in a private placement will be included as an
asset of a Trust Fund until the holding period provided for under Rule 144(k)
promulgated under the Securities Act of 1933, as amended, has expired or such
CMBS has been registered under the Securities Act of 1933, as amended. The
Mortgage Assets will not be guaranteed or insured by J.P. Morgan Commercial
Mortgage Finance Corp. (the "Depositor") or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental agency or
instrumentality or by any other person. Each Mortgage Asset will be selected by
the Depositor for inclusion in a Trust Fund from among those purchased, either
directly or indirectly, from a prior holder thereof (an "Asset Seller"), which
may be an affiliate of the Depositor and, with respect to Mortgage Assets, which
prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such CMBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Mortgage Assets.
MORTGAGE LOANS
General
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of five
or more rental or cooperatively owned dwelling units in high-rise, mid-rise or
garden apartment buildings ("Multifamily Properties" and the related loans,
"Multifamily Loans") or (ii) office buildings, retail centers, hotels or motels,
nursing homes, congregate care facilities, industrial properties, mini-warehouse
facilities or self-storage facilities, mobile home parks, mixed use or other
types of commercial properties ("Commercial Properties" and the related loans,
"Commercial Loans") located, unless otherwise specified in the related
Prospectus Supplement, in any one of the fifty states, the
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District of Columbia or the Commonwealth of Puerto Rico. To the extent specified
in the related Prospectus Supplement, the Mortgage Loans will be secured by
first mortgages or deeds of trust or other similar security instruments creating
a first lien on Mortgaged Property. Multifamily Property may include mixed
commercial and residential structures and may include apartment buildings owned
by private cooperative housing corporations ("Cooperatives"). The Mortgaged
Properties may include leasehold interests in properties, the title to which is
held by third party lessors. The Prospectus Supplement will specify whether the
term of any such leasehold exceeds the term of the mortgage note by at least ten
years. Each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor. The related Prospectus Supplement will
indicate if any Originator is an affiliate of the Depositor. The Mortgage Loans
will be evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust (the "Mortgages") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
Mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
Mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the Mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases -- Leases and
Rents." Alternatively, to the extent specified in the related Prospectus
Supplement, the Mortgagor and the mortgagee may agree that payments under Leases
are to be made directly to a Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the related Mortgage Loans
and, in certain cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the Mortgaged Properties. Certain
of the Leases may require the Mortgagor to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
Mortgaged Property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
Lessees are required to pay. If so specified in the related Prospectus
Supplement, under certain circumstances the Lessees may be permitted to set off
their rental obligations against the obligations of the Mortgagors under the
Leases. In those cases where payments under the Leases (net of any operating
expenses payable by the Mortgagors) are insufficient to pay all of the scheduled
principal and interest on the related Mortgage Loans, the Mortgagors must rely
on other income or sources (including security deposits) generated by the
related Mortgaged Property to make payments on the related Mortgage Loan. To the
extent specified in the related Prospectus Supplement, some Commercial
Properties may be leased entirely to one Lessee. In such cases, absent the
availability of other funds, the Mortgagor must rely entirely on rent paid by
such Lessee in order for the Mortgagor to pay all of the scheduled principal and
interest on the related Commercial Loan. To the extent specified in the related
Prospectus Supplement, certain of the Leases may expire prior to the stated
maturity of the related Mortgage Loan. In such cases, upon expiration of the
Leases the Mortgagors will have to look to alternative sources of income,
including rent payment by any new Lessees or proceeds from the sale or
refinancing of the Mortgaged Property, to cover the payments of principal and
interest due on such Mortgage Loans unless the Lease is renewed. As specified in
the related Prospectus Supplement, certain of the Leases may provide that upon
the occurrence of a casualty affecting a Mortgaged Property, the Lessee will
have the right to terminate its Lease, unless the Mortgagor, as lessor, is able
to cause the Mortgaged Property to be restored within a specified period of
time. Certain Leases may provide that it is the lessor's responsibility, while
other Leases provide that it is the Lessee's responsibility, to restore the
Mortgaged Property after a casualty to its original condition. Certain Leases
may provide a right of termination to the related Lessee if a taking of a
material or specified percentage of the leased space in the Mortgaged Property
occurs, or if the ingress or egress to the leased space has been materially
impaired.
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Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the Mortgagor's assets, in the event of the Mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from a Mortgaged
Property during such period, minus the total operating expenses incurred in
respect of such Mortgaged Property during such period other than (i) non-cash
items such as depreciation and amortization, (ii) capital expenditures and (iii)
debt service on loans secured by the Mortgaged Property. The Net Operating
Income of a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well as
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) retail centers, office buildings and industrial
properties. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the Mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus Supplement,
in some cases leases of Mortgaged Properties may provide that the Lessee rather
than the Mortgagor, is responsible for payment of some or all of these expenses;
however, because leases are subject to default risks as well when a tenant's
income is insufficient to cover its rent and operating expenses, the existence
of such "net of expense" provisions will only temper, not eliminate, the impact
of expense increases on the performance of the related Mortgage Loan. See
"-- Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities, the income
from which and the operating expenses of which are subject to state and/or
federal regulations, such as Medicare and Medicaid, and multifamily properties
and mobile home parks, which may be subject to state or local rent control
regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to
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finance the related balloon payment at maturity on terms comparable to or better
than those of such Balloon Mortgage Loans could be significant even though the
related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines in
rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio of a
mortgage loan as a measure of risk of loss if a property must be liquidated upon
a default by the Mortgagor.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date of
the appraisal), the cost replacement method (the cost of replacing the property
at such date), the income capitalization method (a projection of value based
upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors -- Risks Associated with Mortgage Loans and
Mortgaged Properties," " -- Balloon Payments," " -- Junior Mortgage Loans,"
" -- Obligor Default" and " -- Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of a
Mortgaged Property, other than with respect to Refinance Loans, is generally the
lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related Series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then applicable and specifically known
to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., Multifamily
Property or Commercial Property and the type of property in each such category),
(iii) the weighted average (by principal balance) of the original and remaining
terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the weighted
average (by principal balance) of the Loan-to-Value Ratios at origination of the
Mortgage Loans, (vi) the Mortgage Interest Rates or range of Mortgage Interest
Rates and the weighted average Mortgage Interest Rate borne by the Mortgage
Loans, (vii) the state or states in which most of the Mortgaged Properties are
located, (viii) information with respect to the prepayment provisions, if any,
of the Mortgage Loans, (ix) the weighted average Retained Interest, if any, (x)
with respect to Mortgage Loans with floating Mortgage Interest Rates ("ARM
Loans"), the index, the frequency of the adjustment dates, the highest, lowest
and weighted average note margin and pass-through margin, and the maximum
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Mortgage Interest Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including without
limitation balloon payment and other amortization provisions. The related
Prospectus Supplement will also contain certain information available to the
Depositor with respect to the provisions of leases and the nature of tenants of
the Mortgaged Properties and other information referred to in a general manner
under "-- Mortgage Loans -- Default and Loss Considerations with Respect to the
Mortgage Loans" above. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have individual principal balances at origination of not
less than $250,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Interest Rate") that is fixed over its term or that
adjusts from time to time, or that is partially fixed and partially floating, or
that may be converted from a floating to a fixed Mortgage Interest Rate, or from
a fixed to a floating Mortgage Interest Rate, from time to time pursuant to an
election or as otherwise specified on the related Mortgage Note, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may provide
for scheduled payments to maturity or payments that adjust from time to time to
accommodate changes in the Mortgage Interest Rate or to reflect the occurrence
of certain events, and may provide for negative amortization or accelerated
amortization, in each case as described in the related Prospectus Supplement.
Each Mortgage Loan may be fully amortizing or require a balloon payment due on
its stated maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment (a
"Lock-out Period" and the date of expiration thereof, a "Lock-out Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or classes
of Offered Certificates will be entitled to all or a portion of any Prepayment
Premiums collected in respect of Mortgage Loans, the related Prospectus
Supplement will specify the method or methods by which any such amounts will be
allocated. A Mortgage Loan may also contain provisions entitling the mortgagee
to a share of profits realized from the operation or disposition of the
Mortgaged Property ("Equity Participations"), as described in the related
Prospectus Supplement. In the event that holders of any class or classes of
Offered Certificates will be entitled to all or a portion of an Equity
Participation, the related Prospectus Supplement will specify the terms and
provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
CMBS
Any CMBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "CMBS Agreement"). A seller (the "CMBS Issuer") and/or
servicer (the "CMBS Servicer") of the underlying Mortgage Loans (or Underlying
CMBS) will have entered into the CMBS Agreement with a trustee or a custodian
under the CMBS Agreement (the "CMBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or CMBS evidenced by
the CMBS.
Distributions of any principal or interest, as applicable, will be made on
CMBS on the dates specified in the related Prospectus Supplement. The CMBS may
be issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be
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made on the CMBS by the CMBS Trustee or the CMBS Servicer. The CMBS Issuer or
the CMBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the CMBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under "Description
of Credit Support" may be provided with respect to the CMBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans or Underlying CMBS evidenced by or
securing such CMBS and other factors and generally will have been established
for the CMBS on the basis of requirements of either any Rating Agency that may
have assigned a rating to the CMBS or the initial purchasers of the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing interests
in Mortgage Assets that include CMBS will specify, to the extent available, (i)
the aggregate approximate initial and outstanding principal amount or notional
amount, as applicable, and type of the CMBS to be included in the Trust Fund,
(ii) the original and remaining term to stated maturity of the CMBS, if
applicable, (iii) whether such CMBS is entitled only to interest payments, only
to principal payments or to both, (iv) the pass-through or bond rate of the CMBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the CMBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the CMBS Issuer, CMBS Servicer and
CMBS Trustee, as applicable, (vii) certain characteristics of the credit
support, if any, such as subordination, reserve funds, insurance policies,
letters of credit or guarantees relating to the related Underlying Mortgage
Loans, the Underlying CMBS or directly to such CMBS, (viii) the terms on which
the related Underlying Mortgage Loans or Underlying CMBS for such CMBS or the
CMBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying CMBS may be substituted for those
originally underlying the CMBS, (x) the servicing fees payable under the CMBS
Agreement, (xi) to the extent available to the Depositor, the type of
information in respect of the Underlying Mortgage Loans described under
"-- Mortgage Loans -- Mortgage Loan Information in Prospectus Supplements"
above, and the type of information in respect of the Underlying CMBS described
in this paragraph, (xii) the characteristics of any cash flow agreements that
are included as part of the trust fund evidenced or secured by the CMBS and
(xiii) whether the CMBS is in certificated form, book-entry form or held through
a depository such as The Depository Trust Company or the Participants Trust
Company.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Mortgage Assets and other assets in the
Trust Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreement -- Distribution Account and Other Collection Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in the
related Series in the form of subordination of one or more other classes of
Certificates in such Series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or another
type of credit support, or a combination thereof (any such coverage with respect
to the Certificates of any Series, "Credit Support"). The amount and types of
coverage, the identification of the entity providing the coverage (if
applicable) and related information with respect to each type of Credit Support,
if any, will be described in the Prospectus Supplement for a Series of
Certificates. See "Risk Factors -- Credit Support Limitations" and "Description
of Credit Support."
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CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets or on one or more classes of Certificates. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement, a
"Cash Flow Agreement"), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions relating to
the termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets and to pay for certain
expenses incurred in connection with such purchase of Trust Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Mortgage Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Mortgage Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or floating Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage Asset
on the Pass-Through Rate of one or more classes of Certificates; and whether the
distributions of interest on the Certificates of any class will be dependent, in
whole or in part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Mortgage Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "-- The Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related Series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that
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distributions of principal (and additions to the Certificate Balance of Accrual
Certificates) and allocations of losses on the Mortgage Assets may be made on
the first day of the Interest Accrual Period for a Distribution Date and not on
such Distribution Date. Such method would produce a lower effective yield than
if interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period for
any class of Offered Certificates will be described in the related Prospectus
Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from voluntary prepayments by the Mortgagors, insurance
proceeds, condemnations and involuntary liquidations). Such payments may be
directly dependent upon the payments on Leases underlying such Mortgage Loans.
The rate at which principal prepayments occur on the Mortgage Loans will be
affected by a variety of factors, including, without limitation, the terms of
the Mortgage Loans, the level of prevailing interest rates, the availability of
mortgage credit and economic, demographic, geographic, tax, legal and other
factors. In general, however, if prevailing interest rates fall significantly
below the Mortgage Interest Rates on the Mortgage Loans comprising or underlying
the Mortgage Assets in a particular Trust Fund, such Mortgage Loans are likely
to be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by such Mortgage Loans. In this regard, it
should be noted that certain Mortgage Assets may consist of Mortgage Loans with
different Mortgage Interest Rates and the stated pass-through or pay-through
interest rate of certain CMBS may be a number of percentage points higher or
lower than certain of the underlying Mortgage Loans. The rate of principal
payments on some or all of the classes of Certificates of a Series will
correspond to the rate of principal payments on the Mortgage Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Mortgage Assets, and by the extent to which the servicer of any
such Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal prepayments
than otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
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 Assets,
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 Assets,
the actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a Series of Certificates,
the effect on yield on one or more classes of the Certificates of such Series of
prepayments of the Mortgage Assets in the related Trust Fund may be mitigated or
exacerbated by any provisions for sequential or selective distribution of
principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is charged
interest on the principal amount of the Mortgage Loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment. Unless
otherwise specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
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The timing of changes in the rate of principal payments on the Mortgage
Assets 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 Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on 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.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related Series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such "Series." Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related "Series."
If so provided in the Prospectus Supplement for a Series of Certificates,
one or more classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of a class of
Certificates of a Series will be influenced by the rate at which principal on
the Mortgage Loans comprising or underlying the Mortgage Assets is paid to such
class, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments, in whole or in part,
and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
CMBS. If any Mortgage Loans comprising or underlying the Mortgage Assets in a
particular Trust Fund have actual terms to maturity of less than those assumed
in calculating final scheduled Distribution Dates for the classes of
Certificates of the related Series, one or more classes of such Certificates may
be fully paid prior to their respective final scheduled Distribution Dates, even
in the absence of prepayments. Accordingly, the prepayment experience of the
Mortgage Assets will, to some extent, be a function of the mix of Mortgage
Interest Rates and maturities of the Mortgage Loans comprising or underlying
such Mortgage Assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available prepayment
statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such Series and the percentage of the
initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions
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that prepayments on the Mortgage Loans comprising or underlying the related
Mortgage Assets are made at rates corresponding to various percentages of CPR or
at such other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average life
of the Certificates to various prepayment rates and will not be intended to
predict or to provide information that will enable investors to predict the
actual weighted average life of the Certificates. It is unlikely that prepayment
of any Mortgage Loans comprising or underlying the Mortgage Assets for any
Series will conform to any particular level of CPR or any other rate specified
in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a Mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the Mortgagor or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates, thereby lengthening the period of
time elapsed from the date of issuance of a Certificate until it is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation to
the number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related Series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of
the Mortgage Loans to demand payment in full of the remaining principal balance
of the Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will be required to exercise (or
waive its right to exercise) any such right that the Trustee may have as
mortgagee to accelerate payment of the Whole Loan in a manner consistent with
the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans and the
Leases -- Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements -- Due-on-Sale and Due-on-Encumbrance Provisions."
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect to
the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in determining
prepayment experience on a single Mortgage Loan or with respect to a single
Mortgagor.
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THE DEPOSITOR
J.P Morgan Commercial Mortgage Finance Corp., the Depositor, is an indirect
wholly-owned subsidiary of J.P Morgan & Co. Incorporated and was incorporated in
the State of Delaware on September 19, 1994. The principal executive offices of
the Depositor are located at 60 Wall Street, New York, New York 10260-0060. Its
telephone number is (212) 648-3636.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each Series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or floating
rates; (ii) be senior (collectively, "Senior Certificates") or subordinate
(collectively, "Subordinate Certificates") to one or more other classes of
Certificates in respect of certain distributions on the Certificates; (iii) be
entitled to principal distributions, with disproportionately low, nominal or no
interest distributions (collectively, "Stripped Principal Certificates"); (iv)
be entitled to interest distributions, with disproportionately low, nominal or
no principal distributions (collectively, "Stripped Interest Certificates"); (v)
provide for distributions of accrued interest thereon commencing only following
the occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such Series (collectively, "Accrual Certificates");
(vi) provide for payments of principal sequentially, based on specified payment
schedules, from only a portion of the Trust Assets in such Trust Fund or based
on specified calculations, to the extent of available funds, in each case as
described in the related Prospectus Supplement; and/or (vii) provide for
distributions based on a combination of two or more components thereof with one
or more of the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate component.
Any such classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a Series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Risk
Factors -- Book-Entry Registration" and "Description of the
Certificates -- Book-Entry Registration and Definitive Certificates." Definitive
Certificates will be exchangeable for other Certificates of the same class and
Series of a like aggregate Certificate Balance, notional amount or percentage
interest but of different authorized denominations. See "Risk Factors Limited
Liquidity" and "Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described
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in the related Prospectus Supplement or otherwise established by the related
Trustee. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has so notified the
Trustee or other person required to make such payments no later than the date
specified in the related Prospectus Supplement (and, if so provided in the
related Prospectus Supplement, holds Certificates in the requisite amount
specified therein), or by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register; provided, however, that the
final distribution in retirement of the Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of the Certificates at the location specified in the notice to
Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
provided otherwise in the related Prospectus Supplement, the "Available
Distribution Amount" for each Distribution Date equals the sum of the following
amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution Account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution Account as
of the corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or floating rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual Certificates,
which will be entitled to distributions of accrued interest commencing only on
the Distribution Date, or under the circumstances, specified in the related
Prospectus Supplement, and any class of Stripped Principal Certificates that are
not entitled to any distributions of interest) based on the Accrued Certificate
Interest for such class and such Distribution Date, subject to the sufficiency
of the portion of the Available Distribution Amount allocable to such class on
such Distribution Date. Prior to the time interest is distributable on any class
of Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the Certificate Balance thereof on
each Distribution Date. With respect to each class of Certificates and each
Distribution Date (other than certain classes of Stripped Interest
Certificates), "Accrued Certificate Interest" will be equal to interest accrued
for a specified period on the outstanding Certificate Balance thereof
immediately prior to the Distribution Date, at the applicable Pass-Through Rate,
reduced as described below. Unless otherwise provided in the Prospectus
Supplement, Accrued Certificate Interest on Stripped Interest Certificates will
be equal to interest accrued for a specified period on the outstanding notional
amount thereof immediately prior
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to each Distribution Date, at the applicable Pass-Through Rate, reduced as
described below. The method of determining the notional amount for any class of
Stripped Interest Certificates will be described in the related Prospectus
Supplement. Reference to notional amount is solely for convenience in certain
calculations and does not represent the right to receive any distributions of
principal. Unless otherwise provided in the related Prospectus Supplement, the
Accrued Certificate Interest on a Series of Certificates will be reduced in the
event of prepayment interest shortfalls, which are shortfalls in collections of
interest for a full accrual period resulting from prepayments prior to the due
date in such accrual period on the Mortgage Loans comprising or underlying the
Mortgage Assets in the Trust Fund for such Series. The particular manner in
which such shortfalls are to be allocated among some or all of the classes of
Certificates of that Series will be specified in the related Prospectus
Supplement.
The related Prospectus Supplement will also describe the extent to which
the amount of Accrued Certificate Interest that is otherwise distributable on
(or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. Unless otherwise provided in the
related Prospectus Supplement, any reduction in the amount of Accrued
Certificate Interest otherwise distributable on a class of Certificates by
reason of the allocation to such class of a portion of any deferred interest on
the Mortgage Loans comprising or underlying the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance of
such class. See " Risk Factors -- Average Life of Certificates; Prepayments;
Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Mortgage Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in the
related Prospectus Supplement, by the amount of losses incurred in respect of
the related Mortgage Assets, may be increased in respect of deferred interest on
the related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any related Accrued Certificate Interest. Unless otherwise provided
in the related Prospectus Supplement, the initial aggregate Certificate Balance
of all classes of Certificates of a Series will not be greater than the
outstanding aggregate principal balance of the related Mortgage Assets as of the
applicable Cut-off Date. The initial aggregate Certificate Balance of a Series
and each class thereof will be specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has been
reduced to zero. Stripped Interest Certificates with no Certificate Balance are
not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement, distribution
on a class of Certificates may be based on a combination of two or more
different components as described under "-- General" above. To such extent, the
descriptions set forth under "-- Distributions of Interests on the Certificates"
and "-- Distributions of Principal of the Certificates" above also relate to
components of such a class of Certificates. In such case, reference in such
sections to Certificate Balance and Pass-Through Rate refer to the principal
balance, if any, of any such component and the Pass-Through Rate, if any, on any
such component, respectively.
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DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations that are collected on the Mortgage
Assets in the related Trust Fund will be distributed on each Distribution Date
to the class or classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement See
"Description of Credit Support" for a description of the types of protection
that may be included in shortfalls on Mortgage Assets comprising such Trust
Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund and were delinquent on the related
Determination Date, subject to such Servicer's (or another entity's) good faith
determination that such advances will be reimbursable from Related Proceeds (as
defined below). In the case of a Series of Certificates that includes one or
more classes of Subordinate Certificates and if so provided in the related
Prospectus Supplement, each Servicer's (or another entity's) advance obligation
may be limited only to the portion of such delinquencies necessary to make the
required distributions on one or more classes of Senior Certificates and/or may
be subject to such Servicer's (or another entity's) good faith determination
that such advances will be reimbursable not only from Related Proceeds but also
from collections on other Trust Assets otherwise distributable on one or more
classes of such Subordinate Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related Prospectus Supplement, advances of a Servicer's (or
another entity's) funds will be reimbursable only out of related recoveries on
the Mortgage Loans (including amounts received under any form of Credit Support)
respecting which such advances were made (as to any Mortgage Loan, "Related
Proceeds") and, if so provided in the Prospectus Supplement, out of any amounts
otherwise distributable on one or more classes of Subordinate Certificates of
such Series; provided, however, that any such advance will be reimbursable from
any amounts in the Distribution Account prior to any distributions being made on
the Certificates to the extent that a Servicer (or such other entity) shall
determine in good faith that such advance (a "Nonrecoverable Advance") is not
ultimately recoverable from Related Proceeds or, if applicable, from collections
on other Trust Assets otherwise distributable on such Subordinate Certificates.
If advances have been made by a Servicer from excess funds in the Distribution
Account, such Servicer is required to replace such funds in the Distribution
Account on any future Distribution Date to the extent that funds in the
Distribution Account on such Distribution Date are less than payments required
to be made to Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligations of a Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, a
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to
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pay itself such interest periodically from general collections on the Trust
Assets prior to any payment to Certificateholders or as otherwise provided in
the related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each Servicer
and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax
returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of any
interest accrued and payable on related servicing expenses and related
advances assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
Mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b)
the manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to each Servicer (or any other entity) in respect of such
Mortgage Loan and (b) the amount of any loss to Certificateholders;
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(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to each Servicer in respect of such REO Property or the
related Mortgage Loan and (d) the amount of any loss to Certificateholders
in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class
of Accrual Certificates in the event that Accrued Certificate Interest has
been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date
and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
Certificates or for such other specified portion thereof In addition, in the
case of information furnished pursuant to subclauses (i), (ii), (xiv), (xvi) and
(xvii) above, such amounts shall also be provided with respect to each
component, if any, of a class of Certificates. The Master Servicer or the
Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any CMBS. The Prospectus Supplement for each Series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall 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)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which
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such person was a Certificateholder. Such obligation of the Master Servicer or
the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Master Servicer or
the Trustee pursuant to any requirements of the Code as are from time to time in
force.
Unless and until Definitive Certificates are issued, or unless otherwise
provided in the related Prospectus Supplement, such statements or reports will
be forwarded by the Master Servicer or the Trustee to Cede. Such statements or
reports may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participant. In addition, the Trustee shall
furnish a copy of any such statement or report to any Beneficial Owner which
requests such copy and certifies to the Trustee or the Master Servicer, as
applicable, that it is the Beneficial Owner of a Certificate. See "Description
of the Certificates -- Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreements for each Series of Certificates
will terminate upon the payment to Certificateholders of that Series of all
amounts held in the Distribution Account or by any Servicer, if any, or the
Trustee and required to be paid to them pursuant to such Agreements following
the earlier of (i) the final payment or other liquidation of the last Mortgage
Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreements
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreements will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include J.P. Morgan
Securities Inc., securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Unless otherwise provided in the related Prospectus Supplement, investors
that are not Participants or Indirect Participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in Book-Entry
Certificates may do so only through Participants and Indirect Participants. In
addition, such investors
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("Beneficial Owners") will receive all distributions on the Book-Entry
Certificates through DTC and its Participants. Under a book-entry format,
Beneficial Owners will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede & Co., as nominee
for DTC ("Cede"), on each such date DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Beneficial Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder" (as such term is used in the
Agreement) will be Cede, as nominee of DTC, and the Beneficial Owners will not
be recognized by the Trustee as Certificateholders under the Agreements.
Beneficial Owners will be permitted to exercise the rights of Certificateholders
under the related Agreements only indirectly through the Participants who in
turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Certificates. Participants and Indirect Participants with which
Beneficial Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Because DTC 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 its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited. Under DTC's procedures, DTC will take actions
permitted to be taken by Holders of any class of Book-Entry Certificates under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the Book-Entry Certificates are credited and whose
aggregate holdings represent no less than any minimum amount of Voting Rights
required therefor. Therefore, Beneficial Owners will only be able to exercise
their Voting Rights to the extent permitted, and subject to the procedures
established, by their Participant and/or Indirect Participant, as applicable.
DTC may take conflicting actions with respect to any action of
Certificateholders of any Class to the extent that Participants authorize such
actions. None of the Servicers, the Depositor, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Beneficial Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Beneficial Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
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DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates of
each Series evidencing interests in a Trust Fund not including Whole Loans will
be issued pursuant to a Trust Agreement between the Depositor and a Trustee. The
Master Servicer, any Special Servicer and the Trustee with respect to any Series
of Certificates will be named in the related Prospectus Supplement. In lieu of
appointing a Master Servicer, a servicer may be appointed pursuant to the
Pooling and Servicing Agreement for any Trust Fund. The Mortgage Loans shall be
serviced pursuant to the terms of the Pooling and Servicing Agreement and,
unless otherwise specified in the Prospectus Supplement, a Servicing Agreement
among the Depositor (or an affiliate thereof), a Master Servicer, a Special
Servicer and a Primary Servicer. A manager or administrator may be appointed
pursuant to the Trust Agreement for any Trust Fund to administer such Trust
Fund. The provisions of each Agreement will vary depending upon the nature of
the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of a Pooling and Servicing Agreement and a form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Any Trust Agreement will generally conform to the
form of Pooling and Servicing Agreement filed herewith, but will not contain
provisions with respect to the servicing and maintenance of Whole Loans. The
following summaries describe certain provisions that may appear in each
Agreement. The Prospectus Supplement for a Series of Certificates will describe
any provision of the Agreements relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreements for each Trust Fund and
the description of such provisions in the related Prospectus Supplement. As used
herein with respect to any Series, the term "Certificate" refers to all of the
Certificates of that Series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires. The Depositor will
provide a copy of the Agreements (without exhibits) relating to any Series of
Certificates without charge upon written request of a holder of a Certificate of
such Series addressed to the Trustee specified in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans included in each Trust Fund were being serviced prior to the
issuance of the related Series of Certificates pursuant to the terms of a
Servicing Agreement by the Master Servicer, the Special Servicer and/or a
Primary Servicer. Unless otherwise specified in the related Prospectus
Supplement, following the issuance of the related Series of Certificates, such
Mortgage Loans will continue to be serviced pursuant to such Servicing
Agreement, together with the related Pooling and Servicing Agreement. Pursuant
to the terms of each Servicing Agreement, a Primary Servicer or a Special
Servicer will service the Mortgage Loans directly and a Master Servicer may
monitor the activities of each Primary Servicer and Special Servicer. The
Depositor shall assign its rights under each Servicing Agreement to the Trustee
for the benefit of the Certificateholders.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any Series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Trust Assets to
be included in the related Trust Fund, together with all principal and interest
to be received on or with respect to such Trust Assets after the Cut-off Date,
other than principal and interest due on or before the Cut-off Date and other
than any Retained Interest. The Trustee will, concurrently with such assignment,
deliver the Certificates to the Depositor in exchange for the Trust Assets and
the other assets comprising the Trust Fund for such Series. Each Mortgage Asset
will be identified in a schedule appearing as an exhibit to the related
Agreement. Unless otherwise provided in the related Prospectus Supplement, such
schedule will include detailed information (i) in respect of each Whole Loan
included in the related Trust Fund, including without limitation, the address of
the related Mortgaged Property and type of such property, the Mortgage Interest
Rate and, if applicable, the applicable index, margin, adjustment date and any
rate cap information, the original and remaining term to maturity, the original
and outstanding principal balance and balloon payment, if any, the Value,
Loan-to-Value Ratio and the Debt Service Coverage Ratio as of the date indicated
and payment and prepayment provisions, if
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applicable, and (ii) in respect of each CMBS included in the related Trust Fund,
including without limitation, the CMBS Issuer, CMBS Servicer and CMBS Trustee,
the pass-through or bond rate or formula for determining such rate, the issue
date and original and remaining term to maturity, if applicable, the original
and outstanding principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) certain
loan documents, which unless otherwise specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing, a
Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or the custodian
a copy or a duplicate original of the Mortgage Note, together with an affidavit
certifying that the original thereof has been lost or destroyed. With respect to
such Mortgage Loans, the Trustee (or its nominee) may not be able to enforce the
Mortgage Note against the related borrower. Unless otherwise provided in the
related Prospectus Supplement, the related Agreements will require that the
Depositor or another party specified therein promptly cause each such assignment
of Mortgage to be recorded in the appropriate public office for real property
records, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents within a
specified period of days after receipt thereof, and the Trustee (or a custodian)
will hold such documents in trust for the benefit of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee (or such custodian) shall immediately notify the Depositor. If the
Depositor cannot cure the omission or defect within a specified number of days
after receipt of such notice, then unless otherwise specified in the related
Prospectus Supplement, the Depositor will be obligated, within a specified
number of days of receipt of such notice, to repurchase the related Whole Loan
from the Trustee at the Purchase Price or substitute for such Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, this repurchase
or substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Mortgage Asset or
repurchasing or substituting for such Mortgage Asset, the Depositor may agree to
cover any losses suffered by the Trust Fund as a result of such breach or
defect.
If so provided in the related Prospectus Supplement, the Depositor will, as
to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or Primary
Servicer, as applicable, may collect all moneys under the related Leases and
distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will deliver
or cause to be delivered to the Trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With respect
to each CMBS in uncertificated or book-entry form or held through a "clearing
corporation" within the meaning of the UCC the Depositor and the Trustee will
cause such CMBS to be registered directly or on the books of such clearing
corporation or of a financial intermediary in the name of the Trustee for the
benefit of the Certificateholders. Unless otherwise provided in the related
Prospectus Supplement, the related Agreement will require that either the
Depositor or the Trustee promptly cause any CMBS in certificated form not
registered in the name of the Trustee to be re-registered, with the applicable
persons, in the name of the Trustee.
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REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign representations
and warranties, as of a specified date (the person making such representations
and warranties, the "Warranting Party") covering, by way of example, the
following types of matters: (i) the accuracy of the information set forth for
such Whole Loan on the schedule of Mortgage Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warranting Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset Seller
or an affiliate thereof or such other person acceptable to the Depositor and
shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related Series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made, the
Warranting Party will have a reimbursement, cure, repurchase or substitution
obligation in connection with a breach of such a representation and warranty
only if the relevant event that causes such breach occurs prior to such date.
Such party would have no such obligations if the relevant event that causes such
breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warranting Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warranting Party will be obligated to repurchase such Whole
Loan from the Trustee within a specified period from the date on which the
Warranting Party was notified of such breach, at the Purchase Price therefor. As
to any Whole Loan, unless otherwise specified in the related Prospectus
Supplement, the "Purchase Price" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Interest
Rate from the date as to which interest was last paid to the due date in the Due
Period in which the relevant purchase is to occur, plus certain servicing
expenses that are reimbursable to each Servicer. If so provided in the
Prospectus Supplement for a Series, a Warranting Party, rather than repurchase a
Whole Loan as to which a breach has occurred, will have the option, within a
specified period after initial issuance of such Series of Certificates, to cause
the removal of such Whole Loan from the Trust Fund and substitute in its place
one or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
Series, a Warranting Party, rather than repurchase or substitute a Whole Loan as
to which a breach has occurred, will have the option to reimburse the Trust Fund
or the Certificateholders for any losses caused by such breach. Unless otherwise
specified in the related Prospectus Supplement, this reimbursement, repurchase
or substitution obligation will constitute the sole remedy available to holders
of Certificates or the Trustee for a breach of representation by a Warranting
Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a Whole
Loan if a Warranting Party defaults on its obligation to do so, and no assurance
can be given that Warranting Parties will carry out such obligations with
respect to Whole Loans.
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Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make or
assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the remedies
for a breach thereof.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Agreement. A breach of any such representation in a Pooling and
Servicing Agreement of a Master Servicer or Special Servicer which materially
and adversely affects the interests of the Certificateholders and which
continues unremedied for thirty days after the giving of written notice of such
breach to such Servicer by the Trustee or the Depositor, or to such Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights (unless otherwise specified in the related
Prospectus Supplement), will constitute an Event of Default under such Pooling
and Servicing Agreement. A breach of any such representation in a Servicing
Agreement of a Servicer which continues unremedied for thirty days after giving
notice of such breach to such Servicer will constitute an Event of Default under
such Servicing Agreement. See "Events of Default" and "Rights Upon Event of
Default."
ACCOUNTS
General
Each Servicer and/or the Trustee will, as to each Trust Fund, establish and
maintain or cause to be established and maintained one or more separate accounts
for the collection of payments on the related Mortgage Assets (collectively, the
"Accounts"), which must be either (i) an account or accounts the deposits in
which are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC") (to the
limits established by the FDIC) and the uninsured deposits in which are
otherwise secured such that the Certificateholders have a claim with respect to
the funds an Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which such Account is
maintained or (ii) otherwise maintained with a bank or trust company, and in a
manner, satisfactory to the Rating Agency or Agencies rating any class of
Certificates of such Series. The collateral eligible to secure amounts in an
Account is limited to United States government securities and other investment
grade obligations specified in the Agreement ("Permitted Investments"). An
Account may be maintained as an interest bearing or a non-interest bearing
account and the funds held therein may be invested pending each succeeding
Distribution Date in certain short-term Permitted Investments. Unless otherwise
provided in the related Prospectus Supplement, any interest or other income
earned on funds in an Account will be paid to a Servicer or its designee as
additional servicing compensation. An Account may be maintained with an
institution that is an affiliate of a Servicer provided that such institution
meets the standards imposed by the Rating Agency or Agencies. If permitted by
the Rating Agency or Agencies and so specified in the related Prospectus
Supplement, an Account may contain funds relating to more than one Series of
mortgage pass-through certificates and may contain other funds respecting
payments on mortgage loans belonging to a Servicer or serviced or master
serviced by it on behalf of others.
Deposits
Unless otherwise provided in the related Prospectus Supplement, the Primary
Servicer will deposit or cause to be deposited in an Account on a daily basis,
unless otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Primary Servicer:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets, including
any default interest collected, in each case net of any portion thereof
retained by a Servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the
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extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the normal servicing
procedures of a Servicer, subject to the terms and conditions of the
related Mortgage and Mortgage Note) and all proceeds of rental interruption
policies, if any, insuring against losses arising from the failure of
Lessees under a Lease to make timely rental payments because of certain
casualty events (collectively, "Insurance Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans in the Trust Fund, by foreclosure, condemnation or otherwise
("Liquidation Proceeds"), together with the net proceeds on a monthly basis
with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(iv) any advances made as described under "Description of the
Certificates -- Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from a Special Servicer;
but excluding any REO Proceeds and penalties or modification fees which may
be retained by the Primary Servicer. REO Proceeds shall be maintained in an
Account by the Special Servicer.
Once a month the Primary Servicer and the Special Servicer remit funds on
deposit in the Account each maintains together with any P&I Advances to the
Master Servicer for deposit in an Account maintained by the Master Servicer.
Withdrawals
A Servicer may, from time to time, unless otherwise provided in the related
Agreement and described in the related Prospectus Supplement, make withdrawals
from an Account for each Trust Fund for any of the following purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as described
under "Description of the Certificates -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of
interest on and principal of the particular Whole Loans with respect to
which the advances were made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and certain
unreimbursed servicing expenses incurred with respect to Whole Loans and
properties acquired in respect thereof, such reimbursement to be made out
of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and net income
collected on the particular properties, with respect to which such fees
were earned or such expenses were incurred;
(iii) to reimburse a Servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in
the Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust Assets or, if and to the
extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Trust Assets that is otherwise distributable on one or more classes of
Subordinate Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus Supplement,
to pay a Servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while such
remain outstanding and unreimbursed;
(v) unless otherwise provided in the related Prospectus Supplement, to pay
a Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement and
described in the related Prospectus Supplement.
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If and to the extent specified in the Prospectus Supplement amounts
may be withdrawn from any Account to cover additional costs, expenses or
liabilities associated with: the preparation of environmental site
assessments with respect to, and for containment, clean-up or remediation
of hazardous wastes and materials, the proper operation, management and
maintenance of any Mortgaged Property acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise, such payments to be made out of income received on such
property; if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to
the extent described under "Certain Federal Income Tax
Consequences -- REMICS -- Prohibited Transactions Tax and Other Taxes";
retaining an independent appraiser or other expert in real estate matters
to determine a fair sale price for a defaulted Whole Loan or a property
acquired in respect thereof in connection with the liquidation of such
Whole Loan or property; and obtaining various opinions of counsel pursuant
to the related Agreement for the benefit of Certificateholders.
Distribution Account
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will, as to each Trust Fund, establish and maintain, or cause to be
established and maintained, one or more separate Accounts for the collection of
payments from the Master Servicer immediately preceding each Distribution Date
(the "Distribution Account"). The Trustee will also deposit or cause to be
deposited in a Distribution Account the following amounts:
(i) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series of Certificates as
described under "Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds -- Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage
Asset purchased as described under "Description of the
Certificates -- Termination" (also, "Liquidation Proceeds");
(iv) any other amounts required to be deposited in the Distribution Account
as provided in the related Agreement and described in the related
Prospectus Supplement.
The Trustee may, from time to time, unless otherwise provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any Series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Primary Servicer or Special Servicer will deposit
on a daily basis the amounts described under "-- Deposits" above for one or more
Series of Certificates. Any amounts on deposit in any such collection account
will be withdrawn therefrom and deposited into the appropriate Distribution
Account by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Distribution Account as described under "-- Withdrawals"
above, may also be withdrawn from any such collection account. The Prospectus
Supplement will set forth any restrictions with respect to any such collection
account, including investment restrictions and any restrictions with respect to
financial institutions with which any such collection account may be maintained.
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COLLECTION AND OTHER SERVICING PROCEDURES
Primary Servicer
The Primary Servicer is required under each Servicing Agreement to make
reasonable efforts to collect all scheduled payments under the Mortgage Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Mortgage Loans
and held for its own account, provided such procedures are consistent with (i)
the terms of the related Servicing Agreement, (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or, if
no such standard is so specified, its normal servicing practices (in either
case, the "Servicing Standard").
Each Primary Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the Mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of Mortgagors for payment of taxes, insurance and other
items required to be paid by any Mortgagor pursuant to the Mortgage Loan;
processing assumptions or substitutions in those cases where the Primary
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Mortgage Loans.
Master Servicer
The Master Servicer shall monitor the actions of the Primary Servicer and
the Special Servicer to confirm compliance with the Agreements.
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer, as servicer of the Mortgage Loans, on behalf of itself, the Trustee
and the Certificateholders, will present claims to the obligor under each
instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support".
If a Master Servicer or its designee recovers payments under any instrument
of Credit Support with respect to any defaulted Mortgage Loan, the Master
Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan. See "Hazard Insurance Policies" and "Description
of Credit Support."
Special Servicer
A Mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such Mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, upon the occurrence of any of the following events (each a
"Servicing Transfer Event") with respect to a Mortgage Loan, servicing for such
Mortgage Loan (thereafter, a "Specially Serviced Mortgage Loan") will be
transferred from the Primary Servicer to the Special Servicer:
a) such Mortgage Loan becomes a defaulted Mortgage Loan,
b) the occurrence of certain events indicating the possible insolvency of
the Mortgagor,
c) the receipt by the Primary Servicer of a notice of foreclosure of any
other lien on the related Mortgaged Property,
d) the Master Servicer or the Primary Servicer determines that a payment
default is imminent,
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e) with respect to a Balloon Mortgage Loan, no assurances have been given
as to the ability of the Mortgagor to make the final payment thereon, or
f) the occurrence of certain other events constituting defaults under the
terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is in
default, contact the Mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the Mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Special Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Special Servicer makes the initial determination
of appropriate action evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the Mortgagor, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. Under federal bankruptcy law, the
Special Servicer in certain cases may not be permitted to accelerate a Mortgage
Loan or to foreclose on a Mortgaged Property for a considerable period of time.
See "Certain Legal Aspects of the Mortgage Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Certificate will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also describe any
such right granted to any person if the predetermined purchase price is less
than the Purchase Price described under "Representations and Warranties;
Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due thereon.
The Special Servicer also may agree to any modification, waiver or amendment
that would so affect or impair the payments on, or the security for, a Mortgage
Loan if, unless otherwise provided in the related Prospectus Supplement, (i) in
its judgment, a material default on the Mortgage Loan has occurred or a payment
default is imminent and (ii) in its judgment, such modification, waiver or
amendment is reasonably likely to produce a greater recovery with respect to the
Mortgage Loan on a present value basis than would liquidation. The Special
Servicer is required to notify the Trustee in the event of any modification,
waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Mortgage Loan by operation of law or otherwise, if such
action is consistent with the Servicing Standard and a default on such Mortgage
Loan has occurred or, in the Special Servicer's judgment, is imminent. Unless
otherwise specified in the related Prospectus Supplement, the Special Servicer
may not acquire title to any related Mortgaged Property or take any other action
that would cause the Trustee, for the benefit of Certificateholders, or any
other specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Special Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable environmental
laws; or if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is reasonably
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likely to produce a greater recovery on a present value basis, after taking
into account any risks associated therewith, than not taking such actions;
and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation or
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within two years of acquisition, unless
(i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund subsequent to two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Special Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC provisions
of the Code (if a REMIC election has been made with respect to the related Trust
Fund) on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See "Certain Legal Aspects of the
Mortgage Loans and the Leases -- Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Mortgage Loan.
If the proceeds of any liquidation of the property securing the defaulted
Mortgage Loan are less than the outstanding principal balance of the defaulted
Mortgage Loan plus interest accrued thereon at the Mortgage Interest Rate plus
the aggregate amount of expenses incurred by the Special Servicer in connection
with such proceedings and which are reimbursable under the Agreement, the Trust
Fund will realize a loss in the amount of such difference. The Special Servicer
will be entitled to withdraw or cause to be withdrawn from a related Account out
of the Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to
the distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the Special Servicer is not required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer for
its expenses and (ii) that such expenses will be recoverable by it from related
Insurance Proceeds or Liquidation Proceeds.
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HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Primary
Servicer to cause the Mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage. Unless otherwise specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis, but not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Primary Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by Mortgagors. All amounts collected by the Primary Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the Mortgagor in accordance with the
Primary Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in a
related Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
The Agreements for a Trust Fund that includes Whole Loans will require the
Primary Servicer to cause the Mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of the
related Mortgage, which insurance may typically include flood insurance (if the
related Mortgaged Property was located at the time of origination in a federally
designated flood area).
In addition, to the extent required by the related Mortgage, the Primary
Servicer may require the Mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance. Any cost
incurred by the Master Servicer 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 a Servicer from a
related Account, with interest thereon, as provided by the Agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Primary Servicer
or the Mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the Leases. Although the terms
of such policies vary to some degree, a rental interruption insurance policy
typically
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provides that, to the extent that a Lessee fails to make timely rental payments
under the related Lease due to a casualty event, such losses will be reimbursed
to the insured. If so specified in the related Prospectus Supplement, the
Primary Servicer will be required to pay from its servicing compensation the
premiums on the rental interruption policy on a timely basis. If so specified in
the Prospectus Supplement, if such rental interruption policy is canceled or
terminated for any reason (other than the exhaustion of total policy coverage),
the Primary Servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the rental interruption
policy with a total coverage that is equal to the then existing coverage of the
terminated rental interruption policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
unless otherwise specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related Prospectus Supplement, the cost of the rental
interruption policy that was replaced. Any amounts collected by the Primary
Servicer under the rental interruption policy in the nature of insurance
proceeds will be deposited in a related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the
Agreements will require that the Servicers 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
such Servicer. The related Agreements will allow a Servicer to self-insure
against loss occasioned by the errors and omissions of the officers, employees
and agents of the Master Servicer or the Special Servicer so long as certain
criteria set forth in the Agreements are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the Whole
Loan upon any sale or other transfer of the related Mortgaged Property. Certain
of the Whole Loans may contain clauses requiring the consent of the mortgagee to
the creation of any other lien or encumbrance on the Mortgaged Property or
due-on-encumbrance clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon the creation of any other lien or encumbrance upon the Mortgaged
Property. Unless otherwise provided in the related Prospectus Supplement, the
Primary Servicer, on behalf of the Trust Fund, will exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Whole Loan or to
withhold its consent to any transfer or further encumbrance. Unless otherwise
specified in the related Prospectus Supplement, any fee collected by or on
behalf of the Primary Servicer for entering into an assumption agreement will be
retained by or on behalf of the Primary Servicer as additional servicing
compensation. See "Certain Legal Aspects of the Mortgage Loans and the
Leases -- Due-on-Sale and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify whether
there will be any Retained Interest in the Mortgage Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
A "Retained Interest" in a Mortgage Asset represents a specified portion of the
interest payable thereon. The Retained Interest will be deducted from Mortgagor
payments as received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of each
Mortgage Asset, such amounts will decrease in accordance with the amortization
of the Mortgage Assets. The Prospectus Supplement with respect to a Series of
Certificates evidencing interests in a Trust Fund that includes Whole Loans may
provide that, as additional
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compensation, a Servicer may retain all or a portion of assumption fees,
modification fees, late payment charges or Prepayment Premiums collected from
Mortgagors and any interest or other income which may be earned on funds held in
a related Account.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Mortgage Assets, including,
without limitation, payment of the fees and disbursements of the Trustee and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other expenses,
including certain expenses relating to defaults and liquidations on the Whole
Loans and, to the extent so provided in the related Prospectus Supplement,
interest thereon at the rate specified therein, and the fees of any Special
Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement will provide that on or before a specified date in
each year, beginning on a date specified therein, a firm of independent public
accountants will furnish a statement to the Trustee to the effect that, on the
basis of the examination by such firm conducted substantially in compliance with
either the Uniform Single Attestation Program for Mortgage Bankers, the
servicing by or on behalf of each Servicer was conducted in compliance with the
terms of such agreements except for any exceptions the Uniform Single
Attestation Program for Mortgage Bankers requires it to report.
Each Servicing Agreement will also provide for delivery to the Trustee, on
or before a specified date in each year, of an annual statement signed by an
officer of each Servicer to the effect that such Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the related
Prospectus Supplement; provided that such Beneficial Owner shall have certified
to the Master Servicer that it is the Beneficial Owner of a Certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer, the Primary Servicer and the Special Servicer, or a
servicer for substantially all the Whole Loans under each Agreement will be
named in the related Prospectus Supplement. Each entity serving as Servicer (or
as such servicer) may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates.
Reference herein to a Servicer shall be deemed to be to the servicer of
substantially all of the Whole Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that any Servicer may resign from its obligations
and duties thereunder only with the consent of the Trustee, which may not be
unreasonably withheld or upon a determination that its duties under the
Agreement are no longer permissible under applicable law. No such resignation
will become effective until a successor servicer has assumed such Servicer's
obligations and duties under the related Servicing Agreement. If a Primary
Servicer resigns, the Master Servicer shall assume the obligations thereof.
Unless otherwise specified in the related Prospectus Supplement, each
Servicing Agreement will further provide that none of the Servicers, or any
officer, employee, or agent thereof will be under any liability to the related
Trust Fund or Certificateholders for any action taken, or for refraining from
the taking of any action in accordance with the Servicing standards set forth in
the Servicing Agreement, in good faith pursuant to the related Servicing
Agreement; provided, however, that no Servicer nor any such person will be
protected against any breach of a representation or warranty made in such
Agreement, or against any liability specifically imposed thereby, or against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties thereunder or by reason of
reckless disregard of
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obligations and duties thereunder. Unless otherwise specified in the related
Prospectus Supplement, the Depositor shall be liable only to the extent of its
obligations specifically imposed upon and undertaken by the Depositor. Unless
otherwise specified in the related Prospectus Supplement, each Servicing
Agreement will further provide that each Servicer will be entitled to
indemnification by the related Trust Fund against any loss, liability or expense
incurred in connection with any legal action relating to the related Servicing
Agreement or the Mortgage Loans; provided, however, that such indemnification
will not extend to any loss, liability or expense incurred by reason of
misfeasance, bad faith or negligence in the performance of obligations or duties
thereunder, or by reason of reckless disregard of such obligations or duties. In
addition, each Servicing Agreement will provide that no Servicer will be under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its responsibilities under the Servicing Agreement and which in
its opinion may involve it in any expense or liability. Any Servicer may,
however, with the consent of the Trustee undertake any such action which it may
deem necessary or desirable with respect to the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Certificateholders, and the Servicer will be entitled to be reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a Servicer or the Depositor is a party, or any person succeeding to the business
of a Servicer or the Depositor will be the successor of such Servicer or the
Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default with respect to a Servicer
under the related Agreements will include (i) any failure by such Servicer to
distribute or cause to be distributed to the Trustee, another Servicer or the
Certificateholders, any required payment within one Business Day of the date
due; (ii) any failure by such Servicer to timely deliver a report that continues
unremedied for two days after receipt of notice of such failure has been given
to such Servicer by the Trustee or another Servicer; (iii) any failure by such
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Agreement which continues unremedied for
thirty days after written notice of such failure has been given to such
Servicer; (iv) any breach of a representation or warranty made by such Servicer
under the Agreement which materially and adversely affects the interests of
Certificateholders and which continues unremedied for thirty days after written
notice of such breach has been given to such Servicer; (v) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by or on behalf of such Servicer
indicating its insolvency or inability to pay its obligations; and (vi) any
failure by such Servicer to maintain a required license to do business or
service the Mortgage Loans pursuant to the related Agreements. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable Series notice of
such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 25% of the Voting Rights, the Trustee shall, terminate
all of the rights and obligations of the related Servicer under the Agreement
and in and to the Mortgage Loans (other than as a Certificateholder or as the
owner of any Retained Interest), whereupon the Master Servicer (or if such
Servicer is the Master Servicer, the Trustee) will succeed to all of the
responsibilities, duties and liabilities of such Servicer under the Agreements
(except that if the Trustee is prohibited by law from obligating itself to make
advances regarding delinquent mortgage loans, or if the related Prospectus
Supplement so specifies, then the Trustee will not be obligated to make such
advances) and will be entitled to similar compensation arrangements. Unless
otherwise specified in the related Prospectus
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Supplement, in the event that the Trustee is unwilling or unable so to act, it
may or, at the written request of the holders of Certificates entitled to at
least 25% of the Voting Rights, it shall appoint, or petition a court of
competent jurisdiction for the appointment of, a loan servicing institution
acceptable to the Rating Agency with a net worth at the time of such appointment
of at least $15,000,000 to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights have made written request upon
the Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for sixty
days has neglected or refused to institute any such proceeding. The Trustee,
however, is under no obligation to exercise any of the trusts or powers vested
in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective Participants
and Indirect Participants.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the consent
of any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement may also be amended by the Depositor, the Master Servicer, if any, and
the Trustee, with the consent of the holders of Certificates affected thereby
evidencing not less than 51% of the Voting Rights, for any purpose; provided,
however, that unless otherwise specified in the related Prospectus Supplement,
no such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any Series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
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THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Trust Asset or related document and is
not accountable for the use or application by or on behalf of any Servicer of
any funds paid to such Servicer or its designee in respect of the Certificates
or the Trust Assets, or deposited into or withdrawn from any Account or any
other account by or on behalf of any Servicer. If no Event of Default has
occurred and is continuing, the Trustee is required to perform only those duties
specifically required under the related Agreements. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee is required to examine such documents and to determine whether
they conform to the requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Distribution Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or Series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related Series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such Series; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreements, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any Series entitled to at least
51% of the Voting Rights for such Series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with respect
to one or more classes thereof or the related Mortgage Assets. Credit Support
may be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one Series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a Series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee repayment of the entire Certificate Balance
of the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, if a form of Credit Support covers more than one Series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, 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 that 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 the Prospectus Supplement. See "Risk Factors -- Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a Series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Distribution Account on any Distribution Date will be subordinated to such
rights of the holders of Senior Certificates. If so provided 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 or shortfalls. 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 and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups, each
supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a Series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
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INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy of any such material
instrument for a Series 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 related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
Bank"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
Series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a Series 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 related Series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
Series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a Series 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 related Series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a Series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination thereof
will be deposited, in the amounts so specified in such Prospectus Supplement.
The reserve funds for a Series may also be funded over time by depositing
therein a specified amount of the distributions received on the related Trust
Assets as 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 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 distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
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Supplement, any reinvestment income or other gain from such investments will be
credited to the related Reserve Fund for such Series, and any loss resulting
from such investments will be charged to such Reserve Fund. However, such income
may be payable to any related Master Servicer or another service provider as
additional compensation. 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.
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
Reserve Fund, the purposes 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.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of Certificates,
the CMBS in the related Trust Fund and/or the Mortgage Loans underlying such
CMBS may be covered by one or more of the types of Credit Support described
herein. The related Prospectus Supplement will specify as to each such form of
Credit Support the information indicated above with respect thereto, to the
extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do not
purport to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans. See "Description
of the Trust Funds -- Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a Mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
Mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "Mortgagor" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the Mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is
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repaid, generally with a power of sale as security for the indebtedness
evidenced by the related mortgage note. In case the Mortgagor under a mortgage
is a land trust, there would be an additional party because legal title to the
property is held by a land trustee under a land trust agreement for the benefit
of the Mortgagor. At origination of a mortgage loan involving a land trust, the
Mortgagor executes a separate undertaking to make payments on the mortgage note.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the mortgage, the law of the state in which the real
property is located, certain federal laws (including, without limitation, the
Soldiers' and Sailors' Civil Relief Act of 1940) and, in some cases, in deed of
trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument 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. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Seller will make certain representations and warranties
in the Agreement with respect to the Mortgage Loans which are secured by an
interest in a leasehold estate. Such representation and warranties will be set
forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the Mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the Mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the Mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the Mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the Mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
Mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the Mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the rates
and must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest in
room rates is perfected under the UCC, the lender will generally be required to
commence a foreclosure or otherwise take possession of the property in order to
collect the room rates after a default.
Even after a foreclosure, the potential rent payments from the property may
be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
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 in property ownership. See "Environmental Legislation" below.
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PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of Offered
Certificate, the Mortgage Loans may also consist of cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by
cooperative housing corporation (a "Cooperative") and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or obtaining of
capital by the cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the cooperative is unable to meet
the payment obligations (i) arising under a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative to
refinance a mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the cooperative to extend its term or, in
the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary leases
and occupancy agreement. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by whomever financed the
purchase by an individual tenant stockholder of cooperative shares or, in the
case of the Mortgage Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is
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filed in the appropriate state and local offices to perfect the lender's
interest in its collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private sale or
otherwise proceed against the collateral or tenant-stockholder as an individual
as provided in the security agreement covering the assignment of the proprietary
lease or occupancy agreement and the pledge of cooperative shares. See
"Foreclosure -- Cooperative Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the Mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds of which are used to satisfy the judgment.
Such sales are made in accordance with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
Mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the Mortgagor's default and the likelihood that the Mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate Mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
Mortgagor failed to maintain the mortgaged property adequately or the Mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a Mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the Mortgagor.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance,
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regardless of the parties' intent, if a court determines that the sale was for
less than fair consideration and such sale occurred while the Mortgagor was
insolvent (or the Mortgagor was rendered insolvent as a result of such sale) and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
Mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the Mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The Mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the Mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the Mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will have the
obligation to pay debt service on any senior mortgages, to pay taxes, obtain
casualty insurance and to make such repairs at its own expense as are necessary
to render the property suitable for sale. Frequently, the lender employs a third
party management company to manage and operate the property. The costs of
operating and maintaining a commercial or multifamily residential property may
be significant and may be greater than the income derived from that property.
The costs of management and operation of those mortgaged properties which are
hotels, motels, restaurants, nursing or convalescent homes or hospitals may be
particularly significant because of the expertise, knowledge and, 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, a few states require
that any environmental contamination at certain types of properties be cleaned
up 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
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"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be recovered
by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans which are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the Mortgagor is in default. Any additional
proceeds are generally payable to the Mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
In connection with a Series of Certificates for which an election is made
to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the Mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the Mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the Mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former Mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless otherwise
provided in the related Prospectus Supplement, with respect 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 two years if the Internal Revenue Service grants an extension of time
within which to sell such property or independent counsel renders an opinion to
the effect that holding such property for such additional period is permissible
under the REMIC Provisions.
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Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
Mortgagor. Even if a mortgage loan by its terms provides for recourse to the
Mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the Mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former Mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the Mortgagor. In certain other states, the lender has the option
of bringing a personal action against the Mortgagor 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. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the Mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former Mortgagor 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 lender from obtaining a large deficiency judgment against the former
Mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the Mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in its obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the mortgagee, but the ground leases that secure
Mortgage Loans may not contain some of these protective provisions, and
mortgages may not contain the other protections discussed in the next paragraph.
Protective ground lease provisions include the right of the leasehold mortgagee
to receive notices from the ground lessor of any defaults by the Mortgagor; the
right to cure such defaults, with adequate cure periods; if a default is not
susceptible of cure by the leasehold mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise; the ability of the ground
lease to be assigned to and by the leasehold mortgagee or purchaser at a
foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may require
that the ground lease or leasehold mortgage prohibit the ground lessee from
treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed by
the provisions of the ground lease.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By-
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laws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default under
the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject, however,
to the Cooperative's right to sums due under such proprietary lease or occupancy
agreement. The total amount owed to the Cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building was so converted.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect the
ability of a lender to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code, virtually all actions
(including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured by
property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be
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reduced to the then-current value of the property (with a corresponding partial
reduction of the amount of lender's security interest) pursuant to a confirmed
plan or lien avoidance proceeding, thus leaving the lender a general unsecured
creditor for the difference between such value and the outstanding balance of
the loan. Other modifications may include the reduction in the amount of each
scheduled payment, 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. 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 federal bankruptcy law, 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.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely on the
basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a Series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related Series of Certificates in the
event that a related Lessee or a related Mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a Mortgagor related to a Mortgaged Property
if the related Mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay 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. Rents and other proceeds of a
Mortgage Loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession 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 is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the 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. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the Mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach, which
could adversely affect the security for the related Mortgage Loan. In addition,
pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for
lease rejection in respect of future rent installments are limited to the rent
reserved by the lease, without acceleration, for the greater of one year or 15%,
not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance
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of any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder the Master Servicer without
offset. To the extent that such a contractual obligation remains enforceable
against the Lessee, the Lessee would not be able to avail itself of the rights
of offset generally afforded to lessees of real property under the Bankruptcy
Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the Mortgagor, or made directly by the related Lessee, 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.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a Mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
with respect to a general partner will cause a person to cease to be a general
partner of the limited partnership, unless otherwise provided in writing in the
limited partnership agreement. This provision may be construed as an "ipso
facto" clause and, in the event of the general partner's bankruptcy, may not be
enforceable. To the extent described in the related Prospectus Supplement,
certain limited partnership agreements of the Mortgagors may provide that the
commencement of a case under the Bankruptcy Code with respect to the related
general partner constitutes an event of withdrawal (assuming the enforceability
of the clause is not challenged in bankruptcy proceedings or, if challenged, is
upheld) that might trigger the dissolution of the limited partnership, the
winding up of its affairs and the distribution of its assets, unless (i) at the
time there was at least one other general partner and the written provisions of
the limited partnership permit the business of the limited partnership to be
carried on by the remaining general partner and that general partner does so or
(ii) the written provisions of the limited partnership agreement permit the
limited partner to agree within a specified time frame (often 60 days) after
such withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so. In
addition, the laws governing general partnerships in certain states provide that
the commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the dissolution
of such partnership, the winding up of its affairs and the distribution of its
assets. Such state laws, however, may not be enforceable or effective in a
bankruptcy case. The dissolution of a Mortgagor, the winding up of its affairs
and the distribution of its assets could result in an acceleration of its
payment obligation under a related Mortgage Loan, which may reduce the yield on
the related Series of Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that is a
partnership may provide the opportunity for a trustee in bankruptcy for such
general partner, such general partner as a debtor-in-possession, or a creditor
of such general partner to obtain an order from a court consolidating the assets
and liabilities of the general partner with those of the Mortgagor pursuant to
the doctrines of substantive consolidation or piercing the corporate veil. In
such a case, the respective Mortgaged Property, for example, would become
property of the estate of such bankrupt general partner. Not only would the
Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
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ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Mortgaged
Properties which are, or have been, the site of manufacturing, industrial or
disposal activity. Such environmental liabilities may give rise to (i) a
diminution in value of property securing any Mortgage Loan, (ii) limitation on
the ability to foreclose against such property or (iii) in certain circumstances
as more fully described below, liability for clean up costs or other remedial
actions, which liability could exceed the value of the principal balance of the
related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise to
a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court held that a lender need not have
involved itself in the day-to-day operations of the facility or participated in
decisions relating to hazardous waste to be liable under CERCLA; rather,
liability could attach to a lender if its involvement with the management of the
facility is broad enough to support the inference that the lender had the
capacity to influence the borrower's treatment of hazardous waste. The court
added that a lender's capacity to influence such decision could be inferred from
the extent of its involvement in the facility's financial management.
On April 29, 1992, in response to the decision in Fleet Factors Corp., the
United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured-creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-appointed entities that acquire possession or control
of contaminated facilities as conservators or receivers will be considered
"involuntary" owners for purposes of CERCLA's "innocent landowner" defense to
liability. Issuance of this rule by the EPA under CERCLA does not necessarily
affect the potential for liability in actions by either a state or a private
party under CERCLA or in actions under other federal or state laws which may
impose liability on "owners or operators" but do not incorporate the
secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in Kelley v. EPA. In an opinion issued on February
4, 1994, the D.C. Circuit Court invalidated EPA's lender liability rule, holding
that EPA exceeded its authority in enacting the rule. The U.S. Supreme Court
denied
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certiorari on January 17, 1995. Legislation has been proposed that would
clarify, by statute, the range of activities a secured creditor may undertake
without being deemed to have participated in the management of the facility, and
thus losing the benefit of the secured-creditor exemption.
Under the Kelley case, the secured-creditor exemption under CERCLA will be
subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of Kelley, the cases
applying the EPA rule have little, if any, precedential value and, thus, lenders
should expect a return to the narrower interpretations of the exemption.
In September 1995, EPA issued a guidance document stating that, in its
enforcement of CERCLA, EPA would apply the protection offered to secured
creditors under the lender liability rule that was invalidated in the Kelley
decision. However, this EPA policy is not binding on the courts nor on states or
private parties.
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA has adopted a
lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing an underground storage tank is not considered an
operator of the underground storage tank as long as petroleum is not added to,
stored in or dispensed from the tank. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protections for secured creditors.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental audits,
that: (i) such Mortgaged Property is in compliance with applicable environmental
laws, or, if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions and (ii) there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation. This requirement effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental inquiry is undertaken, or that, if any Hazardous
Materials are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions, reducing the
likelihood that a given Trust Fund will become liable for any condition or
circumstance that may give rise to any environmental claim (an "Environmental
Hazard 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 Hazard Conditions, that any estimate of
the costs of effecting compliance at any Mortgaged Property and the recovery
thereon will be correct, or that the other requirements of the Agreement, even
if fully observed by the Master Servicer or Special Servicer, as the case may
be, will in fact insulate a given Trust Fund from liability for Environmental
Hazard Conditions. Any
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additional restrictions on acquiring titles to a Mortgaged Property may be set
forth in the related Prospectus Supplement. See "Description of the Agreements
Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warranting Party will represent and warrant
that based on an environmental audit commissioned by Warranting Party, as of the
date of the origination of a Mortgage Loan, the related Mortgaged Property is
not affected by a Disqualifying Condition (as defined below). No such person
will however, be responsible for any Disqualifying Condition which may arise on
a Mortgaged Property after the date of origination of the related Mortgage Loan,
whether due to actions of the Mortgagor, the Master Servicer, the Primary
Servicer, the Special Servicer or any other person. It may not always be
possible to determine whether a Disqualifying Condition arose prior or
subsequent to the date of the origination of the related Mortgage Loan.
A "Disqualifying Condition" is defined generally as a condition which would
reasonably be expected to (1) constitute or result in a violation of applicable
environmental laws, (2) require any expenditure material in relation to the
principal balance of the related Mortgage Loan to achieve or maintain compliance
in all material respects with any applicable environmental laws, or (3) require
substantial cleanup, remedial action or other extraordinary response under any
applicable environmental laws in excess of a specified escrowed amount.
"Hazardous Materials" are generally defined under several federal and state
statutes, and include dangerous toxic or hazardous pollutants, chemicals, wastes
or substances, including, without limitation, those so identified pursuant to
CERCLA, and specifically including, asbestos and asbestos containing materials,
polychlorinated biphenyls, radon gas, petroleum and petroleum products, urea
formaldehyde.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the Mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the Mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 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 limited exceptions. Unless otherwise
provided in the related Prospectus Supplement, a Master Servicer, on behalf of
the Trust Fund, will determine whether to exercise any right the Trustee may
have as mortgagee to accelerate payment of any such Mortgage Loan or to withhold
its consent to any transfer or further encumbrance in a manner consistent with
the Servicing Standard.
In addition, under federal bankruptcy laws, 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.
SUBORDINATE FINANCING
Where the Mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the Mortgagor (as junior loans often do) and the
senior loan does not, a Mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
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create a superior equity in favor of the junior lender. For example, if the
Mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the Mortgagor is
additionally burdened. Third, if the Mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the Mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a Mortgagor for delinquent payments. Certain states also
limit the amounts that a lender may collect from a Mortgagor as an additional
charge if the loan is prepaid. The enforceability, under the laws of a number of
states of provisions providing for prepayment fees or penalties upon, or
prohibition of, an involuntary prepayment is unclear, and no assurance can be
given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Interest Rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related Prospectus Supplement, 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 Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the 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 Mortgagor 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.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by certain
lenders after March 31, 1980. A similar federal statute was in effect with
respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title V
would hold that residential first mortgage loans that are originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting discount points or other charges prior to origination of
such mortgage loans, any such limitation under such state's usury law would not
apply to such mortgage loans.
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In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no Mortgage
Loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and 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 cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
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 Mortgage 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. Mortgages on
Mortgaged Properties which are owned by the Mortgagor 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 in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential 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 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 Mortgagor 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 Mortgagor as owner of 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
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such
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Mortgagor's active duty status, unless a court orders otherwise upon application
of the lender. 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 called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of loans that may
be affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of any servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any
shortfalls in interest collections resulting from the application of the Relief
Act would result in a reduction of the amounts distributable to the holders of
the related Series of Certificates, and would not be covered by advances or,
unless otherwise specified in the related Prospectus Supplement, any form of
Credit Support provided in connection with such Certificates. In addition, the
Relief Act imposes limitations that would impair the ability of the servicer to
foreclose on an affected Mortgage Loan during the Mortgagor's period of active
duty status, and, under certain circumstances, during an additional three month
period thereafter. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Brown & Wood, counsel to the Depositor. This summary
is based on laws, regulations, including the REMIC regulations promulgated by
the Treasury Department (the "REMIC Regulations"), rulings and decisions now in
effect or (with respect to regulations) proposed, all of which are subject to
change either prospectively or retroactively. Brown & Wood will deliver an
opinion to the Depositor that the information set forth under this caption,
"Certain Federal Income Tax Consequences," to the extent that it constitutes
matters of law or legal conclusions, is correct in all material respects. This
summary does not address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
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GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood will deliver its opinion that
the Trust Fund will not be classified as an association taxable as a corporation
and that each such Trust Fund will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, owners of
Certificates will be treated for federal income tax purposes as owners of a
portion of the Trust Fund's assets as described below.
a. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of Grantor
Trust Certificates. In this case, each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162 or
212 each Grantor Trust Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss recognized
upon an assumption and late payment charges retained by the Master Servicer,
provided that such amounts are reasonable compensation for services rendered to
the Trust Fund. Grantor Trust Certificateholders that are individuals, estates
or trusts will be entitled to deduct their share of expenses as itemized
deductions only to the extent such expenses plus all other Code Section 212
expenses exceed two percent of its adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (which
amount will be adjusted for inflation) will be reduced by the lesser of (i) 3%
of the excess of adjusted gross income over the applicable amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for such taxable year. A
Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income and deductions as and when collected
by or paid to the Master Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Master Servicer, whichever
is earlier. If the servicing fees paid to the Master Servicer are deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of the
Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to each
Series of Certificates Brown & Wood will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which
is . . . residential property" within the meaning of Code Section
7701(a)(19)(C)(v), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code
section;
(ii) a Grantor Trust Certificate owned by a financial institution
described in Code Section 593(a) representing principal and interest
payments on Mortgage Assets will be considered to represent "qualifying
real property loans" within the meaning of Code Section 593(d) and the
Treasury regulations under Code Section 593, to the extent that the
Mortgage Assets represented by that Grantor Trust Certificate are of a type
described in such Code section;
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(iii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Assets will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), to the extent that the Mortgage
Assets represented by that Grantor Trust Certificate are of a type
described in such Code section; and
(iv) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities which constitute "stripped bonds" or "stripped coupons" as those
terms are defined in Section 1286 of the Code, and, as a result, such assets
would be subject to the stripped bond provisions of the Code.
Under these rules, such Government Securities are treated as having
original issue discount based on the purchase price and the stated redemption
price at maturity of each Security. As such, Grantor Trust Certificateholders
would be required to include in income their pro rata share of the original
issue discount on each Government Security recognized in any given year on an
economic accrual basis even if the Grantor Trust Certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the Grantor
Trust Certificateholder in any taxable year may exceed amounts actually received
during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Asset based on
each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Mortgage Loan (or an underlying mortgage loan with
respect to a Mortgage Asset) prepays in full, equal to the difference between
the portion of the prepaid principal amount of such Mortgage Loan (or underlying
mortgage loan) that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to such Mortgage Loan (or
underlying mortgage loan). If a reasonable prepayment assumption is used to
amortize such premium, it appears that such a loss would be available, if at
all, only if prepayments have occurred at a rate faster than the reasonable
assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to original issue discount
("OID") (currently Code Sections 1271 through 1273 and 1275) and Treasury
regulations issued on January 27, 1994, under such Sections (the "OID
Regulations"), will be applicable to a Grantor Trust Certificateholder's
interest in those Mortgage Assets meeting the conditions necessary for these
sections to apply. Rules regarding periodic inclusion of OID income are
applicable to mortgages of corporations originated after May 27, 1969, mortgages
of noncorporate Mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Such OID
could arise by the financing of points or other charges by the originator of the
mortgages in an amount greater than a statutory de
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minimis exception to the extent that the points are not currently deductible
under applicable Code provisions or are not for services provided by the lender.
OID generally must be reported as ordinary gross income as it accrues under a
constant interest method. See "-- Multiple Classes of Grantor Trust
Certificates -- Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than 0.25%
of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an
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election were to be made with respect to a Grantor Trust Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the year of the election or thereafter. Similarly, a Certificateholder that
makes this election for a Certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Certificateholder
owns or acquires. See "-- Regular Certificates -- Premium" herein. The election
to accrue interest, discount and premium on a constant yield method with respect
to a Certificate is irrevocable.
b. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the "Stripped
Bond Certificates"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See "-- Non-REMIC Certificates" and "Multiple Classes of
Grantor Trust Certificates -- Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Asset is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See "-- Non-REMIC Certificates"
and "-- Single Class of Grantor Trust Certificates -- Original Issue Discount"
herein. However, a purchaser of a Stripped Bond Certificate will be required to
account for any discount on the Mortgage Assets as market discount rather than
OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID de minimis rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees in
excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets. Pursuant to Revenue Procedure 91-49, issued on August 8, 1991,
purchasers of Stripped Bond Certificates using an inconsistent method of
accounting must change their method of accounting and request the consent of the
IRS to the change in their accounting method on a statement attached to their
first timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Asset. However, based on the recent IRS
guidance, it appears that all payments from a Mortgage Asset underlying a
Stripped Coupon Certificate should be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments from such
Mortgage Asset would be included in the Mortgage Asset's stated redemption price
at maturity for purposes of calculating income on such certificate under the OID
rules of the Code.
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It is unclear under what circumstances, if any, the prepayment of Mortgage
Assets will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Grantor Trust Certificate, it appears that no loss will be
available as a result of any particular prepayment unless prepayments occur at a
rate faster than the assumed prepayment rate. However, if such Certificate is
treated as an interest in discrete Mortgage Assets, or if no prepayment
assumption is used, then when a Mortgage Asset is prepaid, the holder of such
Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped obligation
as a separate obligation for purposes of the Code provisions addressing OID, it
is not clear whether such characterization would apply with regard to these
other Code sections. Although the issue is not free from doubt, based on policy
considerations, each class of Grantor Trust Certificates, unless otherwise
specified in the related Prospectus Supplement, should be considered to
represent "qualifying real property loans" within the meaning of Code Section
593(d), "real estate assets" within the meaning of Code Section 856(c)(6)(B) and
"loans . . . secured by, an interest in real property which is . . . residential
real property" within the meaning of Code Section 7701(a)(19)(C)(v), and
interest income attributable to Grantor Trust Certificates should be considered
to represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), provided that in each case the
underlying Mortgage Assets and interest on such Mortgage Assets qualify for such
treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the income
therefrom. Grantor Trust Certificates will be "obligation[s] . . . which [are]
principally secured, directly or indirectly, by an interest in real property"
within the meaning of Code Section 860G(a)(3).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate Mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates on the Mortgage Assets. OID on each Grantor
Trust Certificate must be included in the owner's ordinary income for federal
income tax purposes as it accrues, in accordance with a constant interest method
that takes into account the compounding of interest, in advance of receipt of
the cash attributable to such income. The amount of OID required to be included
in an owner's income in any taxable year with respect to a Grantor Trust
Certificate representing an interest in Mortgage Assets other than Mortgage
Assets with interest rates that adjust periodically ("ARM Loans") likely will be
computed as described below under "-- Accrual of Original Issue Discount." The
following discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to April
4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before
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December 21, 1992. In applying these dates, the issued date of the Mortgage
Assets should be used, or, in the case of Stripped Bond Certificates or Stripped
Coupon Certificates, the date such Certificates are acquired. The holder of a
Certificate should be aware, however, that neither the proposed OID Regulations
nor the OID Regulations adequately address certain issues relevant to prepayable
securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as qualified
stated interest payments. The accrual of this OID, as described below under
"--Accrual of Original Issue Discount," will, unless otherwise specified in the
related Prospectus Supplement, utilize the original yield to maturity of the
Grantor Trust Certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the Grantor Trust Certificates (the
"Prepayment Assumption"), and will take into account events that occur during
the calculation period. The Prepayment Assumption will be determined in the
manner prescribed by regulations that have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that the
regulations will require that the Prepayment Assumption be the prepayment
assumption that is used in determining the offering price of such Certificate.
No representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the Code
literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent. However,
no other legal authority provides guidance with regard to the proper method for
accruing OID on obligations that are subject to prepayment, and, until further
guidance is issued, the Master Servicer intends to calculate and report OID
under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
state redemption price at maturity received during such accrual period, and (ii)
subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue
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price and the previously accrued original issue discount, less prior payments of
principal. Accordingly, if such Mortgage Assets acquired by a Certificateholder
are purchased at a price equal to the then unpaid principal amount of such
Mortgage Asset, no original issue discount attributable to the difference
between the issue price and the original principal amount of such Mortgage Asset
(i.e., points) will be includible by such holder. Other original issue discount
on the Mortgage Assets (e.g., that arising from a "teaser" rate) would still
need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "-- Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
c. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
d. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued OID recognized by the owner on the sale or
exchange of such a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in Mortgage Assets issued after July 18, 1984, by natural persons if such
Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional
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restrictions apply to Mortgage Assets of where the Mortgagor is not a natural
person in order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
e. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
REMICs
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however "-- Taxation of Owners of REMIC Residual Certificates" and
"-- Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including the
implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Brown & Wood will deliver its opinion
generally to the effect that, under then existing law and assuming compliance
with all provisions of the related Pooling and Servicing Agreement, such Trust
Fund will qualify as a REMIC, and the related Certificates will be considered to
be regular interests ("REMIC Regular Certificates") or a sale class of residual
interests ("REMIC Residual Certificates") in the REMIC. The related Prospectus
Supplement for each Series of Certificates will indicate whether the Trust Fund
will make a REMIC election and whether a class of Certificates will be treated
as a regular or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC.
In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"mutual savings bank" or "domestic building and loan association" will represent
interests in "qualifying real property loans" within the meaning of Code Section
593(d)(1); (ii) Certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets described in Code Section
7701(a)(19)(C); (iii) Certificates held by a real estate
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investment trust will constitute "real estate assets" within the meaning of Code
Section 856(c)(6)(B); and (iv) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Assets held pending distribution on the REMIC Certificates will be
considered to be qualifying real property loans for purposes of Code Section
593(d)(1) and real estate assets for purposes of Code Section 856(c).
Tiered REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for federal
income tax purposes. Upon the issuance of any such Series of Certificates, Brown
& Wood, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and the Subsidiary REMIC,
respectively, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in the Subsidiary
REMIC, issued by the Master REMIC will be offered hereunder. The Subsidiary
REMIC and the Master REMIC will be treated as one REMIC solely for purposes of
determining whether the REMIC Certificates will be (i) "qualifying real property
loans" under Section 593(d) of the Code; (ii) "real estate assets" within the
meaning of Section 856(c)(6)(B) of the Code; (iii) "loans secured by an interest
in real property" under Section 7701(a)(19)(C) of the Code; and (iv) whether the
income on such Certificates is interest described in Section 856(c)(3)(B) of the
Code.
a. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference between
the "stated redemption price at maturity" of a REMIC Regular Certificate and its
"issue price." Holders of any class of Certificates issued with OID will be
required to include such OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the 1986 Act. Holders of REMIC
Regular Certificates (the "REMIC Regular Certificateholders") should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such REMIC Regular Certificates. The Prospectus
Supplement for each Series of REMIC Regular Certificates will specify the
Prepayment Assumption to be used for the purpose of determining the amount and
rate of accrual of OID. No
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representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the "Closing Date"), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue price of a REMIC Regular Certificate also includes
the amount paid by an initial Certificateholder for accrued interest that
relates to a period prior to the issue date of the REMIC Regular Certificate.
The stated redemption price at maturity of a REMIC Regular Certificate includes
the original principal amount of the REMIC Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately takes
into account the length of the interval between payments. Distributions of
interest on REMIC Regular Certificates with respect to which Deferred Interest
will accrue will not constitute qualified stated interest payments, and the
stated redemption price at maturity of such REMIC Regular Certificates includes
all distributions of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding the
rate in the first period) and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that accrued
during the first period would be added to the Certificates stated redemption
price at maturity. REMIC Regular Certificateholders should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position
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that the stated redemption price at maturity of such REMIC Regular Certificates
is the sum of all payments to be made on such REMIC Regular Certificates
determined under the Prepayment Assumption, with the result that such REMIC
Regular Certificates would be issued with OID. The calculation of income in this
manner could result in negative original issue discount (which delays future
accruals of OID rather than being immediately deductible) when prepayments on
the Mortgage Assets exceed those estimated under the Prepayment Assumption. The
IRS might contend, however, that certain contingent payment rules contained in
regulations proposed on April 8, 1986, with respect to original issue discount
should apply to such Certificates. Under those rules, a Super-Premium
Certificate would not be required to report income on the basis of a yield based
on the Prepayment Assumption, but rather would use a yield equal to the
applicable Federal rate (which is an average yield on Treasury obligations),
until the initial price of the respective Super-Premium Certificate is fully
recovered. The IRS recently proposed and then withdrew a revised set of proposed
contingent payment regulations which differed substantially from the contingent
payment regulations proposed in 1986. The proposed regulations regarding
contingent interest have not been adopted in final form and may not currently be
relied upon. If the Super Premium Certificates were treated as contingent
payment obligations, it is unclear how holders of those Certificates would
report income or recover their basis. In the alternative, the IRS could assert
that the stated redemption price at maturity of such REMIC Regular Certificates
should be limited to their principal amount (subject to the discussion below
under "-- Accrued Interest Certificates"), so that such REMIC Regular
Certificates would be considered for federal income tax purposes to be issued at
a premium. If such a position were to prevail, the rules described below under
"-- Taxation of Owners of REMIC Regular Certificates -- Premium" would apply. It
is unclear when a loss may be claimed for any unrecovered basis for a
Super-Premium Certificate. It is possible that a holder of a Super-Premium
Certificate may only claim a loss when its remaining basis exceeds the maximum
amount of future payments, assuming no further prepayments or when the final
payment is received with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "-- REMIC Regular Certificates -- Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, a calculation
will be made of the portion of the OID that accrues during each successive
period ("an accrual period") that ends on the day in the calendar year
corresponding to a Distribution Date (or if Distribution Dates are on the first
day or first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that
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accrual period. The OID accrued during an accrual period will then be divided by
the number of days in the period to determine the daily portion of OID for each
day in the accrual period. The calculation of OID under the method described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in a given accrual period to reflect the fact that prepayments are
occurring faster or slower than under the Prepayment Assumption. With respect to
an initial accrual period shorter than a full accrual period, the daily portions
of OID may be determined according to an appropriate allocation under any
reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that REMIC Regular Certificate. In
computing the daily portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity), however, the daily portion
is reduced by the amount that would be the daily portion for such day (computed
in accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount: (a) the sum of
the issue price plus the aggregate amount of OID that would have been includible
in the gross income of an original REMIC Regular Certificateholder (who
purchased the REMIC Regular Certificate at its issue price), less (b) any prior
payments included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that REMIC Regular
Certificate for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption. A holder
who pays an acquisition premium instead may elect to accrue OID by treating the
purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"-- Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on a
REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest.
In such case, the weighted average rate used to compute the initial
pass-through rate on the REMIC Regular Certificates will be deemed to be the
index in effect through the life of the REMIC Regular Certificates. It is
possible, however, that the IRS may treat some or all of the interest on REMIC
Regular Certificates with a weighted average rate as taxable under the rules
relating to obligations providing for contingent payments. Such treatment may
effect the timing of income accruals on such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"-- REMIC Regular Certificates -- Premium" herein. The
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election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at the
beginning of the period. For REMIC Regular Certificates issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (a) the total remaining market discount and (b) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the REMIC
Regular Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
Prepayment Assumption applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued
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to purchase or carry such Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose. However,
the Legislative History states that the same rules that apply to accrual of
market discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have OID) will also apply in amortizing bond premium
under Code Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event there
are defaults or delinquencies on the Mortgage Assets, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinated Certificates attributable to
defaults and delinquencies on the Mortgage Assets, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually 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 Assets. Timing and characterization
of such losses is discussed in "-- REMIC Regular Certificates -- Treatment of
Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over the holder's adjusted
basis in the REMIC
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Regular Certificate. A REMIC Regular Certificateholder who receives a final
payment that is less than the holder's adjusted basis in the REMIC Regular
Certificate will generally recognize a loss. Except as provided in the following
paragraph and as provided under "-- Market Discount" above, any such gain or
loss will be capital gain or loss, provided that the REMIC Regular Certificate
is held as a "capital asset" (generally, property held for investment) within
the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that would
have been includible in such holder's income with respect to the REMIC Regular
Certificate had income accrued thereon at a rate equal to 110% of the AFR as
defined in Code Section 1274(d) determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount actually includible in such
holder's income.
The Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a REMIC
Regular Certificate by a bank or a thrift institution to which such Section
applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information necessary
to compute the accrual of any market discount that may arise upon secondary
trading of REMIC Regular Certificates. Because exact computation of the accrual
of market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the issue date
("pre-issuance accrued interest") and the REMIC Regular Certificate provides for
a payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the REMIC Regular Certificates' issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
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Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Although the matter is not entirely clear, non-corporate holders of Certificates
may be allowed a bad debt deduction at such time that the principal balance of
any such Certificate is reduced to reflect realized losses resulting from any
liquidated Mortgage Assets. The Internal Revenue Service, however, could take
the position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Mortgage Assets remaining in the related
Trust Fund have been liquidated or the Certificates of the related Series have
been otherwise retired. Potential investors and holders of the Certificates are
urged to consult their own tax advisors regarding the appropriate timing, amount
and character of any loss sustained with respect to such Certificates, including
any loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions of
interest to such holder, including distributions in respect of accrued OID, may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual and will not be subject to United States estate
taxes. However, Certificateholders who are non-resident alien individuals should
consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
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b. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual Certificates.
The REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See "--
Prohibited Transactions and Other Taxes" below. Instead, each original holder
of a REMIC Residual Certificate will report on its federal income tax return,
as ordinary income, its share of the taxable income of the REMIC for each day
during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "-- Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of (i) the income from the Mortgage
Assets and the REMIC's other assets and (ii) the deductions allowed to the REMIC
for interest and OID on the REMIC Regular Certificates and, except as described
above under "-- Taxation of Owners of REMIC Regular Certificates -- Non-Interest
Expenses of the REMIC," other expenses. REMIC taxable income is generally
determined in the same manner as the taxable income of an individual using the
accrual method of accounting, except that (i) the limitations on deductibility
of investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts, and (iii)
the limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. The REMIC's gross income includes interest,
original issue discount income, and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. Note that the timing of cancellation of indebtedness
income recognized by REMIC Residual Certificate-
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holders resulting from defaults and delinquencies on Mortgage Assets may differ
from the time of the actual loss on the Mortgage Asset. The REMIC's deductions
include interest and original issue discount expense on the REMIC Regular
Certificates, servicing fees on the Mortgage Loans, other administrative
expenses of the REMIC and realized losses on the Mortgage Loans. The requirement
that REMIC Residual Certificateholders report their pro rata share of taxable
income or net loss of the REMIC will continue until there are no Certificates of
any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent that
the REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or OID) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon and
would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "-- Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by such REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS recently released proposed regulations
(the "Proposed Mark-to-Market Regulations") which provide that a REMIC Residual
Certificate acquired after January 3, 1995 can not be marked-to-market. The
Proposed Mark-to-Market Regulations change the temporary regulations which
allowed a Residual Certificate
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to be marked-to-market provided that it was not a "negative value" residual
interest and did not have the same economic effect as a "negative value"
residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual Certificateholder;
(ii) will be treated as "unrelated business taxable income" within the meaning
of Code Section 512 if the REMIC Residual Certificateholder is a pension fund or
any other organization that is subject to tax only on its unrelated business
taxable income (see "-- Tax-Exempt Investors" below); and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "-- Non-U.S. Persons" below.
The exception for thrift institutions is available only to the institution
holding the REMIC Residual Certificate and not to any affiliate of the
institution, unless the affiliate is a subsidiary all the stock of which, and
substantially all the indebtedness of which, is held by the institution, and
which is organized and operated exclusively in connection with the organization
and operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (ii) the sum
of the "daily accruals" (as defined below) for all days during the calendar
quarter on which the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily accruals with respect to
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a REMIC Residual Certificate are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the "Federal long-term rate" in effect
at the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a REMIC Residual Certificate as excess inclusions if the
REMIC Residual Certificates in the aggregate are considered not to have
"significant value." Under the REMIC Regulations, REMIC Residual
Certificateholders that are thrift institutions described in Code Section 593
can offset excess inclusions with unrelated deductions, losses and loss
carryovers provided the REMIC Residual Certificates have "significant value."
For purposes of applying this rule, thrift institutions that are members of an
affiliated group filing a consolidated return, together with their subsidiaries
formed to issue REMICs, are treated as separate corporations. REMIC Residual
Certificates have "significant value" if: (i) the REMIC Residual Certificates
have an aggregate issue price that is at least equal to 2% of the aggregate
issue price of all REMIC Residual Certificates and REMIC Regular Certificates
with respect to the REMIC and (ii) the anticipated weighted average life of the
REMIC Residual Certificates is at least 20% of the anticipated weighted average
life of the REMIC based on the anticipated principal payments to be received
with respect thereto (using the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents), except that all anticipated distributions are to be
used to calculate the weighted average life of REMIC Regular Certificates that
are not entitled to any principal payments or are entitled to a
disproportionately small principal amount relative to interest payments thereon
and all anticipated distributions are to be used to calculate the weighted
average life of the REMIC Residual Certificates. The principal amount will be
considered disproportionately small if the issue price of the REMIC Residual
Certificates exceeds 125% of their initial principal amount. Finally, an
ordering rule under the REMIC Regulations provides that a thrift institution may
only offset its excess inclusion income with deductions after it has first
applied its deductions against income that is not excess inclusion income.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC
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Residual Certificateholder. In general, any such gain or loss will be capital
gain or loss provided the REMIC Residual Certificate is held as a capital asset.
However, REMIC Residual Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from sale
of a REMIC Residual Certificate by a bank or thrift institution to which such
Section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the "Contributions Tax"). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of or
results from (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller, as
the case may be, out of its own funds or (ii) the Seller's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Seller. In the event
that such Master Servicer, Trustee or Seller, as the case may be, fails to pay
or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
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The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to such
tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "-- Taxation of Owners
of REMIC Residual Certificates -- Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "-- Taxation of Owners of REMIC Regular Certificates -- Non-U.S. Persons"
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "-- Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "-- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the REMIC Residual Certificate is
disposed of) under rules similar to those for withholding upon disposition of
debt instruments that have OID. The Code, however, grants the Treasury
Department authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "-- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "-- Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
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REMIC Regular Certificateholders and persons related to such holders should
not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (B) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. The tax on pass-through entities
is generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common trust
funds and publicly-traded partnerships the tax shall apply only to taxable years
of such entities beginning after December 31, 1988. Under proposed legislation,
large partnerships (generally with 250 or more partners) will be taxable on
excess inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a "U.S. Person," as defined above,
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unless no significant purpose of the transfer is to enable the transferor to
impede the assessment or collection of tax. A Noneconomic REMIC Residual
Certificate is any REMIC Residual Certificate (including a REMIC Residual
Certificate with a positive value at issuance) unless, at the time of transfer,
taking into account the Prepayment Assumption and any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) the present value of the expected future
distributions on the REMIC Residual 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
from the REMIC at or after the time at which taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax 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 not to have such knowledge
if (i) the transferor conducted a reasonable investigation of the transferee and
(ii) the transferee acknowledges to the transferor that the residual interest
may generate tax liabilities in excess of the cash flow and the transferee
represents that it intends to pay such taxes associated with the residual
interest as they become due. If a transfer of a Noneconomic REMIC Residual
Certificate is disregarded, the transferor would continue to be treated as the
owner of the REMIC Residual Certificate and would continue to be subject to tax
on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and the
foreign transferor will continue to be treated as the owner, if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions.
The provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The Agreement will provide that no record
of beneficial ownership interest in a REMIC Residual Certificate may be
transferred, directly or indirectly, to a non-U.S. Person unless such person
provides the Trustee with a duly completed I.R.S. Form 4224 and the Trustee
consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered 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 tax
consequences of investments in the Offered Certificates.
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under Section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Certificates without regard to
the ERISA considerations described below, subject to other applicable federal
and state law. However, any such governmental or church plan which is qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is subject to the prohibited transaction rules set forth in Section
503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code imposes certain excise taxes (or, in some cases, a civil penalty may
be assessed pursuant to Section 502(i) of ERISA) on parties in interest which
engage in nonexempt prohibited transactions.
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA to be assets of the Plan unless certain exceptions
apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Depositor, the Servicers, the Trustee and other
persons, in providing services with respect to the assets of the Trust, may be
parties in interest, subject to the fiduciary responsibility provisions of Title
I of ERISA, including the prohibited transaction provisions of Section 406 of
ERISA (and of Section 4975 of the Code), with respect to transactions involving
such assets unless such transactions are subject to a statutory or
administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, "benefit plan investors" in the aggregate, own at
least 25% of the value of any class of equity interest. "Benefit plan investors"
are defined as Plans as well as employee benefit plans not subject to ERISA
(e.g., governmental plans). The 25% limitation must be met with respect to each
class of certificates, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to J.P. Morgan Securities Inc. Prohibited Transaction
Exemption 90-23 (the "Exemption"), which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which J.P. Morgan
Securities Inc. or any of its affiliates is the sole underwriter or the manager
or co-manager of the underwriting syndicate; and (2) the
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servicing, operation and management of such asset-backed pass-through trusts,
provided that the general conditions and certain other conditions set forth in
the Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets forth
the following general conditions which must be satisfied before a transaction
involving the acquisition, sale and holding of the Certificates or a transaction
in connection with the servicing, operation and management of the Trust Fund may
be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest rating
categories from any of Duff & Phelps Inc., Fitch Investors Service, Inc.,
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group;
(4) The Trustee is not an affiliate of the Underwriters, the
Depositor, the Servicers, any borrower whose obligations under one or more
Mortgage Loans constitute more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any of their respective
affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriters
in connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the sale of
the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Servicers represent not more than reasonable compensation for the
Servicers' services under the Agreements and reimbursement of the
Servicer's reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
Prospectus Supplement with respect to a Series of Certificates may contain
additional information regarding the application of the Exemption, PTCE 83-1, or
any other exemption, with respect to the Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Offered Certificates 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"). Such classes will constitute "mortgage
related securities"
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for so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization (the "SMMEA
Certificates"). 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. Alaska, Arkansas,
Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas, Maryland,
Michigan, Missouri, Nebraska, New Hampshire, New York, North Carolina, Ohio,
South Dakota, Utah, Virginia and West Virginia enacted legislation, on or before
the October 4, 1991 cutoff established by SMMEA for such enactments, limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in mortgage related securities, in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Accordingly, the investors affected by such legislation will be authorized to
invest in SMMEA Certificates only to the extent provided in such legislation.
Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Offered Certificates constitute legal investments for them.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS"), the National Credit Union Administration ("NCUA") or other federal or
state agencies with similar authority should review any applicable rules,
guidelines and regulations prior to purchasing any Offered Certificate. The
Federal Financial Institutions Examination Council, for example, has issued a
Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "Policy Statement"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of Offered Certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of Offered
Certificates offered pursuant to this Prospectus will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of this
Offered Certificate under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
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Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more than
a special percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a Series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of the
Certificates for legal investment or financial institution regulatory purposes,
or as to the ability of particular investors to purchase any Offered
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 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 and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for such investors.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected 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 therefor. 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 J.P. Morgan Securities Inc.
("JPMSI") acting as underwriter with other underwriters, if any, named therein.
In such event, the Prospectus Supplement may also specify that the underwriters
will not be obligated to pay for any Offered Certificates agreed to be purchased
by purchasers pursuant to purchase agreements acceptable to the Depositor. In
connection with the sale of Offered Certificates, underwriters may receive
compensation from the Depositor or from purchasers of Offered Certificates in
the form of discounts, concessions or commissions. The Prospectus Supplement
will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by JPMSI acting as agent or in some cases as
principal with respect to Offered Certificates that it has previously purchased
or agreed to purchase. If JPMSI acts as agent in the sale of Offered
Certificates, JPMSI will receive a selling commission with respect to such
Offered Certificates, depending on market conditions, expressed as a percentage
of the aggregate Certificate Balance or notional amount of such Offered
Certificates as of the Cut-off Date. The exact percentage for each Series of
Certificates will be disclosed in the related Prospectus Supplement. To the
extent that JPMSI elects to purchase Offered Certificates as principal, JPMSI
may realize losses or profits based upon the difference between its purchase
price and the sales price. The Prospectus Supplement with respect to any Series
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the
Depositor and purchasers of Offered Certificates of such Series.
The Depositor will indemnify JPMSI and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments JPMSI and any underwriters may be required to make
in respect thereof.
In the ordinary course of business, JPMSI and the Depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the Depositor's mortgage loans pending the sale
of such mortgage loans or interests therein, including the Certificates.
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Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
As to each Series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Brown & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will he
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by Mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----------------------------------------------------------------------------- ------------------
<S> <C>
1986 Act..................................................................... 75
Accounts..................................................................... 40
Accrual Certificates......................................................... 8, 29
Accrued Certificate Interest................................................. 30
ADA.......................................................................... 68
Agreements................................................................... 8
Applicable Amount............................................................ 88
ARM Loans.................................................................... 23, 94
Asset Seller................................................................. 19
Available Distribution Amount................................................ 30
Balloon Mortgage Loans....................................................... 15
Bankruptcy Code.............................................................. 60
Beneficial Owners............................................................ 35
Book-Entry Certificates...................................................... 29
Cash Flow Agreement.......................................................... 7, 25
Cash Flow Agreements......................................................... 1
Cede......................................................................... 4, 36
CERCLA....................................................................... 17, 64
Certificate.................................................................. 37
Certificate Balance.......................................................... 8, 31
Certificate Holder........................................................... 36
Certificate Holders.......................................................... 18
Certificates................................................................. 5
Closing Date................................................................. 79
CMBS......................................................................... 1, 5, 19
CMBS Agreement............................................................... 23
CMBS Issuer.................................................................. 23
CMBS Servicer................................................................ 22
CMBS Trustee................................................................. 23
Code......................................................................... 10
Commercial Loans............................................................. 20
Commercial Properties........................................................ 6, 20
Commission................................................................... 3
Contributions Tax............................................................ 90
Cooperative.................................................................. 56
Cooperative Loans............................................................ 56
Cooperatives................................................................. 20
Covered Trust................................................................ 16, 52
CPR.......................................................................... 27
Credit Support............................................................... 1, 7, 24
Crime Control Act............................................................ 69
Cut-off Date................................................................. 9
Debt Service Coverage Ratio.................................................. 21
Deferred Interest............................................................ 76
Definitive Certificates...................................................... 29, 36
</TABLE>
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<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----------------------------------------------------------------------------- ------------------
<S> <C>
Depositor.................................................................... 19
Determination Date........................................................... 30
Disqualifying Condition...................................................... 66
Distribution Account......................................................... 42
Distribution Date............................................................ 9
DTC.......................................................................... 4, 35
Environmental Hazard Condition............................................... 66
EPA.......................................................................... 64
Equity Participations........................................................ 23
ERISA........................................................................ 11, 94
Excess Servicing............................................................. 73
Exchange Act................................................................. 4
Exemption.................................................................... 94
FDIC......................................................................... 40, 96
Grantor Trust Certificates................................................... 10
Hazardous Materials.......................................................... 66
Indirect Participants........................................................ 35
Insurance Proceeds........................................................... 41
IRS.......................................................................... 71
JPMSI........................................................................ 97
L/C Bank..................................................................... 54
Labor........................................................................ 94
Lease........................................................................ 4, 6
Lease Assignment............................................................. 1
Legislative History.......................................................... 75
Lessee....................................................................... 4, 6
Liquidation Proceeds......................................................... 41
Loan-to-Value Ratio.......................................................... 22
Lock-out Date................................................................ 23
Lock-out Period.............................................................. 23
Master REMIC................................................................. 78
Master Servicer.............................................................. 5
Model Law.................................................................... 96
Mortgage Assets.............................................................. 18
Mortgage Loans............................................................... 1, 5, 19
Mortgage Notes............................................................... 20
Mortgage Interest Rate....................................................... 6, 23
Mortgaged Properties......................................................... 19
Mortgages.................................................................... 12, 20
Mortgagor.................................................................... 54
Multifamily Loans............................................................ 19
Multifamily Properties....................................................... 5, 19
NCUA......................................................................... 19, 96
Net Operating Income......................................................... 21
Nonrecoverable Advance....................................................... 32
Offered Certificates......................................................... 1
</TABLE>
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<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----------------------------------------------------------------------------- ------------------
<S> <C>
OID.......................................................................... 70, 72
OID Regulations.............................................................. 72
Originator................................................................... 19
OTS.......................................................................... 96
Participants................................................................. 35
Parties in Interest.......................................................... 94
Pass-Through Rate............................................................ 8, 30
Payment Lag Certificates..................................................... 84
Permitted Investments........................................................ 40
Plans........................................................................ 94
Policy Statement............................................................. 96
Prepayment Assumption........................................................ 75
Prepayment Premium........................................................... 23
Primary Servicer............................................................. 5
Prohibited Transactions Tax.................................................. 90
Proposed Mark-to-Market Regulations.......................................... 87
Purchase Price............................................................... 39
Rating Agency................................................................ 11
RCRA......................................................................... 65
Record Date.................................................................. 29
Refinance Loans.............................................................. 22
Related Proceeds............................................................. 32
Relief Act................................................................... 69
REMIC........................................................................ 10
REMIC Certificates........................................................... 77
REMIC Regular Certificateholders............................................. 78
REMIC Regular Certificates................................................... 10, 77
REMIC Regulations............................................................ 69
REMIC Residual Certificateholder............................................. 85
REMIC Residual Certificates.................................................. 10, 77
Restricted Group............................................................. 95
Retained Interest............................................................ 47
RICO......................................................................... 69
Senior Certificates.......................................................... 8, 29
Series....................................................................... 1
Servicer..................................................................... 9
Servicing Standard........................................................... 43
Servicing Transfer Event..................................................... 43
SMMEA........................................................................ 96
SMMEA Certificates........................................................... 96
Special Servicer............................................................. 5
Specially Serviced Mortgage Loan............................................. 43
Stripped ARM Obligations..................................................... 76
Stripped Bond Certificates................................................... 73
Stripped Coupon Certificates................................................. 73
Stripped Interest Certificates............................................... 8, 29
</TABLE>
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<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ----------------------------------------------------------------------------- ------------------
<S> <C>
Stripped Principal Certificates.............................................. 8, 29
Subordinate Certificates..................................................... 8, 28
Subsidiary REMIC............................................................. 79
Super-Premium Certificates................................................... 88
Title V...................................................................... 68
Trust Assets................................................................. 3
Trust Fund................................................................... 1
Trustee...................................................................... 5
U.S. Person.................................................................. 78
UCC.......................................................................... 35
Underlying CMBS.............................................................. 18
Underlying Mortgage Loans.................................................... 18
Value........................................................................ 21
Voting Rights................................................................ 18
Warrantying Party............................................................ 12, 39
</TABLE>
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