<PAGE>
RULE NO. 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 JANUARY 17, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 17, 1997)
J.P. MORGAN COMMERCIAL MORTGAGE FINANCE CORP.
Depositor
$352,039,000(/1/)
Mortgage Pass-Through Certificates, Series 1997-C4
The Series 1997-C4 Mortgage Pass-Through Certificates (the "Certificates") will
include the following eight classes of Certificates, designated as the Class
A1, Class A2, Class A3, Class B, Class C, Class D, Class E and Class X
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 the following page.)
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.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL
CLASS BALANCE (1) PASS-THROUGH RATE (2)
- --------------------------------------------------------------------
<S> <C> <C>
Class A1 $40,000,000 %
- --------------------------------------------------------------------
Class A2 $100,124,000 %
- --------------------------------------------------------------------
Class A3 $138,659,000 %
- --------------------------------------------------------------------
Class B $24,419,000 Weighted Average Pass-Through Rate
- --------------------------------------------------------------------
Class C $22,384,000 Weighted Average Pass-Through Rate
- --------------------------------------------------------------------
Class D $20,349,000 Weighted Average Pass-Through Rate
- --------------------------------------------------------------------
Class E $6,104,000 Weighted Average Pass-Through Rate
- --------------------------------------------------------------------
Class X $0 Weighted Average Pass-Through Rate(3)(4)
- --------------------------------------------------------------------
</TABLE>
(1) Subject to a permitted variance of plus or minus 5%.
(2) 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.
(3) Based on the Notional Amount as described herein.
(4) The Pass-Through Rate for the Class X Certificates will be equal to the
weighted average of the Remittance Rates (as defined herein) on the
Mortgage Loans minus the weighted average of the Pass-Through Rates on all
other classes of Certificates.
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 100% of the
initial aggregate principal balance thereof as of February 1, 1997 (the "Cut-
off Date") plus accrued interest from the Cut-off Date. The Underwriter 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, Cedel Bank, Societe Anonyme and the Euroclear System on or about
February 6, 1997, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
January , 1997
<PAGE>
(Continued from the preceding 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 31.3423765% 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, nursing home, office and other commercial properties. The
Mortgage Loans were originated by several institutions identified herein
(collectively, the "Originators"), acquired by an affiliate of the Depositor
(in the case of Mortgage Loans not originated by such affiliate) 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 March 1997 (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 Class Balance (as defined herein) (or the notional balance (the
"Notional Amount") in the case of the Class X Certificates) outstanding
immediately prior to such Distribution Date. The Pass-Through Rates applicable
to the Class A1, Class A2 and Class A3 Certificates will be as set forth
above. The Pass-Through Rates for the Class B, Class C, Class D, Class E and
Class X 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 and Class A3 Certificates will evidence approximately
an initial 68.5% undivided interest in the Trust Fund. The Class B
Certificates will evidence approximately an initial 6.0% undivided interest in
the Trust Fund. The Class C Certificates will evidence approximately an
initial 5.5% undivided interest in the Trust Fund. The Class D Certificates
will evidence approximately an initial 5.0% undivided interest in the Trust
Fund. The Class E Certificates will evidence approximately an initial 1.5%
undivided interest in the Trust Fund.
It is a condition of the issuance of the Class A1, Class A2 and Class A3
Certificates that they be rated "AAA" by Fitch Investors Service, L.P.
("Fitch"), "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's Ratings Services ("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, "Aa2" by Moody's and "AA" 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, "A2" by Moody's and "A" 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, "Baa2" by Moody's and "BBB" by 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, "Baa3" by Moody's and "BBB-" by Standard
& Poor's. It is a condition of the issuance of the Class X Certificates that
they be rated not lower than "AAA" by Fitch. The ratings on the Class X
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.
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 X,
Class R-I, Class R-II and Class R-III Certificates, and each component of the
Class X 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.
ii
<PAGE>
(Continued from the preceding page.)
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 CLASS X CERTIFICATES WILL BE
SENSITIVE TO THE RATE AND TIMING OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON
THE MORTGAGE LOANS. THE RATES OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON THE
MORTGAGE LOANS MAY FLUCTUATE SIGNIFICANTLY OVER TIME. AN EXTREMELY RAPID RATE
OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS COULD RESULT
IN THE FAILURE OF INVESTORS IN THE CLASS X 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 JANUARY 17, 1997 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.
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 , 1997, 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.
iii
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary of Prospectus Supplement.......................................... S-1
Risk Factors.............................................................. S-15
Description of the Mortgage Pool.......................................... S-22
Description of the Certificates........................................... S-43
Certain Prepayment, Maturity and Yield Considerations..................... S-53
Servicing................................................................. S-58
Description of the Pooling and Servicing Agreement........................ S-62
Use of Proceeds........................................................... S-64
Certain Federal Income Tax Consequences................................... S-64
State Tax Considerations.................................................. S-66
ERISA Considerations...................................................... S-66
Legal Investment.......................................................... S-67
Plan of Distribution...................................................... S-68
Legal Matters............................................................. S-68
Rating.................................................................... S-68
Index of Principal Definitions............................................ S-70
Annex A: Certain Characteristics of the Mortgage Loans.................... A-1
Annex B: Form of Monthly Report........................................... B-1
Annex C: Global Clearance, Settlement and Tax Documentation Procedures.... C-1
PROSPECTUS
Prospectus Supplement..................................................... 3
Available Information..................................................... 3
Incorporation of Certain Information by Reference......................... 4
Summary of Prospectus..................................................... 5
Risk Factors.............................................................. 13
Description of the Trust Funds............................................ 20
Use of Proceeds........................................................... 26
Yield Considerations...................................................... 26
The Depositor............................................................. 30
Description of the Certificates........................................... 30
Description of the Agreements............................................. 38
Description of Credit Support............................................. 53
Certain Legal Aspects of Mortgage Loans and the Leases.................... 56
Certain Federal Income Tax Consequences................................... 71
State Tax Considerations.................................................. 96
ERISA Considerations...................................................... 96
Legal Investment.......................................................... 98
Plan of Distribution...................................................... 99
Legal Matters............................................................. 100
Financial Information..................................................... 100
Rating.................................................................... 100
Index of Principal Definitions............................................ 101
</TABLE>
iv
<PAGE>
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 1997-
C4 (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................. 31.32%, 20.54%, 14.12%, 11.43%, 11.31%, 6.72%,
2.00%, 1.69%, and 0.86% 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; Banc One Commercial Loan
Origination Corporation, an Ohio corporation;
Home Savings of America, FSB, a federally
chartered savings bank; John Hancock Real Estate
Finance, Inc., a Delaware corporation; Morgan
Guaranty Trust Company of New York, a New York
banking corporation and an affiliate of the
Depositor and the Underwriter ("MGT"); Norwest
Bank Minnesota, National Association, a national
association; Hanover Capital Mortgage
Corporation, a Missouri corporation; Midlantic
Bank, N.A., a national banking association; and
First Union National Bank of North Carolina, a
national banking 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, except for the Crown Hotel Notes;
GMAC Commercial Mortgage Corporation ("GMACCM"),
with respect to five of the Mortgage Loans
representing 3.90% of the Mortgage Pool by
aggregate principal balance as of the Cut-off
Date; and BOMCC, with respect to all other
Mortgage Loans. See "Servicing -- Primary
Servicers" herein.
Special Servicer............ BOMCC (which serves as Master Servicer and as
Primary Servicer) will be the Special Servicer
with respect to all the Mortgage Loans. The
Special Servicer may be removed without cause
under certain circumstances described herein
under "Servicing--Responsibilities of Special
Servicer."
Trustee..................... State Street Bank and Trust Company, a
Massachusetts banking corporation.
S-1
<PAGE>
Custodian................... State Street Bank and Trust Company, a
Massachusetts banking corporation, in its
capacity as custodian for the Trustee.
Cut-off Date................ February 1, 1997.
Delivery Date............... On or about February 6, 1997.
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 March 1997 (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.
Rated Final Distribution December 26, 2028, which is first Distribution
Date....................... Date following 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 The Offered Certificates initially will be issued
Certificates............... in book-entry form. Persons acquiring beneficial
ownership interests in the Offered Certificates
(the "Certificateholders") may elect to hold
their Certificate interests through The
Depository Trust Company ("DTC"), in the United
States, or through Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") or the
Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the
case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. 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 ("DTC Participants" and together
with the CEDEL and Euroclear participating
organizations, the "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
S-2
<PAGE>
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, "Annex C" hereto
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 Class X Certificates) $100,000 and
integral multiples of $1 in excess thereof. The
Class X 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 106 fixed rate mortgage loans
and a 31.3423765% 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, nursing home, office and other
commercial properties (the "Mortgaged
Properties") located in 24 states. See "Risk
Factors -- Ground Leases and Other Leasehold
Interests." The Mortgage Loans not originated by
MGT were originated for sale to 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 approximately
$406,985,353 and individual principal balances as
of the Cut-off Date of at least $643,231 but not
more than $22,655,134 with an average principal
balance of approximately $3,803,601. The Mortgage
Loans will have terms to maturity from the Cut-
off Date of not more than 120 months, with
respect to 83.87% of the Mortgage Loans, and more
than 120 months but not more than 300 months,
with respect to 16.13% of the Mortgage Loans, in
each case, by aggregate principal balance as of
the Cut-off Date, and a weighted average
remaining term to maturity of approximately 126
months as of the Cut-off Date. The Mortgage Loans
will bear interest at Mortgage Interest Rates of
at least 7.50% per annum but not more than 10.00%
per annum, with a weighted average Mortgage
Interest Rate of approximately 8.90% 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").
S-3
<PAGE>
Approximately 89.13% of the aggregate principal
balance of the Mortgage Loans (including the
Crown Participation) 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, the
Primary Servicers and the Trustee (the "Pooling
and Servicing Agreement"). The Offered
Certificates will have the initial Class Balances
set forth on the cover hereof. The Class X
Certificates will not have a Class Balance.
Pass-Through Rate on the The Pass-Through Rates on the Class A1, Class A2
Certificates............... and Class A3 Certificates are fixed and are set
forth on the cover hereof. The Pass-Through Rates
on the Class B, Class C, Class D and Class E
S-4
<PAGE>
Certificates will equal the weighted average of
the Remittance Rates in effect from time to time
on the Mortgage Loans minus % per annum, %
per annum, % per annum and % per annum,
respectively. The Pass-Through Rate on the Class
X Certificates will be equal to the weighted
average of the Remittance Rates in effect from
time to time on the Mortgage Loans minus the
weighted average of the Pass-Through Rates on all
other classes of Certificates. 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 Net
Prepayment Premium (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 Notional Amount, in
the case of the Class X Certificates) immediately
prior to such Distribution Date at the then-
applicable Pass-Through Rate (the "Interest
Accrual Amount"), plus any shortfall as described
in the last sentence of this paragraph, less such
class' pro rata share, according to the Interest
Accrual Amount for each such class for the
Distribution Date, 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),
and less (a) with respect to each class of
Certificates other than the Class X Certificates,
any Collateral Value Adjustment Capitalization
Amount (as defined herein) allocated to such
class as described under "--Subordination" below
and (b) with respect to the Class X Certificates,
the portion of the Interest Accrual Amount
therefor accrued on the portion of the Notional
Amount corresponding to any
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<PAGE>
Collateral Value Adjustment or Collateral Value
Adjustment Capitalization Amount allocated to the
Class Balance of any class of Certificates (and
not reversed) (the "Collateral Value Adjustment
Reduction Amount"). The "Notional Amount" of the
Class X Certificates will equal the aggregate
Class Balance of all the Certificates. The
Notional Amount does not entitle the Class X
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.
In addition to the related Interest Distribution
Amount, the Class X Certificates will receive 75%
of any Net Prepayment Premium and the remaining
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 Trustee, the related Primary Servicer, the
Master Servicer or the Special Servicer therefrom
and (ii) any P&I Advances made by the Trustee,
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 a class of 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 such class of Certificates
and each other class of Certificates with a
higher priority of payment for interest payments
(as described under "Priority of
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<PAGE>
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 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 Class X
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 the Interest Distribution
Amounts on the classes of Certificates
outstanding with highest priority for interest
payment (as described in the immediately
succeeding sentence), (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 then entitled to interest
distributions pursuant to clause (a) above, in
the order of priority described below; provided
that on any Distribution Date on which the Class
Balance of the class of Certificates with the
highest priority for interest payment 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 further distributions of
the Principal Distribution Amount pursuant to
clause (b) above. The priority for interest
payments for purposes of clauses (a) and (c),
above, is: first to distributions of
S-7
<PAGE>
interest on the Class A1, Class A2, Class A3 and
Class X Certificates, pro rata, based on their
respective Interest Distribution Amounts; second,
to the Class B Certificates; third, to the Class
C Certificates; fourth, to the Class D
Certificates; fifth, to the Class E Certificates;
and then to the Other Certificates (as defined
herein) up to their respective Interest
Distribution 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 A3,
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. After reduction of the Class Balances of
all the Certificates to zero, any remaining
portion of the Available Distribution Amount will
be distributed to the holders of the Class X
Certificates up to an aggregate amount equal to
the sum of all prior Collateral Value Adjustment
Reduction Amounts (as defined herein) allocated
thereto. 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.
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 be % per annum, % per
annum and % per annum, respectively. The Class
Balances on the Class F, Class G and Class NR
Certificates will equal $26,454,000, $16,279,000
and $12,213,353, respectively, and approximately
S-8
<PAGE>
$54,946,353, 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 Value 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, Class A2 and
Class A3 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 to a class of Certificates
will result in a reduction of the related Class
Balance and the Notional Amount of the Class X
Certificates. Interest accrued for any
Distribution Date on any Collateral Value
Adjustment or Collateral Value Adjustment
Capitalization Amount allocated to the Class
Balance (or to the Notional Amount, with respect
to the Class X Certificates) of any class of
Certificates will not be distributed to such
class on such Distribution Date as interest and,
except for interest accrued thereon with respect
to the Class X Certificates, will be added to the
Class Balance thereof. Under certain
circumstances, a Collateral Value Adjustment may
be reversed. Such reversal will reduce the
accrual of the Collateral Value Adjustment
Capitalization Amount and therefore the amount
otherwise available to make distributions of
principal on the more senior classes of
Certificates. 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
Value Adjustments, shortfalls may 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 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) any
S-9
<PAGE>
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 The yield to maturity on each class of the
Considerations............. 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 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
S-10
<PAGE>
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 Class X
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 Class X
Certificates to recover their initial
investments. In addition, because holders of the
Class X 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 X Certificates will be materially and
adversely affected to a greater extent than the
yields on 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 "-- Class X 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.
S-11
<PAGE>
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 D,
Class E and Class X Certificates 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 llp, counsel to the
Depositor and the Underwriter, 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, 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
(or, in the case of the Class X Certificates,
each component thereof) and the Other
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. For federal income tax
purposes the Class X Certificates will consist of
ten components, each related to one of the other
classes of Certificates constituting "regular
interests."
S-12
<PAGE>
The Class X 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.
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 A2 and Class A3 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 of the issuance of the Class
A1, Class A2 and Class A3 Certificates that they
be rated "AAA" by Fitch Investors Service, L.P.
("Fitch"), "Aaa" by Moody's Investors Service,
Inc. ("Moody's") and "AAA" by Standard & Poor's
Ratings Services ("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, "Aa2" by Moody's and "AA" 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, "A2" by
Moody's and "A" by Standard & Poor's. It is a
condition of the issuance of the Class D
S-13
<PAGE>
Certificates that they be rated not lower than
"BBB" by Fitch, "Baa2" by Moody's and "BBB" by
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, "Baa3" by
Moody's and "BBB-" by Standard & Poor's. It is a
condition of the issuance of the Class X
Certificates that they be rated not lower than
"AAA" by Fitch. 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 Class X Certificates does
not address the possibility that the holders of
such Certificates may fail to recover fully their
initial investments 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 Class A1, Class A2, Class A3, Class B and
Class X Certificates will be "mortgage related
securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two
highest rating categories by at least one
nationally recognized statistical rating
organization. The Class C, Class D and Class E
Certificates will not be "mortgage related
securities" within the meaning of SMMEA. 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.
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. Furthermore, certain states have
enacted legislation overriding the legal
investment provisions of SMMEA. 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.
S-14
<PAGE>
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 B, Class C,
Class D, Class E and Class X 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, nursing home, office 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
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vary as a result of economic events or governmental regulations outside the
control of the 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 November 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 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.
The aggregate principal balance as of the Cut-off Date related to Mortgage
Loans secured by multifamily, retail, hotel, nursing home, office and other
properties represent approximately 35.23%, 32.67%, 12.36%, 8.96%, 6.32% and
4.46% of the Cut-off Date aggregate principal balance of the Mortgage Pool,
respectively.
Risks Associated with Hotel Properties. Eight of the Mortgage Loans
representing 12.36% 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.
Risks Associated with Nursing Homes. Five of the Mortgage Loans representing
8.96% of the aggregate principal balance of the Mortgage Loans as of the Cut-
off Date are secured by residential health care facilities. 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
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of the borrowers 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
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 obtain from
federal or state governments any outstanding reimbursement payments relating
to services furnished at the respective properties prior to such foreclosure.
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 $3,803,601, which is
equal to 0.93% 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
Heritage Pavilion Shopping Center represents 5.27% 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 and
no other Mortgage Loans with related Mortgagors represent in the aggregate
more than 4.68% of the aggregate principal balance as of the Cut-off Date 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 31.3423765% participation in a
mortgage loan with an aggregate principal balance as of the Cut-off Date of
approximately $72,282,758. Such participation represents 5.57% 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
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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 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. Thirty, twenty, five, six, three, and eight of the
Mortgaged Properties, representing approximately 23.11%, 14.27%, 6.88%, 6.23%,
6.06% and 5.45%, respectively, of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are located in California, Texas, New
York, Florida, Georgia and Arizona, respectively. Except as indicated in the
immediately preceding sentence, no more than 4.91% 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 or
possible existence of asbestos-containing materials, possible radon gas and
other environmental matters at the related Mortgaged Properties, none of which
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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, except with respect to nine Mortgage Loans representing
7.17% of the aggregate principal balance of the Mortgage Loans as of the Cut-
off Date with respect to which the existence or possible existence of asbestos
did not create an environmental concern on the part of the related Originator.
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.
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.
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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 mortgagee. Thirty-five Mortgage Loans
representing approximately 41.97% of the Mortgage Pool by aggregate principal
balance as of the Cut-off Date were made to single-purpose entities, which are
restricted from incurring any indebtedness other than the Mortgage Loan,
normal trade accounts payable and certain purchase financing debt. The
remaining Mortgage Loans were not made to single purpose entities. Five
Mortgage Loans representing approximately 4.49% of the Mortgage Pool by
aggregate principal balance as of the Cut-off Date have unsecured subordinate
debt that is subject, in each case, to subordination and standstill agreements
limiting in varying degrees 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 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
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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.
Balloon Payments. Ninety-three Mortgage Loans (including the Crown
Participation), representing 89.13% 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. One Mortgage Loan, representing
0.56% of the aggregate principal balance of the Mortgage Loans as of the Cut-
off Date, is secured in part by a leasehold interest in one Mortgaged
Property, 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 0.55% 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
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proceeds or condemnation awards), the provisions of the lease will take
precedence over the provisions of the Mortgage.
Liquor License Considerations. Eight Mortgage Loans (including the Crown
Participation) representing 12.36% 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 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. In addition, the
Special Servicer may be removed without cause by the Directing
Certificateholders as described under "Servicing -- Responsibilities of
Special Servicer," herein.
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 31.3423765% 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
approximately $406,985,353. 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
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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, 31.32% were
originated by AMRESCO Capital Corporation, a Texas corporation; 20.54% by Banc
One Commercial Loan Origination Corporation, an Ohio corporation; 14.12% by
Home Savings of America, FSB, a federally chartered savings bank; 11.43% by
John Hancock Real Estate Finance, Inc., a Delaware corporation; 11.31% by
Morgan Guaranty Trust Company of New York, a New York banking corporation and
an affiliate of the Depositor and the Underwriter ("MGT"); 6.72% by Norwest
Bank Minnesota, National Association, a national association; 2.00% by Hanover
Capital Mortgage Corporation, a Missouri corporation; 1.69% by Midlantic Bank,
N.A., a national banking association; and 0.86% by First Union National Bank
of North Carolina, a national banking association. The originators of the
Mortgage Loans are referred to herein as the "Originators".
The Mortgage Loans not originated by MGT 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. Except for
the Mortgage Loans originated by it, 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).
GMAC Commercial Mortgage Corporation will be the Primary Servicer with respect
to five of the Mortgage Loans representing 3.90% of the Mortgage Pool by
aggregate principal balance as of the Cut-off Date. BOMCC will be the Master
Servicer and Special Servicer with respect to all of the Mortgage Loans and
the Primary Servicer with respect to the Mortgage Loans not serviced by
AMRESCO Management, Inc. or GMAC Commercial Mortgage Corporation. Each
Servicer will service the Mortgage Loans pursuant to the Pooling and Servicing
Agreement.
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,
S-23
<PAGE>
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, except for rights of
first refusal and, with respect to three Mortgage Loans representing 2.79% of
the Mortgage Loans by aggregate principal balance as of the Cut-off Date,
purchase options; (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 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.
S-24
<PAGE>
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."
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
MORTGAGE RATES LOANS LOANS DATE DATE
- -------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
7.2501%- 7.5000%................ 1 0.93% $ 5,746,534 1.41%
7.7501%- 8.0000%................ 6 5.61 23,524,402 5.78
8.0001%- 8.2500%................ 5 4.67 12,846,445 3.16
8.2501%- 8.5000%................ 19 17.76 58,552,913 14.39
8.5001%- 8.7500%................ 16 14.95 62,689,969 15.40
8.7501%- 9.0000%................ 19 17.76 80,792,300 19.85
9.0001%- 9.2500%................ 22 20.56 68,101,800 16.73
9.2501%- 9.5000%................ 11 10.28 55,343,466 13.60
9.5001%- 9.7500%................ 5 4.67 11,432,533 2.81
9.7501%-10.0000%................ 3 2.80 27,954,991 6.87
--- ------ ------------ ------
Total........................... 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Mortgage Interest Rate: 8.900%
The Crown Hotel Notes (as defined herein), representing 5.57% 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.
S-25
<PAGE>
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
PRINCIPAL BALANCES MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
AS OF THE CUT-OFF DATE LOANS LOANS DATE DATE
- ---------------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Under $1,000,000............... 3 2.80% $ 2,379,968 0.58%
$ 1,000,001- 2,000,000......... 28 26.17 41,871,282 10.29
$ 2,000,001- 3,000,000......... 28 26.17 70,861,964 17.41
$ 3,000,001- 4,000,000......... 14 13.08 47,910,510 11.77
$ 4,000,001- 5,000,000......... 12 11.21 52,231,463 12.83
$ 5,000,001- 6,000,000......... 7 6.54 40,267,838 9.89
$ 6,000,001- 7,000,000......... 4 3.74 26,995,134 6.63
$ 7,000,001- 8,000,000......... 3 2.80 22,018,216 5.41
$ 8,000,001- 9,000,000......... 2 1.87 16,759,381 4.12
$ 9,000,001-10,000,000......... 2 1.87 18,833,163 4.63
$10,000,001-11,000,000......... 1 0.93 10,838,074 2.66
$11,000,001-12,000,000......... 1 0.93 11,912,736 2.93
$21,000,001-22,000,000......... 1 0.93 21,450,490 5.27
$22,000,001-23,000,000......... 1 0.93 22,655,134 5.57
--- ------ ------------ ------
Total.......................... 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Average Principal Balance as of the Cut-off Date: $3,803,601
ORIGINAL TERM TO MATURITY IN MONTHS*
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS BALANCE AS OF
MORTGAGE MORTGAGE OF THE CUT- THE CUT-OFF
ORIGINAL TERM IN MONTHS LOANS LOANS OFF DATE DATE
- ----------------------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
84.............................. 4 3.74% $ 15,486,592 3.81%
120.............................. 83 77.57 325,868,319 80.07
180.............................. 10 9.35 28,368,476 6.97
240.............................. 8 7.48 33,985,684 8.35
300.............................. 2 1.87 3,276,282 0.81
--- ------ ------------ ------
Total............................ 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Original Term to Maturity in Months: 134
* Assumes an April 30, 2005 maturity date for the Crown Participation
S-26
<PAGE>
REMAINING TERM TO MATURITY IN MONTHS*
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS BALANCE AS OF
MORTGAGE MORTGAGE OF THE CUT- THE CUT-OFF
REMAINING TERM IN MONTHS LOANS LOANS OFF DATE DATE
- ------------------------ -------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
73- 84......................... 4 3.74% $ 15,486,592 3.81%
97-108......................... 11 10.28 72,422,262 17.79
109-120......................... 72 67.29 253,446,057 62.27
Over 120........................ 20 18.69 65,630,442 16.13
--- ------ ------------ ------
Total........................... 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Remaining Term to Maturity in Months: 126.4
* Assumes an April 30, 2005 maturity date for the Crown Participation
MONTH AND YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS BALANCE AS OF
MORTGAGE MORTGAGE OF THE CUT- THE CUT-OFF
MONTH/YEAR LOANS LOANS OFF DATE DATE
- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
April 1995....................... 1 0.93% $ 22,655,134 5.57%
June 1995........................ 2 1.87 5,741,861 1.41
July 1995........................ 1 0.93 3,508,344 0.86
October 1995..................... 1 0.93 4,641,978 1.14
November 1995.................... 1 0.93 7,630,877 1.87
December 1995.................... 7 6.54 31,747,739 7.80
January 1996..................... 2 1.87 9,473,165 2.33
February 1996.................... 1 0.93 1,915,884 0.47
March 1996....................... 11 10.28 28,854,251 7.09
April 1996....................... 11 10.28 35,091,160 8.62
May 1996......................... 8 7.48 23,593,564 5.80
June 1996........................ 9 8.41 28,865,248 7.09
July 1996........................ 14 13.08 44,339,762 10.89
August 1996...................... 9 8.41 33,381,210 8.20
September 1996................... 6 5.61 36,259,025 8.91
October 1996..................... 19 17.76 72,566,537 17.83
November 1996.................... 4 3.74 16,719,613 4.11
--- ------ ------------ ------
Total............................ 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
S-27
<PAGE>
YEAR OF SCHEDULED MATURITY*
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS OF BALANCE AS OF
MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
YEAR LOANS LOANS DATE DATE
- ---- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
2003............................ 4 3.74% $ 15,486,592 3.81%
2005............................ 3 2.80 34,927,989 8.58
2006............................ 80 74.77 290,940,330 71.49
2010............................ 1 0.93 3,508,344 0.86
2011............................ 9 8.41 24,860,132 6.11
2015............................ 2 1.87 5,741,861 1.41
2016............................ 6 5.61 28,243,823 6.94
2021............................ 2 1.87 3,276,282 0.81
--- ------ ------------ ------
Total........................... 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
* Assumes an April 30, 2005 maturity date for the Crown Participation
Ninety-three of the Mortgage Loans (including the Crown Participation),
representing 89.13% 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 BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS OF BALANCE AS OF
MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
ORIGINAL TERM IN MONTHS LOANS LOANS DATE DATE
- ----------------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
84............................. 4 4.30% $ 15,486,592 4.27%
120............................. 83 89.25 325,868,319 89.83
180............................. 6 6.45 21,402,352 5.90
--- ------ ------------ ------
Total........................... 93 100.00% $362,757,263 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Original Term to Maturity in Months: 122.0
* Assumes an April 30, 2005 maturity date for the Crown Participation
S-28
<PAGE>
BALLOON MORTGAGE LOANS
REMAINING TERM TO MATURITY IN MONTHS*
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
REMAINING TERM MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
IN MONTHS LOANS LOANS DATE DATE
- -------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
73- 84......................... 4 4.30% $ 15,486,592 4.27%
97-108......................... 11 11.83 72,422,262 19.96
109-120......................... 72 77.42 253,446,057 69.87
Over 120........................ 6 6.45 21,402,352 5.90
--- ------ ------------ ------
Total........................... 93 100.00% $362,757,263 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Remaining Term to Maturity in Months: 114.0
* 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 NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
REMAINING AMORTIZATION MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
TERM IN MONTHS LOANS LOANS DATE DATE
- ---------------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
181-240......................... 8 8.60% $ 34,442,465 9.49%
241-300......................... 52 55.91 190,620,139 52.55
301-360......................... 33 35.48 137,694,659 37.96
--- ------ ------------ ------
Total........................... 93 100.00% $362,757,263 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Remaining Amortization Term in Months: 308.3
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.
S-29
<PAGE>
An appraisal of each of the Mortgaged Properties was made between January
1995 and November 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 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 NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CUT-OFF DATE MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
LTV RATIOS LOANS LOANS DATE DATE
- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
50% or less..................... 14 11.02% $ 24,963,731 6.13%
50.01%-55.00%................... 16 12.60 27,768,306 6.82
55.01%-60.00%................... 16 12.60 81,296,786 19.98
60.01%-65.00%................... 21 16.54 79,268,721 19.48
65.01%-70.00%................... 21 16.54 74,036,081 18.19
70.01%-75.00%................... 32 25.20 104,042,647 25.56
75.01%-80.00%................... 7 5.51 15,609,081 3.84
--- ------ ------------ ------
Total........................... 127 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Cut-off Date LTV Ratio: 64.3%
(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
31.3423765% of the principal balance thereof. See "-- The Crown
Participation" below.
BALLOON MORTGAGE LOAN (1)
MATURITY DATE LTV RATIOS
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
MATURITY DATE MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
LTV RATIO LOANS LOANS DATE DATE
- ------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
50% or less..................... 37 32.74% $106,321,891 29.31%
50.01%-55.00%................... 12 10.62 30,868,811 8.51
55.01%-60.00%................... 33 29.20 129,995,372 35.84
60.01%-65.00%................... 19 16.81 60,622,565 16.71
65.01%-70.00%................... 12 10.62 34,948,624 9.63
--- ------ ------------ ------
Total........................... 113 100.00% $362,757,263 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Maturity Date LTV Ratio: 55.0%
(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
31.3423765% of the principal balance thereof. See "-- The Crown
Participation" below.
The following table sets forth the range of partial year 1996 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
S-30
<PAGE>
period. The DSCRs for 1996 are for periods that range from 2.4 to 12 months.
The DSCRs for 1994 and 1995 for each Mortgage Loan are set forth in Annex A
hereto. The DSCRs for 1994 and 1995 are for the entire fiscal year, except for
the 1995 DSCRs for two Mortgage Loans which are partial year DSCRs. 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 has not been audited, 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 addition, partial year
operations may not necessarily be representative of full year operating
results. 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,
$0.15 to $0.28 per net rentable square foot; multifamily, $222 to $334 per
unit; retail, $0.11 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, $250 to
$354 per bed; cooperative/vacation homes, $56 per unit; and mobile home park,
$253 per home/pad.
PARTIAL YEAR 1996 DEBT SERVICE COVERAGE RATIOS (1)(2)
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS OF BALANCE AS OF
DEBT SERVICE MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
COVERAGE RATIO LOANS LOANS DATE DATE
- -------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
1.0000x or less................. 1 0.93% $ 1,051,408 0.26%
1.0001x-1.2000x................. 11 10.28 42,071,427 10.34
1.2001x-1.4000x................. 26 24.30 83,844,527 20.60
1.4001x-1.6000x................. 24 22.43 118,779,222 29.19
1.6001x-1.8000x................. 16 14.95 57,655,340 14.17
1.8001x-2.0000x................. 14 13.08 25,881,578 6.36
2.0001x-2.2000x................. 9 8.41 28,546,822 7.01
2.2001x-2.4000x................. 2 1.87 26,163,478 6.43
over 2.4001..................... 4 3.74 22,991,551 5.65
--- ------ ------------ ------
Total........................... 107 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Debt Service Coverage Ratio: 1.77x
(1) The Crown Hotel Notes are set forth herein as one Mortgage Loan with a
partial year (7 months) 1996 Debt Service Coverage Ratio of 2.28x. The
Debt Service Coverage Ratios for the Crown Hotel Notes range from 1.21x to
4.61x.
(2) 1996 DSCR for one Mortgage Loan, Beachcomber Resort, secured by a vacation
home property owned by a cooperative corporation and representing 0.54% of
the Mortgage Pool is set forth herein as 2.74x. Such DSCR was determined
based on the appraisal obtained in connection with the origination
thereof. The partial year (6 months) 1996 DSCR reported by the Mortgagor
was 0.98x.
S-31
<PAGE>
There is one Mortgage Loan with a partial year 1996 DSCR below 1.00x.
Crystal Springs Manor, representing 0.26% of the Mortgage Loans, is an 80 unit
multifamily property in Sacramento, California which had a partial year 1996
DSCR of 0.27x based on 9 months. Occupancy was 94.9% as of September 1996. The
borrower made a significant amount of capital improvements to the property in
1996. Partial year 1996 expenses for repairs and maintenance and for salary,
general and administration are significantly higher than the full year 1995
expenses amount. The DSCR based on 9 months of 1996 revenues annualized and
full year 1995 expenses is 1.76x.
The Mortgage Loans are secured by Mortgaged Properties located in 24
different states. The table below sets forth the states in which the Mortgaged
Properties are located:
GEOGRAPHIC DISTRIBUTION (1)
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE AGGREGATE
NUMBER PERCENT BY PRINCIPAL PRINCIPAL
OF NUMBER OF BALANCE AS OF BALANCE AS OF
MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
STATE LOANS LOANS DATE DATE
- ----- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
California...................... 30 23.62% $ 94,072,939 23.11%
Texas........................... 20 15.75 58,090,598 14.27
New York........................ 5 3.94 28,015,369 6.88
Florida......................... 6 4.72 25,340,229 6.23
Georgia......................... 3 2.36 24,674,313 6.06
Arizona......................... 8 6.30 22,169,447 5.45
Pennsylvania.................... 13 10.24 20,002,409 4.91
Illinois........................ 4 3.15 18,493,861 4.54
Colorado........................ 2 1.57 13,808,804 3.39
Michigan........................ 3 2.36 12,677,460 3.11
Massachusetts................... 2 1.57 12,116,584 2.98
New Jersey...................... 5 3.94 11,475,224 2.82
North Carolina.................. 5 3.94 9,632,757 2.37
Kentucky........................ 1 0.79 9,373,719 2.30
Minnesota....................... 3 2.36 8,217,498 2.02
Maryland........................ 5 3.94 7,213,604 1.77
Nevada.......................... 2 1.57 6,918,741 1.70
Wisconsin....................... 1 0.79 6,341,363 1.56
Oklahoma........................ 2 1.57 4,746,297 1.17
Virginia........................ 2 1.57 3,693,816 0.91
Louisiana....................... 1 0.79 3,051,185 0.75
South Dakota.................... 1 0.79 2,884,186 0.71
Tennessee....................... 2 1.57 2,835,313 0.70
South Carolina.................. 1 0.79 1,139,637 0.28
--- ------ ------------ ------
Total........................... 127 100.00% $406,985,353 100.00%
=== ====== ============ ======
</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
31.3423765% of the principal balance thereof. See "-- The Crown
Participation" below.
S-32
<PAGE>
PROPERTY TYPES (1)
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
TYPE LOANS LOANS DATE DATE
- ---- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Multifamily................... 52 40.94% $143,379,149 35.23%
Retail--with anchor tenant
(2).......................... 17 13.39 102,569,310 25.20
Retail--without anchor tenant
(2).......................... 12 9.45 30,386,351 7.47
Hotel......................... 28 22.05 50,299,958 12.36
Nursing Home.................. 5 3.94 36,465,756 8.96
Office........................ 5 3.94 25,732,611 6.32
Self Storage.................. 4 3.15 9,224,037 2.27
Industrial.................... 2 1.57 3,750,020 0.92
Mobile Home Park.............. 1 0.79 2,970,731 0.73
Cooperative/Vacation Homes.... 1 0.79 2,207,430 0.54
--- ------ ------------ ------
Total......................... 127 100.00% $406,985,353 100.00%
=== ====== ============ ======
</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
31.3423765% 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 BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
POPERTY AGER MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
IN YEARS LOANS LOANS DATE DATE
- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
6 or less..................... 3 2.36% $ 26,659,033 6.55%
7-11.......................... 44 34.65 124,635,392 30.62
12-16.......................... 19 14.96 66,793,438 16.41
17-21.......................... 13 10.24 35,292,272 8.67
22-26.......................... 23 18.11 79,694,944 19.58
27-31.......................... 10 7.87 31,520,606 7.74
Over 31........................ 15 11.81 42,389,667 10.42
--- ------ ------------ ------
Total.......................... 127 100.00% $406,985,353 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Property Age in Years: 18.1
(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
31.3423765% 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-33
<PAGE>
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY, MOBILE HOME PARK AND COOPERATIVE/VACATION HOMES
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CCUPANCYO MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
PRCENTAGESE LOANS LOANS DATE DATE
- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
80.1%- 85.0%................... 1 1.85% $ 2,279,365 1.53%
85.1%- 90.0%................... 4 7.41 7,732,164 5.20
90.1%- 95.0%................... 17 31.48 54,760,656 36.86
95.1%-100.0%................... 32 59.26 83,785,123 56.40
--- ------ ------------ ------
Total.......................... 54 100.00% $148,557,309 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Occupancy Percentage: 95.2%
(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 BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CCUPANCYO MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
PRCENTAGESE LOANS LOANS DATE DATE
- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
70.1%- 75.0%................... 1 3.45% $ 1,080,146 0.81%
80.1%- 85.0%................... 4 13.79 13,087,666 9.84
85.1%- 90.0%................... 9 31.03 40,457,196 30.43
90.1%- 95.0%................... 3 10.34 11,553,361 8.69
95.1%-100.0%................... 12 41.38 66,777,293 50.23
--- ------ ------------ ------
Total.......................... 29 100.00% $132,955,662 100.00%
=== ====== ============ ======
</TABLE>
Weighted Average Occupancy Percentage: 93.4%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
S-34
<PAGE>
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)(2)
HOTEL
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CCUPANCYO MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
PRCENTAGESE LOANS LOANS DATE DATE
- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
60.1%-65.0%.................... 3 10.71% $ 4,417,078 8.78%
65.1%-70.0%.................... 7 25.00 14,634,554 29.09
70.1%-75.0%.................... 3 10.71 3,894,913 7.74
75.1%-80.0%.................... 5 17.86 15,657,706 31.13
80.1%-85.0%.................... 5 17.86 5,375,203 10.69
85.1%-90.0%.................... 4 14.29 3,413,233 6.79
90.1%-95.0%.................... 1 3.57 2,907,271 5.78
--- ------ ----------- ------
Total.......................... 28 100.00% $50,299,958 100.00%
=== ====== =========== ======
</TABLE>
Weighted Average Occupancy Percentage: 74.7%
(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
31.3423765% 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.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CCUPANCYO MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
PRCENTAGESE LOANS LOANS DATE DATE
- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
90.1%- 95.0%................... 2 40.00% $ 7,362,164 28.61%
95.1%-100.0%................... 3 60.00 18,370,447 71.39
--- ------ ----------- ------
Total.......................... 5 100.00% $25,732,611 100.00%
=== ====== =========== ======
</TABLE>
Weighted Average Occupancy Percentage: 96.3%
(1) See Annex A for dates as of which occupancy percentages were calculated
for each Mortgaged Property.
S-35
<PAGE>
PHYSICAL OCCUPANCY PERCENTAGES (1)
OTHER
<TABLE>
<CAPTION>
PERCENT BY
PERCENT BY AGGREGATE AGGREGATE
NUMBER NUMBER PRINCIPAL PRINCIPAL
OF OF BALANCE AS OF BALANCE AS OF
CCUPANCYO MORTGAGE MORTGAGE THE CUT-OFF THE CUT-OFF
PRCENTAGESE LOANS LOANS DATE DATE
- ----------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
85.1%- 90.0%................... 1 9.09% $ 8,377,540 16.94%
90.1%- 95.0%................... 4 36.36 13,468,587 27.24
95.1%-100.0%................... 6 54.55 27,593,686 55.81
--- ------ ----------- ------
Total.......................... 11 100.00% $49,439,813 100.00%
=== ====== =========== ======
</TABLE>
Weighted Average Occupancy Percentage: 94.5%
(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 February 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.
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS*
<TABLE>
<CAPTION>
FEB. FEB. FEB. FEB. FEB. FEB. FEB. FEB. FEB. FEB.
CURRENT 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out................ 95.6% 93.8% 90.2% 77.3% 15.8% 11.1% 9.6% 0.0% 0.0% 0.0% 0.0%
Prepayment Premium
Yield Maintenance (1).. 4.4 6.2 9.8 19.1 79.2 80.9 78.4 90.1 86.3 42.2 63.3
7.00-7.99% (2).......... 0.0 0.0 0.0 0.0 0.0 3.0 1.4 0.0 0.0 0.0 0.0
6.00-6.99% (2).......... 0.0 0.0 0.0 0.0 0.0 0.0 2.9 1.4 0.0 0.0 0.0
5.00-5.99% (2).......... 0.0 0.0 0.0 0.0 0.7 0.0 0.0 3.0 1.4 0.0 0.0
4.00-4.99% (2).......... 0.0 0.0 0.0 0.0 0.0 0.7 0.0 0.0 3.0 1.5 0.0
3.00-3.99% (2).......... 0.0 0.0 0.0 0.8 0.8 0.0 0.6 0.0 0.0 3.3 8.1
2.00-2.99% (2).......... 0.0 0.0 0.0 0.0 0.0 0.9 0.0 0.7 0.0 0.0 18.1
1.00-1.99% (2).......... 0.0 0.0 0.0 2.8 3.5 3.5 4.3 4.5 6.0 1.0 5.1
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 2.7 0.4 3.4 51.9 5.4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
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).............. $407.0 $396.3 $384.6 $371.6 $362.3 $355.5 $348.1 $326.0 $317.4 $266.9 $46.4
Percentage of Cut-off
Date Principal Balance
of the Mortgage Loans
Outstanding............ 100.0% 97.4% 94.5% 91.3% 89.0% 87.4% 85.5% 80.1% 78.0% 65.6% 11.4%
</TABLE>
* The Crown Hotel Notes provide for a 3.00% Prepayment Premium for 51 months
following the Cut-off Date but prohibit the prepayment thereof for 27
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. For one Mortgage Loan representing 0.65% of the Mortgage
S-36
<PAGE>
Pool, the related Mortgage Note provides for a four-year Lock-out Period and
a Prepayment Premium in subsequent years equal to the lesser of a Prepayment
Premium based on a present value calculation (as described in footnote (1)
below, without giving effect to any minimum premium) and 5.00%, 4.00%,
3.00%, 2.00%, 1.00% and 1.00%, respectively, for each year, for the six
years following the Lock-out Period. For purposes of such Mortgage Loan and
the table, it is assumed that the related Prepayment Premium based on a
present value calculation will always be greater than the fixed Prepayment
Premium for each indicated year and therefore that such fixed Prepayment
Premiums would accompany any principal prepayment during such period.
Finally, for one Mortgage Loan representing 1.47% of the Mortgage Pool, the
related Mortgage provides that if one of the tenants notifies the related
Mortgagor by February 28, 1997 of such tenant's intention to exercise its
option to purchase one of the related Mortgaged Properties, such Mortgage
Loan is required to be prepaid in full if such Mortgaged Property is
purchased. Such prepayment in full is required to be accompanied by a
Prepayment Premium calculated as described in footnote (1) below. Otherwise
such Mortgage Loan provides for a four-year Lock-out Period and such a
Prepayment Premium thereafter.
(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 $72,282,758, and the Cut-off Date balance of the
portion thereof represented by the 31.3423765% interest under the Participation
Agreement to be conveyed into the Trust Fund was $22,655,134 (the "Crown
Participation"). The remaining 68.6576235% interest in the Crown Hotel Notes
will not be included in the Trust Fund. A 34.2664421% and a 34.3911814%
interest have been conveyed to two trust funds 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 and a Pooling and Servicing Agreement dated as of June 1, 1996, with
respect to J.P. Morgan Commercial Mortgage Finance Corp. Mortgage Pass-Through
Certificates, Series 1996-C3, respectively. For all purposes elsewhere in this
Prospectus (except as otherwise indicated), the Crown Participation is being
treated as a Mortgage Loan with a Cut-off Date principal amount of $22,655,134
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.
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
S-37
<PAGE>
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 296-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.
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.
S-38
<PAGE>
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, "AA+" by Standard &
Poor's and Aa3 by Moody'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 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 31.3423765% 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 (the "Crown Servicing
Agreement"), the servicing provisions of which are substantially similar to
the servicing provisions of the Pooling and Servicing Agreement. See
"Servicing." 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 Crown 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.
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 Crown 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
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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 31.3423765% 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.
BORROWER CONCENTRATION
Heritage Pavilion Shopping Center. One Mortgage Loan, representing 5.27% of
the Mortgage Loans, is secured by the Heritage Pavilion Shopping Center
located in Smyrna, Georgia ("Heritage Pavilion"). Heritage Pavilion is a
single story 262,875-square foot retail center constructed in 1995. It is
located at the northwest quadrant of the intersection of Cobb Parkway (U.S.
Highway 41) and Hargrove Road, approximately ten miles northwest of Atlanta.
Heritage Pavilion was 100% occupied as of August, 1996. Its nine tenants lease
areas ranging in size from 8,750 square feet for Ultra 3 (The Cosmetic Savings
Store, Inc.) to 50,419 square feet for Home Place Stores, Inc. Other tenants
are Michael's, Marshalls, Rhodes Furniture, Media Play (Musicland Stores
Corporation), Hi-Fi Buys, Pets Mart and Computer City (Tandy Corporation).
Most of the leases have a term of fifteen years or greater. The borrowing
entity is a single purpose Georgia corporation. Under their current leases,
certain tenants (representing approximately 89.1% of the gross leasable area
of the property) have unrestricted "go dark" rights to cease operations at the
leased premises, though remaining liable for rents due under their leases.
Certain of these same tenants (whose leased space represents approximately
30.9% of the gross leasable area of the property) have the right to terminate
their leases under co-tenancy clauses in the event other tenants cease
operations, including pursuant to the "go dark" options described above. The
Debt Service Coverage Ratio based on six months of operation in 1996 was
1.53x.
Properties Managed by Affiliates of Basic Capital Management,
Inc. Properties securing three of the Mortgage Loans, representing in the
aggregate 4.68% of the Mortgage Loans, are under common management by
affiliates of Basic Capital Management, Inc. ("BCM"). Plano Market Square is a
retail shopping Center located in Plano, Texas. Saratoga Office Center is a
multi-tenant office facility located in Saratoga, California. Covered Bridge
Apartments is a 176-unit garden apartment complex located in Gainesville,
Florida. The borrowing entity in each case is a newly formed single purpose
entity. BCM is the ultimate parent of Plano Market Square. The borrowing
entities for the other two Mortgage Loans are directly owned by publicly
traded companies controlled by BCM. None of these Mortgage Loans is cross-
defaulted or cross-collateralized with any other Mortgage Loan. BCM is a
privately-held Nevada corporation owned and controlled by the family of Gene
S. Phillips, former chairman of Southmark Corporation, a real estate
syndicator ("Southmark") and parent of San Jacinto Savings Association ("San
Jacinto"). Southmark filed a bankruptcy petition in July 1989 and San Jacinto
was declared insolvent and placed in receivership by federal authorities in
December 1990.
RELATED BORROWERS
Sav-Max Center and Pak N'Save Center. Two Mortgage Loans, representing in
the aggregate 3.19% of the Mortgage Loans, are secured by the Sav-Max Shopping
Center and Pak N'Save Shopping Center, respectively, each located in San Jose,
California. The borrowing entity for each loan is Park & Associates, LLC, a
California limited liability company. The loans are cross-collateralized and
cross-defaulted.
Days Inn Loans. Two Mortgage Loans, representing in the aggregate
approximately 1.41% of the Mortgage Loans, are secured by Days Inn motels
located in Raleigh and Morrisville, North Carolina, respectively. The
borrowing entity in each case is a single purpose entity. The corporate
borrower of one of the
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Mortgage Loans is the corporate general partner of the limited partnership
borrowing entity on the other Mortgage Loan. The Mortgage Loans are cross-
collateralized and cross-defaulted.
Fairmont Heights Apartments. Two Mortgage Loans, representing in the
aggregate approximately 1.22% of the Mortgage Loans, are secured by apartment
properties located in Oakland, California. The borrower on both Mortgage Loans
is a family trust and the Mortgage Loans are cross-collateralized and cross-
defaulted.
Brentwood/Timberland Apartments, Park Place Apartments, Colony Park
Apartments, Chateau/Summit Bridge Apartments and Hillcrest Place
Apartments. Five Mortgage Loans, representing in the aggregate approximately
3.25% of the Mortgage Loans, are secured by the Brentwood/Timberland
Apartments, the Park Place Apartments and the Colony Park Apartments, all
located in Wichita Falls, Texas, and the Chateau/Summit Ridge Apartments,
Oklahoma City, Oklahoma, and Hillcrest Place Apartments, Norman, Oklahoma,
respectively. The borrowing entity in each case is a separate limited
partnership. The entities are commonly controlled, but the Mortgage Loans are
not cross-collateralized or cross-defaulted.
Michaels Plaza, Bell Plaza, Palm Plaza and Columbia Plaza. Four of the
Mortgage Loans, representing in the aggregate approximately 2.15% of the
Mortgage Loans, are secured by the Michaels Plaza Shopping Center, Tempe,
Arizona, the Bell Plaza Shopping Center, Phoenix, Arizona, the Palm Plaza
Shopping Center, Chandler, Arizona, and the Columbia Plaza Shopping Center,
Peoria, Arizona, respectively. The entities are commonly controlled, but the
Mortgage Loans are not cross-collateralized or cross-defaulted.
Santa Fe Apartments and Ventana Apartments. Two Mortgage Loans, representing
in the aggregate approximately 1.34% of the Mortgage Loans, are secured by the
Santa Fe Apartments and Ventana Apartments, respectively, both located in Los
Angeles, California. The borrowing entities are limited partnerships having a
common general partner, but the Mortgage Loans are not cross-collateralized or
cross-defaulted.
Belleville Apartments, Chestnut Apartments and Woodbridge Apartments. Three
Mortgage Loans, representing in the aggregate approximately 0.67% of the
Mortgage Loans, are secured by the Belleville Apartments, Belleville, New
Jersey, the Chestnut Apartments, Roselle Park, New Jersey, and the Woodbridge
Apartments, Woodbridge, New Jersey, respectively. The entities are commonly
owned, but the Mortgage Loans are not cross-collateralized or cross-defaulted.
ESCROWS
All 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, if the
insurance required pursuant to the terms of such Mortgage Loan is not
maintained by the related Mortgagor, the Servicer may require monthly escrows
in addition to providing force-placed coverage.
Seventy-six of the Mortgage Loans (including the Crown Participation as a
Mortgage Loan), which represent 73.37% of the Mortgage Loans, also require
monthly escrows to cover ongoing replacements and capital repairs.
Thirty-five of the Mortgage Loans, which represent 98.36% by principal
balance of the Mortgage Loans secured by retail, industrial or office
properties, 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.
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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.
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
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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 eight classes of Offered Certificates
designated as the Class A1, Class A2, Class A3, Class B, Class C, Class D,
Class E and Class X 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 as a Mortgage
Loan) 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, 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 A2 and Class A3 Certificates will evidence approximately
an initial 68.5% undivided interest in the Trust Fund. The Class B
Certificates will evidence approximately an initial 6.0% undivided interest in
the Trust Fund. The Class C Certificates will evidence approximately an
initial 5.5% undivided interest in the Trust Fund. The Class D Certificates
will evidence approximately an initial 5.0% undivided interest in the Trust
Fund. The Class E Certificates will evidence approximately an initial 1.5%
undivided interest in the Trust Fund.
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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. The DTC Registered Certificates,
other than the Class X Certificates, will be issued in minimum denominations
of $100,000 and integral multiples of $1 in excess thereof. The Class X
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
The Offered Certificates will be initially issued to Certificateholders
through the book-entry facilities of DTC, or Cedel Bank, societe anonyme
("CEDEL") or the Euroclear System ("Euroclear") (in Europe) if such
Certificateholders are participants of such systems, or indirectly through
organizations which are participants in such systems. As to any such class of
Offered Certificates, the record holder of such Certificates will be DTC's
nominee. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositories (the "Depositories"),
which in turn will hold such positions in customers' securities accounts in
Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, which holds securities for its participating organizations ("DTC
Participants," and together with the CEDEL and Euroclear participating
organizations, the "Participants") and facilitates the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in the accounts of Participants. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Other institutions
that are not Participants but clear through or maintain a custodial
relationship with Participants (such institutions, "Indirect Participants")
have indirect access to DTC's clearance system.
Because of time zone differences, the securities account of a CEDEL or
Euroclear Participant (each as defined below) as a result of a transaction
with a DTC Participant (other than a depositary holding on behalf of CEDEL or
Euroclear) will be credited during the securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits
or any transactions in such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL Participant on such
business day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear Participant to a DTC
Participant (other than the depository for CEDEL or Euroclear) will be
received with value on the DTC settlement date, but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants or Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositories; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants or Euroclear Participants may not deliver instructions
directly to the Depositories.
CEDEL, as a professional depository, holds securities for its participating
organizations ("CEDEL Participants") and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary
Institute.
Euroclear was created to hold securities for participants of Euroclear
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
"Clearance Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policies for Euroclear on
behalf of Euroclear Participants. The Euroclear Operator is the Belgian branch
of a New York banking corporation which is a member bank of the Federal
Reserve System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission. Securities clearance
accounts and cash accounts with the Euroclear Operator are governed by the
Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively,
the "Terms and Conditions"). The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without attribution
of specific certificates to specific securities clearance accounts.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for forwarding
such payments to Participants, each of which will be responsible for
disbursing such payments to the Beneficial Owners it represents or, if
applicable, to Indirect Participants. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Certificates.
Under DTC's procedures, DTC will take actions permitted to be taken by holders
of any class of DTC Registered Certificates under the Pooling and Servicing
Agreement only at the direction of one or more Participants to
whose account the DTC Registered Certificates are credited and whose aggregate
holdings represent no less than any minimum amount of Percentage Interests or
voting rights required therefor. 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 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 DTC Registered Certificates or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
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
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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 Indirect
Participants.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of the Offered Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Definitive Certificates. 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. 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 Annex C and "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 March 1997 (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.
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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.
Pass-Through Rate on the Certificates. The "Pass-Through Rates" on the Class
A1, Class A2 and Class A3 Certificates are fixed and are set forth on the
cover hereof. The Pass-Through Rates on the Class B, Class C, 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 minus %, %, % and %,
respectively. The Pass-Through Rate on the Class X Certificates will be equal
to the weighted average of the Remittance Rates in effect from time to time on
the Mortgage Loans minus the weighted average of the Pass-Through Rates on the
Certificates (including the Other Certificates). 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 per annum 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 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 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 Class X Certificates) of such class of Certificates
outstanding immediately prior to such Distribution Date, at the then-
applicable Pass-Through Rate (the "Interest Accrual Amount"), plus any
shortfall as described in the penultimate sentence of this paragraph, less
such class' pro rata share, according to the 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), and
less (a) with respect to each class of Certificates other than the Class X
Certificates, any Collateral Value Adjustment Capitalization Amount (as
defined herein) allocated to such class as described under "--Subordination"
below and (b) with respect to the Class X Certificates, the portion of the
Interest Accrual Amount therefor accrued on the portion of the related
Notional Amount corresponding to any Collateral Value Adjustment or Collateral
Value Adjustment Capitalization Amount allocated to the Class Balance of any
class of Certificates (and not reversed) (the "Collateral Value Adjustment
Reduction Amount"). The "Notional Amount" of the Class X Certificates will
equal the aggregate of the Class Balances of all the Certificates. The
Notional Amount does not entitle the Class X 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. 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 Class X Certificates
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will receive 75%, and the remaining Certificates will receive 25%, of any Net
Prepayment Premium paid with respect to the Mortgage Loans. On each
Distribution Date, the Net Prepayment Premium not payable to the Master
Servicer or the holders of the Class X Certificates will be paid the holders
of the class of 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 weighted average 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 a class of
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 such class of
Certificates and each other class of Certificates with a higher 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 "Class Balance" for any class of Certificates on any
Distribution Date will equal the initial Class Balance thereof reduced by
distributions in
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reduction thereof and Realized Losses allocated thereto, as described under
"-- Subordination" below, and increased by any Collateral Value Adjustment
Capitalization Amounts allocated thereto as described under "-- Subordination"
below. The Class X 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 each Distribution Date will
be applied (a) first to distributions of the Interest Distribution Amounts on
the classes of Certificates outstanding with the highest priority for interest
payment (as described in the immediately succeeding sentence), (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 then entitled to interest distributions pursuant to
clause (a), above, in the order of priority described below; provided that on
any Distribution Date on which the Class Balance of the class of Certificates
with the highest priority for interest payment 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 further distributions of the Principal
Distribution Amount 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 A2, Class A3 and Class X
Certificates, pro rata, based on their respective Interest Distribution
Amounts; second, to the Class B Certificates; third, to the Class C
Certificates; fourth, to the Class D Certificates; fifth, to the Class E
Certificates; and then to the Other Certificates up to their respective
Interest Distribution 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 A3, 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. After reduction of the Class Balances of all the
Certificates to zero any remaining portion of the Available Distribution
Amount will be distributed to the holders of the Class X Certificates up to an
aggregate amount equal to the sum of all prior Collateral Value Adjustment
Reduction Amounts allocated thereto.
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 % per annum, % per annum and
% per annum. The Class Balances on the Class F, Class G and Class NR
Certificates will equal $26,454,000, $16,279,000, and $12,213,353,
respectively, and approximately $54,946,353, 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, pro rata, to the Class A1, Class A2, and Class A3
Certificates. The Class Balance of a class of Certificates will be reduced by
the principal portion of any Realized Losses allocated to such class.
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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 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, (the earliest of such dates, a "Required Appraisal Date") 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 as described above. 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, (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 Interest
Distribution Amount of one or more classes of Certificates and shall not be a
permanent reduction of the Class Balance (or Notional Amount) 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
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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.
The Collateral Value Adjustment will be allocated on each Distribution Date,
for purposes of determining distributions in respect of interest on such
Distribution Date, to the Class Balance of the most subordinate class of
Certificates that would otherwise receive distributions of interest, up to an
aggregate amount (net of any positive adjustments) equal to the Class Balance
thereof. For so long as a more senior class of Certificates is outstanding,
the amount of interest otherwise distributable on such Distribution Date to
each class of Certificates to which a Collateral Value Adjustment has been
allocated (to the extent not reversed) with respect to prior Distribution
Dates will be reduced by interest accrued at the related Pass-Through Rate on
the portion of the Class Balance of such class equal to the sum of the
aggregate Collateral Value Adjustment allocated to such class for such
Distribution Date and accrued and unpaid interest at the related Pass-Through
Rate on such Collateral Value Adjustment amount for prior Distribution Dates.
Such accrued and unpaid interest (the "Collateral Value Adjustment
Capitalization Amount") will be added to the Certificate Balance of such class
or classes of Certificates, and an equal amount will be included in the
Principal Distribution Amount to be distributed to holders of the most senior
classes of Certificates on such Distribution Date as described herein, to the
extent actually paid by the Mortgagor or received as interest in respect of
any REO Property. On each Distribution Date on or after the allocation of a
Collateral Value Adjustment, the amount of interest otherwise distributable on
such Distribution Date to the Class X Certificates will be reduced by an
amount equal to interest accrued on the portion of the Notional Amount thereof
corresponding to the sum of any Collateral Value Adjustments and Collateral
Value Adjustment Capitalization Amounts allocated to any class of Certificates
for such Distribution Date or any prior Distribution Date and not previously
reversed.
The Special Servicer is required, within 30 days of each anniversary of the
Required Appraisal Date, to order an update of the prior appraisal (the cost
of which will be advanced by the Special Servicer and reimbursed thereto from
the Trust Fund). The Special Servicer will determine and report to the Trustee
the updated appraisal. A lower appraisal value will increase the Collateral
Value Adjustment. Such increase will be allocated as described above. A higher
appraised value will reverse the Collateral Value Adjustment by the amount of
the reported increase. Any such reversal or reduction will reduce the accrual
of the Collateral Value Adjustment Capitalization Amount and therefore reduce
the amount otherwise available to make distributions of principal on the
classes of Certificates senior to the class of Certificates to which such
reversal is allocated. However, in neither case will the Class Balance (or
Notional Amount) of the affected class or classes of Certificates be reduced
by such reversal or reduction. In such event, the total Collateral Value
Adjustment Capitalization Amount previously added to the related Class Balance
shall be reduced in proportion to the Collateral Class Adjustment reversal.
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
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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
required to be deposited in the Primary Collection Account or the Master
Collection Account. Notwithstanding the foregoing, a 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.
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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.
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 Class X 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 December
26, 2028 which is the first Distribution Date following 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).
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The table of Percent of Initial Certificate Balance Outstanding for the
Class A1, Class A2, Class A3, 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 March 1997;
(iv) no defaults or delinquencies in, or 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 February 6, 1997.
Based on the foregoing assumptions, the table indicates the weighted average
lives of the Class A1, Class A2, Class A3, 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.
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<PAGE>
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS C CLASS D CLASS E
-------- -------- -------- ------- ------- ------- -------
DSTRIBUTIONI
DATE 0% % % % 0% % % % 0% % % % 0% % % % 0% % % % 0% % % % 0% % % %
- ------------ --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WAL (1).........
</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.
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CLASS X CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Class X 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 Class X
Certificates entitled thereto. No such offset is available following a default
on a Mortgage Loan or a reduction of the Interest Distribution Amount thereof
as a result of a Collateral Value Adjustment or the allocation of any
Collateral Value Adjustment Capitalization Amount to any other class of
Certificates.
The following table indicate the sensitivity of the pre-tax yield to
maturity on the Class X Certificates to various constant rates of prepayment
on the Mortgage Loans by projecting the monthly aggregate payments on the
Class X Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in 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 performance of the Mortgage Loans
which may differ from the actual performance thereof and assuming the
aggregate purchase price and Pass-Through Rate set forth below and assuming
further that the initial Notional Amount of the Class X Certificates is as set
forth herein. The yield maintenance calculations are based on the market yield
on , 1997 of actively traded Treasury securities of appropriate
maturities. 75% of any Net Prepayment Premium will be allocated to the Class X
Certificates. 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 table.
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 X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE CPR PREPAYMENT
AS A PERCENTAGE ASSUMPTION RATES
OF THE NOTIONAL ASSUMED ----------------------
AMOUNT PASS-THROUGH RATE (2) 0% % % %
--------------- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(2) Calculated based on the weighted average of the Remittance Rates on the
Mortgage Loans as of the Cut-off Date and the initial Weighted average of
the Pass-Through Rates of the Certificates. The Pass-Through Rate on the
Class X Certificates will be subject to adjustment on each Distribution
Date.
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 Class X Certificates would
cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price listed in the table. Accrued interest is
included in the assumed purchase price of the Class X 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 Class X
Certificates, and thus do not reflect the return on any investment in the
Class X Certificates when, as applicable, any reinvestment rates other than
the discount rates set forth in the preceding table are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason and because the timing of cash
flows is critical to determining yields, the pre-tax yield to maturity on the
Class X Certificates is likely to differ from those shown in the table, 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 Class X 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
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preceding table 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 Class X 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 X 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 X Certificates will be
materially and adversely affected to a greater extent than on the other
Offered 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 D, CLASS E AND CLASS X CERTIFICATES 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 13.5% 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 15.0% 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
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 Certificates. The aggregate initial Class Balance of
the Class D, Class E and Other Certificates is equal to approximately 20.0% of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
The yield to maturity on the Class X Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing thereof) because any
such losses will be allocated to reduce the Class Balance of the Certificates
and therefore will reduce the Notional Amount of the Class X Certificates.
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.
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 Certificates and particularly the Class D,
Class E and Class X 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.
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SERVICING
SERVICERS
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.
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 700 North Pearl Street, Suite 2400, LB 342,
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
December 31, 1996, AMRESCO's portfolio consisted of approximately 9,200 loans
with an aggregate principal balance of approximately $16.9 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 other than the Mortgage Loans serviced by
AMI or GMACCM and as Master Servicer and Special Servicer for all the Mortgage
Loans.
BOMCC is a wholly-owned subsidiary of BANC ONE CORPORATION. Its principal
executive offices are located at 1717 Main Street, Dallas, Texas 75201. BANC
ONE CORPORATION is a bank holding company with bank subsidiaries in several
states, as well as non-bank subsidiaries engaged in mortgage banking, finance,
leasing and other related businesses. BANC ONE CORPORATION's bank and non-bank
subsidiaries engage in lending and related activities in a substantial part of
the United States.
As of December 31, 1996, BOMCC was responsible for managing and servicing of
approximately 6,110 assets, consisting of loans, foreclosed real estate assets
and other assets with a total principal balance in excess of $4.9 billion of
which $528 million is administered under special servicing contracts. BOMCC
has provided servicing in some capacity for twenty-eight 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 five Mortgage Loans. As of September 30, 1996, GMACCM had a total
commercial and multifamily mortgage loan servicing portfolio (including
mortgage loans serviced for its own account and for others) of approximately
$20.8 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).
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.
RESPONSIBILITIES OF MASTER SERVICER AND PRIMARY SERVICER
Under the Pooling and Servicing Agreement, 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 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 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
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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) 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; (v) any other default has occurred which
has materially and adversely affected the value of the related Mortgaged Loan
and has continued unremedied for the applicable grace period specified in the
related mortgage; (vi) the related Mortgaged Property becomes an REO Property;
or (vii) if for any reason, the Primary Servicer cannot enter into an
assumption agreement upon the transfer by the related Mortgagor of the
mortgage. 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 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
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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.
The Directing Certificateholder may at any time terminate the Special
Servicer and appoint a replacement (a "Replacement Special Servicer") to
perform such duties under substantially the same terms and conditions as
applicable to the Special Servicer. Such holder(s) shall designate a
replacement to so serve by the delivery to the Trustee of a written notice
stating such designation. The Trustee shall, promptly after receiving any such
notice, so notify the Rating Agencies. If the designated replacement is
acceptable to the Trustee on the basis of its financial and servicing ability,
which approval may not be unreasonably withheld, the designated replacement
shall become the Replacement Special Servicer as of the date the Trustee shall
have received: (i) written confirmation from each Rating Agency stating that
if the designated replacement were to serve as Special Servicer under the
Pooling and Servicing Agreement, none of the then-current rating or ratings of
all outstanding classes of the Certificates would be qualified, downgraded or
withdrawn as a result thereof; (ii) a written acceptance of all obligations of
the Replacement Special Servicer, executed by the designated replacement; and
(iii) an opinion of counsel to the effect that the designation of such
replacement to serve as Replacement Special Servicer is in compliance with the
Pooling and Servicing Agreement, that the designated replacement will be bound
by the terms of the Pooling and Servicing Agreement and that the Pooling and
Servicing Agreement will be enforceable against such designated replacement in
accordance with its terms. The Special Servicer shall be deemed to have
resigned from its duties simultaneously with such designated replacement's
becoming the Replacement Special Servicer under the Pooling and Servicing
Agreement. Any Replacement Special Servicer may be similarly so replaced by
the Directing Certificateholder.
Notwithstanding such replacement, the resigning Special Servicer shall be
entitled to receive the Special Servicing Fee for any Mortgage Loan which
became a Specially Serviced Mortgage Loan and was subsequently returned to a
performing status prior to such resignation; provided that if such Mortgage
Loan once again becomes a Specially Serviced Mortgage Loan, the Replacement
Special Servicer shall thereafter be entitled to such fee. The Replacement
Special Servicer shall be entitled to the Special Servicing Fee for all other
Specially Serviced Mortgage Loans.
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
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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.
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 principal balance (after giving effect to all scheduled (whether or not
received) and unscheduled payments of principal in reduction thereof) and for
the same period respecting which any related interest payment on each 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. BOMCC will be the Primary Servicer for 70.35% of
the Mortgage Loans by aggregate principal balance as of the Cut-off Date.
BOMCC will receive a combined fee equal to 0.04% per annum as Master Servicer
and Primary Servicer for 39.29% of such Mortgage Loans (the "Combined
Servicing Mortgage Loans"). During such time as such Mortgage Loans are
outstanding, BOMCC shall be required under the Pooling and Servicing Agreement
to resign as both Master Servicer and Primary Servicer if it shall resign or
be removed as Master Servicer or Primary Servicer. The fee payable to the
Master Servicer with respect to the Mortgage Loans other than the Combined
Servicing Mortgage Loans will equal 0.03% per annum. The fee payable to AMI
and BOMCC as Primary Servicers with respect to the Mortgage Loans other than
the Combined Servicing Mortgage Loans will equal 0.07% per annum, except with
respect to the Crown Loan. The fee payable to BOMCC as Primary Servicer of the
Crown Loan will equal 0.125% per annum. The fee payable to GMACCM as Primary
Servicer will equal 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.
The Pooling and Servicing Agreement will provide that the Servicers will be
entitled to indemnification from the Trust Fund for any and all costs,
expenses, losses, damages, claims and liabilities incurred in connection with
any legal action relating to any Mortgage Loan and the Pooling and Servicing
Agreement, other than any cost, expense, damage, claim or liability incurred
by reason of willful misfeasance, bad faith or negligence of such Servicer in
the performance of duties thereunder or by reason of reckless disregard of
such obligations and duties.
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.
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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 February 1, 1997 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer, the Special
Servicer, the Primary Servicers 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
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 (iii)
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
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(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.
The fee payable to the Trustee will be 0.015% per annum calculated on the
same basis as interest on the Certificates. The Trustee will be entitled to
indemnification from the Trust Fund for any loss, liability or expense
incurred by the Trustee with respect to the Pooling and Servicing Agreement or
the Certificates; provided, however, that such indemnification will not extend
to any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence of the Trustee in the performance of its duties
thereunder.
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 and certain amounts to be
deposited into escrow accounts, 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 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 receipt by the Trustee and the Special Servicer
of evidence satisfactory to them that the request is made by a Beneficial
Owner 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 (or a Beneficial Owner, subject to the second
preceding sentence) may obtain all such reports at its expense as described in
the Pooling and Servicing Agreement.
VOTING RIGHTS
At all times during the term of this Agreement, 98.0% of all Voting Rights
shall be allocated among the classes of Certificates (other than the Class X
Certificates) in proportion to the respective Class Balances, 1.00%
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of all Voting Rights shall be allocated to the Class X Certificates and 0.33
1/3% of all Voting Rights shall be allocated to each of the Class R-I, Class
R-II and Class R-III 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) any 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.
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 llp, counsel to the
Depositor and the Underwriter. 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 LLP,
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<PAGE>
counsel to the Depositor and the Underwriter, 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, REMIC I,
REMIC II and REMIC III (each as defined in the Pooling and Servicing
Agreement) will each 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
(or, in the case of the Class X Certificates, each component thereof) 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. For federal income tax purposes the Class X Certificates will
consist of ten components, each related to one of the other classes of
Certificates constituting "regular interests."
See "Certain Federal Income Tax Consequences -- REMICs" in the Prospectus.
The Class X 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 "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 "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.
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<PAGE>
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 A2 and Class A3 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
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 A2 and Class A3 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
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condition of the issuance of such Classes of Certificates that they be rated
"AAA" by Fitch, "Aaa" by Moody's or "AAA" 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 C, Class D, Class E and Class X Certificates do not
satisfy the second condition described above because they are subordinated to
other classes of Offered 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
The Class A1, Class A2, Class A3, Class X and Class B Certificates will be
"mortgage related securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") 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 Class C, Class D and Class E Certificates
will not be "mortgage related securities" within the meaning of 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. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA.
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 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.
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<PAGE>
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 100% 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 llp, New York, New York; and certain legal matters
will be passed upon for the Depositor and the Underwriter by Andrews & Kurth
L.L.P., Washington, D.C.
RATING
It is a condition of the issuance of the Class A1, Class A2 and Class A3
Certificates that they be rated "AAA" by Fitch Investors Service, L.P.
("Fitch"), "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's Ratings Services ("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, "Aa2" by Moody's and "AA" 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, "A2" by Moody's and "A" 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, "Baa2" by Moody's and "BBB" by 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, "Baa3" by Moody's and "BBB-" by Standard
& Poor's. It is a condition of the issuance of the Class X Certificates that
they be rated not lower than "AAA" by Fitch.
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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 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 rating of
the Class X 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, Moody's or Standard & Poor's pursuant
to the Depositor's request. The Depositor only requested that Fitch issue a
rating with respect to the Class X Certificates.
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.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
30/360 Basis.................................................... S-5, S-47
Adjusted Available Distribution Amount.......................... S-5, S-47
Adjusted Collateral Value....................................... S-50
AMI............................................................. S-58
AMRESCO......................................................... S-58
Asset Strategy Report........................................... S-60
Available Distribution Amount................................... S-47
Balloon Mortgage Loan........................................... S-4
Balloon Payment................................................. S-4
BCM............................................................. S-40
Beneficial Owner................................................ S-2, S-44
BOMCC........................................................... S-1, S-58
CAC............................................................. S-37
CAHC............................................................ S-38
CAP............................................................. S-37
Cede............................................................ S-44
CEDEL........................................................... S-2, S-44
CEDEL Participants.............................................. S-45
CERCLA.......................................................... S-18
Certificate Account............................................. S-63
Certificateholders.............................................. S-2
Certificates.................................................... Cover, S-1
Certificate Owners.............................................. S-2
CDHC............................................................ S-37
CHHC............................................................ S-37
Class Balance................................................... S-48
Clearance Cooperative........................................... S-45
Code............................................................ S-12
Collateral Value Adjustment..................................... S-50
Collateral Value Adjustment Capitalization Amount............... S-51
Collateral Value Adjustment Reduction Amount.................... S-6, S-47
Combined Servicing Mortgage Loans............................... S-61
Crown........................................................... S-37
Crown Hotel Notes............................................... S-37
Crown Loan...................................................... S-37
Crown Participation............................................. ii, S-37
Crown Servicing Agreement....................................... S-39
Custodian....................................................... S-39
Cut-off Date.................................................... Cover
Cut-off Date LTV Ratio.......................................... S-29
Debt Service Coverage Ratio..................................... S-31
DSCR............................................................ S-31
Defaulted Mortgage Loan......................................... S-59
Definitive Certificate(s)....................................... S-2, S-44, S-46
Depositaries.................................................... S-44
Depositor....................................................... ii
</TABLE>
<TABLE>
<S> <C>
Determination Date............................................... S-6
Directing Certificateholder...................................... S-60
Distribution Date................................................ ii, S-2, S-46
DTC.............................................................. iii, S-2, S-44
DTC Participants................................................. S-44
DTC Registered Certificates...................................... S-2, S-44
Due Date......................................................... S-3
ERISA............................................................ S-13, S-66
ESA.............................................................. S-18
Euroclear........................................................ S-2, S-44
Euroclear Operator............................................... S-45
Euroclear Participants........................................... S-45
Exemption........................................................ S-66
Fitch............................................................ ii, S-13, S-68
FIRREA........................................................... S-30
Form 8-K......................................................... S-43
GMACCM........................................................... S-1, S-58
Heritage Pavilion................................................ S-40
Hotel Properties................................................. S-37
Indirect Participants............................................ S-44
Interest Accrual Amount.......................................... S-5, S-47
Interest Distribution Amount..................................... S-5, S-47
Loan Agreement................................................... S-37
Loan Sale Agreement.............................................. S-23
Lock-out Date.................................................... S-36
Lock-out Period.................................................. S-36
Loss Mortgage Loan............................................... S-50
Majority Percentage.............................................. S-39
Master Collection Account........................................ S-63
Master Servicer.................................................. ii
Maturity Date LTV Ratio.......................................... S-29
MGT.............................................................. S-1, S-23
Monitoring Certificateholders.................................... S-60
Monthly Payments................................................. S-3
Moody's.......................................................... ii, S-13, S-68
Mortgage......................................................... S-22
Mortgage Loan File............................................... S-62
Mortgage Loan Purchase Agreement................................. S-23
Mortgage Loan(s)................................................. ii, S-3, S-22
Mortgage Note.................................................... S-22
Mortgage Pool.................................................... ii, S-3
Mortgaged Properties............................................. S-3
Mortgaged Property............................................... S-22
Mortgagor........................................................ S-4
Most Subordinate Class of Certificates........................... S-64
Net Operating Income............................................. S-31
Net Prepayment Premium........................................... S-48
Notes............................................................ S-37
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Notional Amount................................................. ii, S-6, S-47
Offered Certificates............................................ Cover
Originators..................................................... ii
Other Certificates.............................................. S-8
P&I Advance(s).................................................. S-8, S-51
PAR............................................................. S-42
Participant(s).................................................. S-2, S-39, S-44
Participation................................................... S-39
Participation Agreement......................................... S-37, S-39
Participation Servicer.......................................... S-39
Pass-Through Rate............................................... ii
Percentage Interest............................................. S-46
Plan............................................................ S-66
Pooling and Servicing Agreement................................. S-4, S-62
Prepayment...................................................... S-53
Prepayment Interest Excess...................................... S-48
Prepayment Interest Shortfall................................... S-48
Prepayment Premium.............................................. S-4, S-36
Primary Collection Account...................................... S-63
Principal Distribution Amount................................... S-7, S-48
Priority of Distributions....................................... S-7, S-48
Properties...................................................... S-37
Property Protection Expenses.................................... S-51
Rated Final Distribution Date................................... S-53
Realized Loss................................................... S-50
Record Date..................................................... S-2
</TABLE>
<TABLE>
<S> <C>
REMIC............................................................ ii, S-12, S-64
REMIC Regulations................................................ S-64
Remittance Period................................................ S-7
Remittance Rate.................................................. S-47
REO Account...................................................... S-43
REO Property..................................................... S-43
Replacement Special Servicer..................................... S-60
Required Appraisal Date.......................................... S-50
Restricted Group................................................. S-66
San Jacinto...................................................... S-40
Seller........................................................... S-39
Servicer......................................................... S-8
Servicing Fee.................................................... S-61
Servicing Fee Rate............................................... S-61
Servicing Transfer Event......................................... S-59
SMMEA............................................................ S-14, S-67
Southmark........................................................ S-40
Special Servicer................................................. ii
Specially Serviced Mortgage Loan................................. S-12
Standard & Poor's................................................ ii, S-13, S-68
Starwood......................................................... S-39
Stated Principal Balance......................................... S-51
Terms and Conditions............................................. S-45
Trust Fund....................................................... ii
Underwriter...................................................... Cover
</TABLE>
S-71
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
Loan
Number Property Name Property Address Property City
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Heritage Pavillion Shopping Center U.S. Highway 41 & Hargrove Road Smyrna
2 Hillside Manor Nursing Home Hillside Avenue Queens
3 Dorchester Park Apartments 3010-3260 W. 14th Avenue Denver
4 Radisson Heritage Hotel 10 Independence Drive Chelmsford
5 The Mall at Lexington Green Nicholasville Road Lexington
6 Pak N' Save 4946-4950 Almaden Expressway San Jose
7 Bloomingdale Pavillion 311 Edgewater Drive Bloomington
8 Humbert Lane Health Centre 90 Humbert Lane South Strabane
9 Saratoga Office Center 12900-12980 Saratoga Avenue Saratoga
10 Plano Market Square Shopping Center 1717 Spring Creek Parkway Plano
11 West Colonial Oaks Shopping Center 7038 W. Colonial Drive Orlando
12 Colonial Gardens Apartments S. Barrington Ave. & Nat. Blvd. Los Angeles
13 Square Lake Park II 1750 Telegraph Road Bloomfield
14 Ashwaubenon Plaza 2763 Oneida Street Ashwaubenon
15 Basin Office Park 1150-1160 Pittsford Victor Road Perinton
16 Long Island Care Center 144-61 38th Avenue Queens
17 London Park Condominiums 15889 Preston Road Dallas
18 Lincoln Square Shopping Center 901 West Morton Avenue Jacksonville
19 Princeton Plaza Shopping Center 3220-3380 San Pablo Dam Road San Pablo
20 Vintage Ridge Apartments 2705 Range Avenue Santa Rosa
21 Pembroke Pines Plaza West SEC Palm Ave. & Pines Blvd. Pembroke Pines
22 Sky Ridge Plaza 2000 S. IH-35 Round Rock
23 Covered Bridge Apartments 1810 NW 23rd Blvd. Gainesville
24 Sav-Max Center 885 Blossom Hill Road San Jose
25 Burlington Court Apartments Route 130 and Columbus Road Burlington
26 Newport Village Apartments 2901 Sunset Drive San Angelo
27 Fireside Thrift Building 5600 Mowry School Road Newark
28 Gilbert Town Center 645-745 N. Gilbert Road Gilbert
29 Satellite Self Storage of Ocean 2120 Kings Highway Ocean
30 Almond Plaza Shopping Center 7154-7222 Regional Street Dublin
31 Park Terrace Apartments 3830 Swenson Street Las Vegas
32 Inn of Sedona 1200 W. Highway 89A Sedona
33 Sunset Manor Apts 1230, 1234, 1238, 1242 West Cameron Avenue West Covina
34 Three Fountains 1810-1940 Fountainview Houston
35 Hampton Court Apartments 5689 North Christine Westland
36 Holiday Inn - Ontario Airport 3400 Shelby Street Ontario
37 Preston Summerside Shopping Center 17401-17489 Preston Road Dallas
38 Northtown Village Apartments 7879 University Avenue, NE Spring Lake Park
39 Brentwood Timberlane Apartments 4515 Maplewood Avenue Wichita Falls
40 Days Inn Rocky Point 7627 Courtney Campbell Causeway Tampa
41 Country Oaks Apartments 2913 Mustang Drive Grapevine
42 The Colony Park Apartments 4700 Taft Blvd. Wichita Falls
43 Cedar Ridge Apartments 4945 Mack Road Sacramento
44 Santa Fe Apartments 1210 N. Cherokee Avenue Los Angeles
45 Lanewood Apartments 7005 Lanewood & 7000 Hawthorne Los Angeles
<CAPTION>
Year # of Units/
Loan Prop Anchor Year Renovated Sq. Ft.
Number State Property Type Anchor Sq. Ft. Built (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 GA Anchored Retail Marshall's/Computer City 30,688/18,750 1995 262,875
2 NY Nursing Home 1975 400
3 CO Multifamily 1965 1994 476
4 MA Hotel 1983 1993 213
5 KY Anchored Retail Joseph-Beth Booksellers 44,587 1986 1996 163,022
6 CA Anchored Retail Safeway 76,852 1973 1992 139,052
7 IL Nursing Home 1975 1994 259
8 PA Nursing Home 1983 180
9 CA Office 1986 89,825
10 TX Anchored Retail Garden Ridge Corporation 150,852 1983 1994 275,270
11 FL Anchored Retail Winn Dixie 35,000 1986 161,060
12 CA Multifamily 1969 160
13 MI Office 1988 70,595
14 WI Anchored Retail Shawano Foodland 46,034 1990 211,642
15 NY Office 1983 145,231
16 NY Nursing Home 1969 1992 200
17 TX Multifamily 1979 1982 221
18 IL Anchored Retail JC Penney/Walgreen Co. 40,000/15,000 1964 1994 207,363
19 CA Anchored Retail Raley's Grocery Corporation 60,114 1990 113,544
20 CA Multifamily 1987 140
21 FL Anchored Retail Eckerd Drugs 10,800 1983 1995 116,197
22 TX Anchored Retail Walgreen Drug Co. 10,998 1987 1994 141,293
23 FL Multifamily 1972 1995 176
24 CA Anchored Retail Food 4 Less 48,648 1973 61,680
25 NJ Multifamily 1971 1995 210
26 TX Multifamily 1979 1992 302
27 CA Office 1988 56,213
28 AZ Anchored Retail Osco Drug Store 9,100 1986 91,855
29 NJ Self Storage 1986 1993 950
30 CA Retail 1978 51,155
31 NV Multifamily 1975 1990 199
32 AZ Hotel 1995 110
33 CA Multifamily 1963 1986 120
34 TX Retail 1968 1995 41,969
35 MI Multifamily 1969 183
36 CA Hotel 1990 150
37 TX Retail 1983 47,311
38 MN Multifamily 1971 1995 161
39 TX Multifamily 1980 1992 216
40 FL Hotel 1961 1994 144
41 TX Multifamily 1973 228
42 TX Multifamily 1978 1993 272
43 CA Multifamily 1985 274
44 CA Multifamily 1988 90
45 CA Multifamily 1969 1996 111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Occupancy Occupancy Appraised Appraisal Original Original
Number Percentage as of Date Value Date LTV Ratio Balance
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 100.0% 8/1/96 33,000,000 8/1/96 65.15% 21,500,000
2 98.8% 1/96 - 6/96 avg. 21,000,000 6/10/96 57.14% 12,000,000
3 92.9% 11/6/96 16,200,000 4/5/96 67.28% 10,900,000
4 77.0% 9/95 - 8/96 avg. 15,900,000 9/1/96 59.75% 9,500,000
5 86.5% 8/1/96 15,850,000 8/23/96 59.31% 9,400,000
6 100.0% 10/9/96 13,000,000 6/1/96 64.62% 8,400,000
7 86.1% 8/1/96 14,000,000 7/24/96 60.00% 8,400,000
8 90.8% 7/95 - 6/96 avg. 10,400,000 10/26/95 75.00% 7,800,000
9 100.0% 6/27/96 12,100,000 10/16/95 60.33% 7,300,000
10 91.4% 7/22/96 12,400,000 8/23/95 58.47% 7,250,000
11 95.8% 7/31/96 11,900,000 12/1/95 59.16% 7,040,000
12 98.8% 6/1/96 9,550,000 11/13/95 72.25% 6,900,000
13 95.4% 6/30/96 9,800,000 4/16/96 70.10% 6,870,000
14 89.1% 10/15/96 8,900,000 11/1/96 71.35% 6,350,000
15 92.9% 10/1/96 9,500,000 5/17/96 63.16% 6,000,000
16 97.6% 1/96 - 5/96 avg. 11,000,000 3/27/96 54.55% 6,000,000
17 96.8% 7/31/96 8,210,000 2/8/96 73.08% 6,000,000
18 86.9% 8/14/96 8,500,000 9/4/96 68.24% 5,800,000
19 90.0% 8/6/96 7,800,000 11/6/95 74.36% 5,800,000
20 94.1% 6/26/96 7,800,000 10/26/95 73.40% 5,725,000
21 100.0% 9/30/96 11,710,000 2/22/96 44.41% 5,200,000
22 83.5% 7/31/96 7,650,000 12/2/95 65.36% 5,000,000
23 95.5% 8/18/96 6,900,000 9/22/95 68.41% 4,720,000
24 100.0% 8/14/96 8,000,000 6/1/96 57.81% 4,625,000
25 95.0% 7/1/96 6,200,000 10/24/95 74.19% 4,600,000
26 95.0% 6/25/96 6,100,000 3/8/96 73.77% 4,500,000
27 97.5% 8/1/96 6,500,000 4/1/96 66.15% 4,300,000
28 96.7% 8/18/96 6,000,000 5/10/96 70.00% 4,200,000
29 98.6% 6/30/96 6,495,000 2/20/96 64.67% 4,200,000
30 82.7% 9/1/96 6,100,000 12/14/95 68.85% 4,200,000
31 96.9% 10/1/96 7,500,000 4/15/96 54.67% 4,100,000
32 66.9% 9/30/96 9,000,000 6/17/96 45.56% 4,100,000
33 91.6% 10/30/96 5,050,000 2/16/96 80.00% 4,040,000
34 100.0% 6/1/96 6,000,000 3/22/96 65.83% 3,950,000
35 93.0% 6/1/96 5,480,000 3/7/96 69.34% 3,800,000
36 65.3% 1/96 - 8/96 avg. 6,250,000 11/22/95 60.80% 3,800,000
37 89.7% 6/30/96 5,300,000 10/26/95 70.75% 3,750,000
38 98.0% 10/9/96 4,800,000 5/1/96 75.00% 3,600,000
39 95.3% 8/24/96 5,000,000 6/26/96 70.60% 3,530,000
40 77.4% 1/96 - 9/96 avg. 5,650,000 4/18/95 63.72% 3,600,000
41 97.0% 6/29/96 4,600,000 9/22/95 73.26% 3,370,000
42 98.0% 8/24/96 4,350,000 7/8/96 76.32% 3,320,000
43 93.5% 8/1/96 4,260,000 2/1/96 74.82% 3,187,500
44 96.6% 10/28/96 4,500,000 12/12/95 70.00% 3,150,000
45 97.3% 7/1/96 4,030,000 4/12/96 76.92% 3,100,000
<CAPTION>
Loan Current Cut Off Mortgage Annual Remaining
Number Balance Balance Interest Rate Debt Service Term
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 21,450,490 21,450,490 8.800% 2,038,907 116
2 11,912,736 11,912,736 9.350% 1,328,195 235
3 10,838,074 10,838,074 8.750% 1,075,364 113
4 9,459,444 9,459,444 9.460% 1,059,654 117
5 9,373,719 9,373,719 8.780% 929,678 117
6 8,381,841 8,381,841 8.600% 794,520 117
7 8,377,540 8,377,540 9.050% 849,364 117
8 7,630,877 7,630,877 9.125% 849,683 106
9 7,232,645 7,232,645 9.000% 735,136 110
10 7,154,694 7,154,694 8.500% 700,548 107
11 6,943,702 6,943,702 8.250% 666,083 107
12 6,861,296 6,861,296 8.500% 636,660 171
13 6,848,773 6,848,773 9.375% 685,694 114
14 6,341,363 6,341,363 7.950% 556,475 82
15 5,986,954 5,986,954 9.090% 597,189 117
16 5,964,114 5,964,114 9.100% 652,440 236
17 5,955,138 5,955,138 8.875% 598,070 112
18 5,789,104 5,789,104 8.710% 570,322 118
19 5,746,534 5,746,534 7.500% 486,653 108
20 5,671,715 5,671,715 7.875% 498,123 107
21 5,154,280 5,154,280 8.625% 507,729 111
22 4,949,979 4,949,979 8.500% 483,136 74
23 4,641,978 4,641,978 8.000% 437,157 105
24 4,615,002 4,615,002 8.600% 437,459 117
25 4,578,279 4,578,279 8.750% 434,259 172
26 4,485,356 4,485,356 9.125% 439,362 114
27 4,289,029 4,289,029 9.400% 430,121 115
28 4,175,811 4,175,811 9.625% 444,730 113
29 4,175,303 4,175,303 9.500% 440,343 113
30 4,168,935 4,168,935 9.125% 419,270 110
31 4,076,323 4,076,323 8.650% 401,157 114
32 4,070,279 4,070,279 9.375% 454,600 235
33 4,005,191 4,005,191 8.750% 398,575 111
34 3,926,773 3,926,773 9.500% 414,132 113
35 3,782,439 3,782,439 8.875% 378,778 115
36 3,726,632 3,726,632 8.750% 402,972 168
37 3,700,704 3,700,704 8.500% 362,352 107
38 3,577,010 3,577,010 9.000% 362,533 113
39 3,523,539 3,523,539 8.500% 325,712 117
40 3,508,344 3,508,344 10.000% 416,889 162
41 3,323,463 3,323,463 8.190% 317,229 107
42 3,313,923 3,313,923 8.500% 306,335 117
43 3,171,352 3,171,352 9.000% 307,768 111
44 3,134,350 3,134,350 8.500% 290,649 112
45 3,088,185 3,088,185 9.125% 302,672 113
<CAPTION>
Remaining Balloon Mat. Date
Loan Am Term Original Maturity Balance LTV Ratio
Number (3) Date Date (4) (5)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 356 9/20/96 10/1/06 19,157,544 58.05%
2 235 8/30/96 9/1/16 -
3 294 7/29/96 7/1/06 8,990,367 55.50%
4 237 10/10/96 11/1/06 6,835,841 42.99%
5 297 10/7/96 11/1/06 7,737,870 48.82%
6 333 10/30/96 11/1/06 7,262,923 55.87%
7 297 10/10/96 11/1/06 6,958,054 49.70%
8 226 11/16/95 12/1/06 5,559,882 53.46%
9 290 3/27/96 4/1/06 6,039,965 49.92%
10 287 12/21/95 1/1/06 5,928,367 47.81%
11 287 12/28/95 1/1/06 5,721,532 48.08%
12 351 4/3/96 5/1/11 5,387,722 56.42%
13 354 7/15/96 8/1/06 6,184,220 63.10%
14 358 11/25/96 12/1/03 5,868,352 65.94%
15 321 10/22/96 11/1/06 5,160,574 54.32%
16 236 9/18/96 10/1/16 -
17 292 5/9/96 6/1/06 4,950,041 60.29%
18 298 11/14/96 12/1/06 4,766,562 56.08%
19 348 1/31/96 2/1/06 5,034,110 64.54%
20 347 12/1/95 1/1/06 5,009,212 64.22%
21 291 4/4/96 5/1/06 4,264,850 36.42%
22 290 3/14/96 4/1/03 4,446,521 58.12%
23 285 10/31/95 11/1/05 3,812,027 55.25%
24 333 10/30/96 11/1/06 3,998,931 49.99%
25 352 5/30/96 6/1/11 3,620,818 58.40%
26 354 7/19/96 8/1/06 4,033,296 66.12%
27 355 8/30/96 9/1/06 3,872,407 59.58%
28 293 6/28/96 7/1/06 3,523,632 58.73%
29 293 6/11/96 7/1/06 3,514,115 54.10%
30 314 3/15/96 4/1/06 3,615,005 59.26%
31 294 7/25/96 8/1/06 3,364,674 44.86%
32 235 8/16/96 9/1/16 -
33 291 4/12/96 5/1/06 3,323,291 65.81%
34 293 6/19/96 7/1/06 3,304,941 55.08%
35 295 8/8/96 9/1/06 3,135,026 57.21%
36 228 1/8/96 2/1/11 1,627,204 26.04%
37 287 12/8/95 1/1/06 3,066,395 57.86%
38 293 6/26/96 7/1/06 2,978,612 62.05%
39 357 10/7/96 11/1/06 3,127,669 62.55%
40 222 7/17/95 8/1/10 1,635,087 28.94%
41 287 12/21/95 1/1/06 2,734,776 59.45%
42 357 10/7/96 11/1/06 2,941,604 67.62%
43 351 4/1/96 5/1/06 2,850,572 66.91%
44 352 5/1/96 6/1/06 2,790,981 62.02%
45 353 6/12/96 7/1/06 2,778,491 68.95%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
1 LO-45,YM1-58,0%-13 Quarterly - - - 6
2 LO-44,7%-24,6%-12,5%-12,4%-12,3%-12,2%-12,1%-100,0%-7 Quarterly 4,195,556 4,117,838 3.10 6
3 LO-41,YM1-65,0%-7 Quarterly 1,043,701 1,350,064 1.26 8
4 YM1-110,0%-7 Quarterly 1,085,858 1,323,259 1.25 8
5 LO-44,YM1-66,0%-7 Quarterly - 1,060,123 1.14 9
6 LO-46,YM1-64,0%-7 Quarterly 1,142,961 1,191,707 1.50 9
7 LO-44,YM1-66,0%-7 Quarterly 1,890,654 1,565,256 1.84 6
8 LO-35,YM1-64,0%-7 Quarterly 1,623,858 1,566,139 1.84 12
9 LO-37,YM1-66,0%-7 Quarterly 926,911 1,165,569 1.59 6
10 LO-10,YM1-24,1%-66,0%-7 Quarterly 428,281 890,998 1.27 7
11 LO-34,YM1-66,0%-7 Quarterly 919,152 1,073,720 1.61 7
12 LO-74,YM1-84,0%-13 Quarterly 844,295 865,346 1.36 9
13 LO-43,YM1-64,0%-7 Quarterly 806,275 1,059,354 1.54 6
14 LO-21,YM1-54,0%-7 Quarterly 802,392 1,061,869 1.91 9
15 LO-57,YM1-53,0%-7 Quarterly 1,052,047 1,142,991 1.91 8
16 LO-81,YM1-148,0%-7 Quarterly 1,895,185 2,308,849 3.54 5
17 LO-41,YM1-64,0%-7 Quarterly 754,572 840,541 1.41 4.7
18 LO-45,YM1-66,0%-7 Quarterly 782,796 980,168 1.72 9
19 LO-35,YM1-66,0%-7 Quarterly - 716,874 1.47 6
20 LO-34,YM1-60,0%-13 Quarterly 633,493 695,023 1.40 7
21 LO-38,YM1-66,0%-7 Quarterly 666,313 712,790 1.40 6
22 LO-13,YM1-54,0%-7 Quarterly - 642,819 1.33 6
23 LO-32,YM1-66,0%-7 Quarterly 553,889 612,773 1.40 6
24 LO-46,YM1-64,0%-7 Quarterly 768,740 769,690 1.76 8
25 LO-75,YM1-90,0%-7 Quarterly 611,726 565,866 1.30 6
26 LO-41,YM1-66,0%-7 Quarterly 380,938 549,239 1.25 6
27 LO-42,YM1-66,0%-7 Quarterly 652,295 636,473 1.48 5
28 LO-42,YM1-64,0%-7 Quarterly 424,575 434,149 0.98 5
29 LO-40,YM1-66,0%-7 Quarterly 596,296 714,463 1.62 6
30 LO-37,YM1-66,0%-7 Quarterly 529,311 532,178 1.27 7
31 LO-41,YM1-66,0%-7 Quarterly 651,020 667,527 1.66 9
32 LO-80,YM1-148,0%-7 Quarterly - 787,959 1.73 9
33 LO-38,YM1-60,0%-13 Quarterly 515,703 586,940 1.47 6
34 LO-40,YM1-66,0%-7 Quarterly 555,980 542,715 1.31 10
35 LO-42,YM1-66,0%-7 Quarterly 339,093 357,487 0.94 5
36 LO-35,YM1-66,0%-67 Quarterly 288,767 614,317 1.52 9
37 LO-34,YM1-66,0%-7 Quarterly 522,080 566,862 1.56 6
38 LO-40,YM1-66,0%-7 Quarterly 427,169 455,540 1.26 7
39 LO-46,YM1-64,0%-7 Quarterly 542,992 562,927 1.73 6
40 LO-29,YM2-60,1%-66,0%-7 Quarterly 659,109 607,720 1.46 9
41 YM1-100,0%-7 Quarterly 264,797 384,182 1.21 6
42 LO-46,YM1-64,0%-7 Quarterly 231,418 635,595(8) 2.07 6
43 YM1-38,3%-12,2%-12,1%-35,0%-14 Quarterly - - - 5.5
44 LO-39,YM1-60,0%-13 Quarterly 307,975 542,704 1.87 6
45 LO-40,YM1-60,0%-13 Quarterly - 231,523 0.76 7
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
1 6/30/96 1,559,142 1.53
2 6/30/96 3,926,399 5.91
3 8/31/96 1,071,300 1.49
4 8/1/96 983,868 1.39
5 9/30/96 822,254 1.18
6 9/1/96 906,356 1.52
7 6/1/96 721,096 1.70
8 6/1/96 1,357,364 1.60
9 6/20/96 647,348 1.76
10 7/20/96 593,687 1.45
11 7/31/96 695,929 1.79
12 9/1/96 560,896 1.17
13 6/30/96 522,854 1.53
14 9/1/96 859,137 2.06
15 8/1/96 661,234 1.66
16 5/31/96 1,464,409 5.39
17 9/30/96 275,638 1.18
18 9/1/96 633,369 1.48
19 6/30/96 363,462 1.49
20 7/31/96 406,350 1.40
21 6/1/96 516,716 2.04
22 6/30/96 359,020 1.49
23 6/30/96 318,775 1.46
24 8/31/96 508,194 1.74
25 6/1/96 286,816 1.32
26 6/1/96 296,628 1.35
27 5/1/96 335,865 1.87
28 5/31/96 233,858 1.26
29 6/30/96 376,622 1.71
30 7/1/96 304,700 1.25
31 9/30/96 477,148 1.59
32 9/1/96 733,555 2.15
33 10/1/96 203,752 1.02
34 10/31/96 437,718 1.27
35 5/1/96 191,944 1.22
36 9/30/96 492,485 1.63
37 6/1/96 278,556 1.54
38 7/31/96 271,745 1.28
39 6/30/96 240,065 1.47
40 9/30/96 709,577 2.27
41 6/1/96 205,286 1.29
42 6/30/96 306,192 2.00
43 9/30/96 152,672 1.08
44 6/30/96 197,563 1.36
45 7/1/96 246,793 1.40
<CAPTION>
Upfront Reserves
------------------------------------------------------------------
Repair &
Loan Number Remediation TI/LC P&I Environmental Total
<S> <C> <C> <C> <C> <C>
1 - - - - -
2 200,000 - - - 200,000
3 134,250 - - - 134,250
4 - - - - -
5 - 140,000 - - 140,000
6 48,750 - - 60,000 108,750
7 32,000 - - - 32,000
8 - - - 10,000 10,000
9 - 400,000 - - 400,000
10 8,250 277,973 - - 286,223
11 1,813 - - - 1,813
12 - - - - -
13 - - - - -
14 - 50,000 150,000 - 200,000
15 - 100,000(10) - - 100,000
16 31,469 - 300,000 - 331,469
17 494,394 - - - 494,394
18 22,500 50,000 - - 72,500
19 13,938 92,000 - - 105,938
20 6,000 - - - 6,000
21 - - - - -
22 4,063 - - - 4,063
23 5,000 - - - 5,000
24 26,195 - - - 26,195
25 21,475 - - - 21,475
26 40,000 - - - 40,000
27 - 100,000 - - 100,000
28 - 116,266 - - 116,266
29 2,750 - - - 2,750
30 - 50,000 - - 50,000
31 - - - - -
32 7,750 - - - 7,750
33 37,000 - - - 37,000
34 2,425 47,000 - 62,500 111,925
35 237,500 - - - 237,500
36 27,600 - - - 27,600
37 4,403 - - - 4,403
38 100,150 - - - 100,150
39 30,000 - - - 30,000
40 6,250 - - - 6,250
41 128,124 - - - 128,124
42 70,000 - - - 70,000
43 223,772 - - - 223,772
44 4,638 - - - 4,638
45 - - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ongoing Monthly Reserves
Loan -----------------------------------------------------------------------------------------------
Number Replacement Taxes Insurance TI/LC Originator Servicer
<S> <C> <C> <C> <C> <C> <C>
1 2,192 ** - 4,583 M B
2 - ** * - A A
3 - ** - - J B
4 - ** - - B B
5 2,038 ** * (12) A A
6 1,723 ** - 3,890 M B
7 - ** - - J B
8 4,000 ** * - A A
9 1,497 ** * - B B
10 4,598 ** * 6,500 B B
11 2,684 ** * 8,677 A A
12 909 ** - - H B
13 - ** * 8,333 A A
14 2,645 ** * 6,596 B B
15 - ** - - J B
16 6,000 ** * - A A
17 4,167 ** * - A A
18 2,563 ** * 8,333 B B
19 1,667 ** * 1,542 B B
20 - ** - - H G
21 968 ** * 5,717 A A
22 1,785 ** * 5,833 B B
23 3,916 ** * - B B
24 771 ** - 2,367 M B
25 5,250 ** * - B B
26 5,700 ** * - A A
27 937 ** * 4,300 B B
28 1,149 ** * - A A
29 1,086 ** * - MB B
30 1,062 ** * 3,405 B B
31 - ** - - J B
32 - ** * - B B
33 819 ** - - H B
34 525 ** * 2,227 B B
35 2,288 ** - - J B
36 7,858 ** * - N B
37 675 ** * 2,782 A A
38 3,059 ** * - N B
39 4,104 ** * - N B
40 7,075 ** * - U B
41 3,876 ** * - HC G
42 6,143 ** * - N B
43 4,239 ** - - H B
44 781 ** - - H B
45 - ** - - H B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Number Property Name Property Address Property City
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
46 Woodbend Apartments 7040 Archibald Avenue Rancho Cucamonga
47 Edgewater Apartments 10286 W. Winston Drive Baton Rouge
48 Saddleback Village Modular Homes 73G Sipprelle Drive Battlement Mesa
49 Oakwood Villas Apartments 6603 N. 65th Avenue Glendale
50 Days Inn - Research Triangle Park 1000 Airport Road Morrisville
51 Cleveland Heights Apartment 221 N. Cleveland Avenue Sioux Falls
52 Suburban Square 1664 Suburban Avenue St. Paul
53 Loggerhead Plaza 14255 U.S. Highway One Juno Beach
54 Park Forest Apartments 50 N. 21st Street Las Vegas
55 Days Inn - Raleigh 6329 Glenwood Avenue Raleigh
56 The Chateaus/Summit Ridge 408 Summit Ridge Drive Oklahoma City
57 Fairmount Heights Apartments 77 Fairmount Avenue Oakland
58 Pine Plaza Shopping Center Route 589 & Cathell Road Berlin
59 Michael's Plaza 3320-3330 S. Price Road Tempe
60 300 Pond Street 300 Pond Street Randolph
61 Lake Front Healthcare Center, Inc. 7618 N. Sheridan Road Chicago
62 Fountain Square Shopping Center 8026 West Broad Street Henrico County
63 Charmont Apartments 330 California Avenue Santa Monica
64 Versailles Apartments 8001 Fulton Houston
65 Columbia Plaza 7420-7440 West Cactus Road Peoria
66 Ventana Apartments 1200 N. Mansfield Avenue Los Angeles
67 Wetmore Plaza 4343 Oracle Road Tucson
68 Guthrie Creek Apartments 600 Baylor Drive Longview
69 Cross Creek Centre 1301&1311 W. Boynton Beach Blvd. Boynton Beach
70 Fairmount Heights Apartments 55 Fairmount Avenue Oakland
71 Beachcomber Resort 727 Old Montauk Road Montauk
72 The St. Andrews Apartments 5555 Harold Way Los Angeles
73 Shelby Crossing SEC Macon Road & Sycamore View East Shelby County
74 Windsong Apartments 15223 Plaza South Drive Taylor
75 Palm Plaza NWC Elliot and Arizona Avenue Chandler
76 Del Prado Apartments 928 Del Prado Drive Euless
77 Goldstone Commercial Retail Building 529 Broadway New York
78 Hillcrest Estates Townhouse Apartments 101-129 N. Crestland Drive Norman
79 The Place Apartments 1341 Castle Court Houston
80 Country Hollow Apartments 5858 Morgan Place Stockton
81 Minikahda Ministorage IV 300 N. 5th St. Minneapolis
82 Freeport Shopping Center 1601-1645 Southwest Avenue Freeport
83 Bell Plaza 7420 West Cactus Road Phoenix
84 Chateau Brentana Apartments 11666 Montana Avenue Los Angeles
85 U-STORE 1450 Russell Street Baltimore
86 Park Place Apartments 3611 Maplewood Avenue Wichita Falls
87 East Lake Self Storage 2351 Boswell Road Chula Vista
88 St. Tropez Apartments 5811-5821 Tujunga Los Angeles
89 Quail Run Apartments 4001 Rawleigh Street Lower Paxton
90 The Kingsley 400 S. Kingsley Drive Los Angeles
<CAPTION>
Year # of Units/
Loan Prop Anchor Year Renovated Sq. Ft.
Number State Property Type Anchor Sq. Ft. Built (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
46 CA Multifamily 1986 120
47 LA Multifamily 1973 1992 161
48 CO Mobile Home Park 1981 312
49 AZ Multifamily 1963 205
50 NC Hotel 1986 110
51 SD Multifamily 1984 144
52 MN Retail 1987 39,381
53 FL Retail 1986 42,949
54 NV Multifamily 1980 202
55 NC Hotel 1975 1993 122
56 OK Multifamily 1983 1984 133
57 CA Multifamily 1972 1989 63
58 MD Anchored Retail Food City 24,650 1986 63,900
59 AZ Anchored Retail Michaels 24,993 1987 67,373
60 MA Industrial 1964 1987 132,500
61 IL Nursing Home 1971 99
62 VA Anchored Retail Ukrop's Grocery 31,650 1977 89,438
63 CA Multifamily 1929 1994 50
64 TX Multifamily 1966 1993 292
65 AZ Retail 1987 48,509
66 CA Multifamily 1988 67
67 AZ Anchored Retail Michaels 14,740 1984 34,987
68 TX Multifamily 1979 160
69 FL Anchored Retail Blockbuster Entertainment 5,537 1988 35,079
70 CA Multifamily 1972 1989 51
71 NY Coop./Vac. Homes 1983 88
72 CA Multifamily 1989 70
73 TN Retail 1988 32,570
74 MI Multifamily 1984 101
75 AZ Retail 1986 66,147
76 TX Multifamily 1972 132
77 NY Retail 1920 1990 15,350
78 OK Multifamily 1984 1995 112
79 TX Multifamily 1974 1994 113
80 CA Multifamily 1984 1992 99
81 MN Self Storage 1912 1989 529
82 IL Retail 1968 1991 49,220
83 AZ Retail 1979 27,230
84 CA Multifamily 1969 1994 36
85 MD Self Storage 1985 828
86 TX Multifamily 1973 100
87 CA Self Storage 1986 690
88 CA Multifamily 1986 69
89 PA Multifamily 1973 1994 88
90 CA Multifamily 1971 57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Occupancy Occupancy as of Appraised Appraisal Original Original
Number Percentage Date Value Date LTV Ratio Balance
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
46 96.0% 9/1/96 4,275,000 12/13/95 72.51% 3,100,000
47 87.6% 10/1/96 4,080,000 4/8/96 75.25% 3,070,000
48 95.5% 6/30/96 5,750,000 2/29/96 52.17% 3,000,000
49 98.0% 7/31/96 4,550,000 5/10/96 64.29% 2,925,000
50 93.6% 1/96 - 6/96 avg. 4,650,000 5/10/95 64.52% 3,000,000
51 93.8% 10/31/96 3,900,000 6/7/96 74.36% 2,900,000
52 87.3% 5/10/96 4,000,000 1/12/96 71.75% 2,870,000
53 99.0% 8/1/96 4,150,000 6/7/96 68.67% 2,850,000
54 97.5% 9/1/96 4,640,000 8/9/96 61.42% 2,850,000
55 65.5% 6/30/96 4,500,000 5/10/95 65.00% 2,925,000
56 93.2% 8/24/96 3,900,000 7/24/96 72.56% 2,830,000
57 96.8% 9/28/96 3,725,000 11/2/95 74.23% 2,765,000
58 100.0% 6/30/96 3,830,000 2/26/96 71.80% 2,750,000
59 85.4% 8/1/96 4,550,000 8/1/96 58.68% 2,670,000
60 100.0% 7/16/96 4,100,000 10/6/95 65.85% 2,700,000
61 91.1% 6/30/96 4,300,000 3/6/96 60.47% 2,600,000
62 96.6% 9/30/96 4,525,000 5/9/96 57.46% 2,600,000
63 98.0% 4/1/96 4,000,000 2/16/96 62.50% 2,500,000
64 99.3% 9/26/96 3,500,000 2/21/96 71.43% 2,500,000
65 95.0% 8/1/96 3,400,000 8/1/96 69.12% 2,350,000
66 97.0% 10/28/96 3,235,000 12/12/95 72.64% 2,350,000
67 100.0% 8/26/96 3,925,000 11/4/95 58.60% 2,300,000
68 83.1% 11/8/96 3,100,000 2/5/96 74.19% 2,300,000
69 86.0% 8/15/96 3,500,000 3/11/96 64.57% 2,260,000
70 94.0% 6/30/96 2,975,000 11/2/95 75.13% 2,235,000
71 100.0% 3/25/96 6,800,000 1/25/96 33.09% 2,250,000
72 91.4% 10/1/96 3,175,000 1/19/96 65.35% 2,075,000
73 93.9% 5/31/96 3,025,000 6/13/96 68.26% 2,065,000
74 93.9% 9/30/96 3,100,000 3/29/96 66.13% 2,050,000
75 83.6% 8/1/96 3,250,000 8/1/96 62.46% 2,030,000
76 100.0% 2/1/96 3,000,000 5/9/96 66.67% 2,000,000
77 84.7% 3/29/96 4,800,000 11/1/95 41.67% 2,000,000
78 98.2% 8/24/96 2,610,000 7/24/96 73.75% 1,925,000
79 85.6% 11/1/96 2,850,000 10/6/95 68.06% 1,939,600
80 100.0% 9/9/96 3,015,000 4/16/96 63.02% 1,900,000
81 95.3% 9/30/96 2,540,000 4/9/96 70.87% 1,800,000
82 89.8% 11/1/96 2,540,000 8/1/96 68.90% 1,750,000
83 100.0% 8/1/96 2,400,000 8/1/96 71.25% 1,710,000
84 97.1% 6/1/96 5,000,000 4/15/96 34.00% 1,700,000
85 93.4% 6/1/96 3,500,000 7/15/96 48.29% 1,690,000
86 93.0% 8/24/96 2,250,000 7/15/96 72.67% 1,635,000
87 94.9% 8/25/96 2,760,000 3/4/96 57.97% 1,600,000
88 90.0% 8/15/96 2,100,000 7/19/96 75.00% 1,575,000
89 95.5% 5/13/96 2,500,000 3/27/96 62.00% 1,550,000
90 98.2% 10/10/96 1,891,000 8/1/96 76.15% 1,440,000
<CAPTION>
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
46 3,082,611 3,082,611 8.500% 286,036 111
47 3,051,185 3,051,185 9.250% 315,491 113
48 2,970,731 2,970,731 9.750% 341,466 113
49 2,908,369 2,908,369 9.500% 327,178 116
50 2,907,271 2,907,271 8.875% 321,013 221
51 2,884,186 2,884,186 9.000% 292,040 114
52 2,848,975 2,848,975 9.000% 289,019 112
53 2,842,691 2,842,691 9.375% 284,458 115
54 2,842,418 2,842,418 9.080% 288,881 117
55 2,834,590 2,834,590 8.875% 312,988 221
56 2,824,820 2,824,820 8.500% 261,123 117
57 2,739,265 2,739,265 7.875% 240,578 107
58 2,724,419 2,724,419 8.950% 275,806 110
59 2,660,834 2,660,834 9.300% 275,491 116
60 2,657,141 2,657,141 8.800% 287,357 110
61 2,580,488 2,580,488 9.100% 282,724 235
62 2,576,570 2,576,570 9.125% 283,228 234
63 2,477,571 2,477,571 8.500% 241,568 111
64 2,477,115 2,477,115 8.375% 239,046 111
65 2,343,820 2,343,820 9.150% 239,557 117
66 2,338,325 2,338,325 8.500% 216,834 112
67 2,281,735 2,281,735 9.250% 236,361 291
68 2,279,365 2,279,365 8.500% 222,243 75
69 2,249,236 2,249,236 9.300% 224,093 111
70 2,214,198 2,214,198 7.875% 194,464 107
71 2,207,430 2,207,430 9.000% 273,852 174
72 2,064,691 2,064,691 8.500% 191,460 112
73 2,054,847 2,054,847 9.625% 218,659 114
74 2,046,248 2,046,248 8.500% 189,153 117
75 2,024,617 2,024,617 9.100% 206,099 117
76 1,989,094 1,989,094 9.000% 201,407 114
77 1,944,135 1,944,135 8.750% 239,868 170
78 1,921,477 1,921,477 8.500% 177,619 117
79 1,915,884 1,915,884 7.860% 177,489 73
80 1,893,147 1,893,147 8.625% 177,336 114
81 1,791,512 1,791,512 9.875% 194,379 114
82 1,746,729 1,746,729 8.740% 172,508 118
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
83 1,703,981 1,703,981 9.150% 174,316 116
84 1,692,821 1,692,821 8.625% 158,669 113
85 1,676,295 1,676,295 8.830% 203,647 177
86 1,630,214 1,630,214 8.500% 157,986 117
87 1,580,927 1,580,927 9.250% 175,846 172
88 1,571,236 1,571,236 8.620% 146,935 116
89 1,541,720 1,541,720 9.125% 157,686 114
90 1,435,771 1,435,771 8.480% 138,910 117
<CAPTION>
Loan Remaining Maturity Balloon Mat. Date
Number Am Term (3) Orig Date Date Balance (4) LTV Ratio (5)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
46 351 4/1/96 5/1/06 2,746,679 64.25%
47 293 6/10/96 7/1/06 2,554,520 62.61%
48 233 6/6/96 7/1/06 2,175,992 37.84%
49 236 9/13/96 10/1/06 2,107,061 46.31%
50 221 6/26/95 7/1/15 -
51 294 7/24/96 8/1/06 2,399,439 61.52%
52 292 5/3/96 6/1/06 2,374,615 59.37%
53 355 8/9/96 9/1/06 2,565,505 61.82%
54 297 11/1/96 11/1/06 2,362,383 50.91%
55 221 6/26/95 7/1/15 -
56 357 10/7/96 11/1/06 2,507,452 64.29%
57 347 12/6/95 1/1/06 2,419,297 64.95%
58 290 3/30/96 4/1/06 2,272,714 59.34%
59 296 9/26/96 10/1/06 2,224,163 48.88%
60 230 3/29/96 4/1/06 1,906,622 46.50%
61 235 8/22/96 9/1/16 -
62 234 7/5/96 8/1/16 -
63 291 4/9/96 5/1/06 2,044,264 51.11%
64 291 4/4/96 5/1/06 2,038,060 58.23%
65 297 10/2/96 11/1/06 1,951,025 57.38%
66 352 5/1/96 6/1/06 2,082,159 64.36%
67 291 4/29/96 5/1/21 -
68 291 4/17/96 5/1/03 2,045,400 65.98%
69 351 4/5/96 5/1/06 2,031,792 58.05%
70 347 12/6/95 1/1/06 1,955,560 65.73%
71 173 6/20/96 8/1/11 -
72 352 5/20/96 6/1/06 1,838,502 57.91%
73 294 7/15/96 8/1/06 1,732,452 57.27%
74 357 10/28/96 11/1/06 1,816,352 58.59%
75 297 10/1/96 11/1/06 1,683,446 51.80%
76 294 7/31/96 8/1/06 1,654,784 55.16%
77 170 3/29/96 4/1/11 -
78 357 10/7/96 11/1/06 1,705,598 65.35%
79 289 2/2/96 3/1/03 1,706,921 59.89%
80 354 7/1/96 8/1/06 1,687,466 55.97%
81 294 7/16/96 8/1/06 1,518,155 59.77%
82 298 11/4/96 12/1/06 1,439,205 56.66%
83 296 9/30/96 10/1/06 1,419,682 59.15%
84 353 6/20/96 7/1/06 1,509,838 30.20%
85 177 10/9/96 11/1/11 -
86 297 10/7/96 11/1/06 1,336,949 59.42%
87 232 5/30/96 6/1/11 701,817 25.43%
88 356 9/24/96 10/1/06 1,398,688 66.60%
89 294 7/29/96 8/1/06 1,286,118 51.44%
90 297 10/18/96 11/1/06 1,176,926 62.24%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
46 LO-38,YM1-60,0%-13 Quarterly 349,450 344,086 1.20 5
47 LO-40,YM1-66,0%-7 Quarterly 401,751 394,422 1.25 6
48 LO-40,1%-66,0%-7 Quarterly 419,730 490,168 1.44 6
49 LO-45,YM1-64,0%-7 Quarterly 142,320 241,879 0.74 8
50 LO-64,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-73 Quarterly 465,094 641,395 2.00 6
51 LO-41,YM1-66,0%-7 Quarterly 400,450 356,450 1.22 6
52 LO-39,YM1-66,0%-7 Quarterly 444,975 445,643 1.54 6
53 LO-44,YM1-64,0%-7 Quarterly 426,879 440,688 1.55 6
54 LO-45,YM1-65,0%-7 Quarterly 342,357 379,607 1.31 8
55 LO-64,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-73 Quarterly 525,655 649,694 2.08 6
56 LO-46,YM1-64,0%-7 Quarterly 434,333 453,244 1.74 6
57 LO-34,YM1-60,0%-13 Quarterly 343,813 330,359 1.37 6
58 LO-39,YM1-64,0%-7 Quarterly 463,907 450,300 1.63 6
59 LO-45,YM1-64,0%-7 Quarterly 339,898 369,194 1.34 6
60 LO-39,5%-12,4%-12,3%-12,2%-12,1%-16,0%-7 Quarterly - 568,646 1.98 6
61 LO-79,YM1-149,0%-7 Quarterly 578,836 559,234 1.98 6
62 LO-79,YM1-148,0%-7 Quarterly 415,871 390,859 1.38 6
63 LO-38,YM1-60,0%-13 Quarterly (14) (14) - 5
64 LO-38,YM1-66,0%-7 Quarterly 254,466 387,536 1.62 6
65 LO-46,YM1-64,0%-7 Quarterly - 275,963 1.15 6
66 LO-39,YM1-60,0%-13 Quarterly 284,656 355,816 1.64 9
67 LO-74,YM1-204,0%-13 Quarterly 441,895 452,369 1.91 6
68 LO-14,YM1-54,0%-7 Quarterly 300,286 308,440 1.39 5.4
69 LO-38,YM1-66,0%-7 Quarterly 333,135 401,768 1.79 7
70 LO-34,YM1-60,0%-13 Quarterly 277,894 266,966 1.37 6
71 LO-42,YM1-125,0%-7 Quarterly (9) (9) (9) -
72 LO-39,YM1-66,0%-7 Quarterly 304,278 279,414 1.46 9
73 LO-43,YM1-64,0%-7 Quarterly 295,899 302,956 1.39 6
74 LO-44,YM1-66,0%-7 Quarterly 266,286 283,496 1.50 5
75 LO-46,YM1-64,0%-7 Quarterly 170,175 210,866 1.02 6
76 LO-41,YM1-66,0%-7 Quarterly 220,943 277,271 1.38 9
77 LO-73,YM1-84,0%-13 Quarterly 373,097 364,831 1.52 6
78 LO-46,YM1-64,0%-7 Quarterly 338,550 292,120 1.64 6
79 YM1-66,0%-7 Quarterly 210,570 247,252 1.39 6
80 LO-41,YM1-60,0%-13 Quarterly 303,705 281,725 1.59 6
81 LO-43,YM1-64,0%-7 Quarterly 222,410 277,794 1.43 6
82 LO-45,YM1-66,0%-7 Quarterly 236,402 259,973 1.51 9
83 LO-45,YM1-64,0%-7 Quarterly 216,253 229,663 1.32 6
84 LO-40,YM1-60,0%-13 Quarterly 266,764 438,948 2.77 6
85 LO-81,YM1-89,0%-7 Quarterly 307,560 383,589 1.88 7
86 LO-46,YM1-64,0%-7 Quarterly 257,428 271,300 1.72 6
87 LO-75,YM1-90,0%-7 Quarterly 246,155 293,367 1.67 6
88 LO-43,YM1-60,0%-13 Quarterly - - - 12
89 LO-43,YM1-64,0%-7 Quarterly 124,106 171,965 1.09 9
90 LO-44,YM1-60,0%-13 Quarterly 209,613 200,976 1.45 9
<CAPTION>
Loan 96 End 96 NOI 96
Number Date (7)(8) DSCR
- ----------------------------------------------------
<S> <C> <C> <C>
46 09/01/1996 174,291 1.46
47 06/30/1996 206,914 1.31
48 06/01/1996 371,192 2.17
49 08/31/1996 303,018 1.39
50 06/01/1996 406,482 2.53
51 06/30/1996 190,752 1.31
52 06/30/1996 237,159 1.64
53 06/30/1996 197,297 1.39
54 08/31/1996 305,257 1.59
55 06/01/1996 328,938 2.10
56 06/01/1996 202,324 1.55
57 06/30/1996 153,702 1.28
58 06/01/1996 195,564 1.42
59 06/30/1996 253,006 1.84
60 06/30/1996 265,000 1.84
61 06/30/1996 307,453 2.17
62 06/30/1996 147,954 1.04
63 06/30/1996 149,943 1.49
64 06/30/1996 205,114 1.72
65 06/30/1996 166,401 1.39
66 09/30/1996 170,690 1.05
67 06/30/1996 207,254 1.75
68 09/30/1996 114,103 1.14
69 07/31/1996 224,668 1.72
70 06/30/1996 124,229 1.28
71 751,266(9) 2.74 (9)
72 09/30/1996 188,670 1.31
73 06/30/1996 159,083 1.46
74 05/01/1996 123,100 1.56
75 06/30/1996 109,148 1.06
76 09/01/1996 204,881 1.36
77 06/30/1996 138,858 1.16
78 06/30/1996 123,140 1.39
79 06/01/1996 128,556 1.45
80 06/30/1996 162,558 1.83
81 06/30/1996 135,192 1.39
82 09/01/1996 194,685 1.50
83 06/30/1996 149,976 1.72
84 06/30/1996 163,756 2.06
85 07/01/1996 247,521 2.08
86 06/30/1996 126,817 1.61
87 06/30/1996 172,749 1.96
88 07/31/1996 246,602 1.68
89 09/30/1996 140,355 1.19
90 09/30/1996 143,379 1.38
<CAPTION>
Upfront Reserves
-----------------------------------------------------------------
Repair &
Loan Number Remediation TI/LC P&I Environmental Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
46 38,532 - - - 38,532
47 308,375 - - - 308,375
48 60,650 - - - 60,650
49 75,375 - - - 75,375
50 57,500 - - - 57,500
51 171,570 - - - 171,570
52 - - - - -
53 - - - - -
54 - - - - -
55 51,000 - - - 51,000
56 30,000 - - - 30,000
57 - - - 9,255 9,255
58 43,500 - - - 43,500
59 - 20,000 - - 20,000
60 39,600 - - - 39,600
61 37,431 - 70,681 - 108,112
62 50,124 25,000 - - 75,124
63 - - - - -
64 10,213 - - - 10,213
65 - 250,000 - 7,400 257,400
66 20,988 - - - 20,988
67 25,000 - - - 25,000
68 110,313 - - - 110,313
69 8,900 - - - 8,900
70 - - - 8,475 8,475
71 4,063 - - 13,500 17,563
72 50,000 - - - 50,000
73 - - - - -
74 58,500 - - - 58,500
75 - 60,200 - - 60,200
76 12,500 - - - 12,500
77 60,000 - - - 60,000
78 25,000 - - - 25,000
79 36,184 - - - 36,184
80 - - - - -
81 - - - - -
82 24,750 - - - 24,750
83 - 12,000 - - 12,000
84 - - - - -
85 18,030 - - - 18,030
86 35,000 - - - 35,000
87 - - - - -
88 30,000 - - - 30,000
89 7,188 - - - 7,188
90 5,840 - - 2,080 7,920
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ongoing Monthly Reserves
-------------------------------------------------------------------------------------------------------
Loan Number Replacement Taxes Insurance TI/LC Originator Servicer
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
46 - ** - - H B
47 2,988 ** * - A A
48 6,583 ** * - B B
49 5,382 ** * - HC B
50 5,667 ** - - A A
51 3,300 ** * - N B
52 495 ** - 3,500 N B
53 1,002 ** - 2,042 B B
54 5,146 ** * - M B
55 9,544 ** - - A A
56 2,760 ** * - N B
57 - ** - - H G
58 1,442 ** * 3,350 A A
59 1,408 ** - 4,626 M B
60 (11) ** - - A A
61 2,063 ** - - J B
62 5,658 ** * 2,800 (13) A A
63 - ** - - H B
64 6,083 ** * - A A
65 1,044 ** - 4,248 M B
66 - ** - - H B
67 2,084 ** - 3,208 H B
68 - ** * - J B
69 2,522 ** * 2,634 A A
70 - ** - - H G
71 413 ** * - A A
72 1,458 ** - - H B
73 407 ** * 1,671 A A
74 - ** - - J B
75 992 ** - 3,975 M B
76 - ** - - J B
77 - ** - 2,333 H B
78 3,401 ** * - N B
79 1,745 ** * - HC G
80 - ** - - H B
81 1,507 ** * - A A
82 - ** - 1,250 J B
83 539 ** - 1,674 M B
84 - ** - - H B
85 - ** - - J B
86 2,092 ** * - N B
87 792 ** * - B B
88 1,685 ** - - H B
89 1,119 ** - - A A
90 1,190 ** - - H B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan
Number Property Name Property Address Property City
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
91 Hidden Village Apartments 1200 Aquarena Springs Drive San Marcos
92 Plantation Village Corporate Park 457 This Way Street Lake Jackson
93 Lantana Apartments 1802 West Avenue Austin
94 Woodbridge Apartments 585 Rahway Avenue Woodbridge
95 Allegheny Apartments 11970 - 11980 Allegheny Street Los Angeles
96 Edgemont Court Apartments 1603 N. Edgemont Street Los Angeles
97 Ridge Route II 31727 Ridge Route Road Los Angeles
98 Parkwood Place Apartments 2716 Parkwood Drive Huntsville
99 The Schuyler Apartments 275 South Church Street Spartanburg
100 The Comfort Inn 4760 Sherwood Lane Houston
101 Power Inn Business Park 4225-4275 Power Inn Road Sacramento
102 Crosspoint Plaza Shopping Center 2011 W. Spring Street Plano
103 Crystal Springs Manor 7603-7629 Franklin Blvd. Sacramento
104 Cozy Villa Apartments 2418-2420 Huntington Street Huntington Beach
105 Belleville Apartments 560 Washington Avenue Belleville
106 Chestnut Street Apartments 304 Chestnut Street Roselle Park
CROWN PROPERTIES (15)
107 Comfort Inn - Atlanta 101 International Blvd. Atlanta
108 Holiday Inn - York 200 Loucks Road York
109 Holiday Inn - Frederick 5400 Holiday Inn Drive Frederick
110 Holiday Inn - Charlotte 8520 University Executive Park Charlotte
111 Holiday Inn - Uniontown 700 West Main Street Uniontown
112 Holiday Inn - Johnstown 250 Market Street Johnstown
113 Holiday Inn - Indiana Route 119 & Indian Springs Road Indiana
114 Comfort Inns - Asheville 890 Brevard Road Asheville
115 Best Western - Raleigh 4620 South Miami Blvd. Durham
116 Comfort Inn - Newport 12330 Jefferson Avenue Newport News
117 Comfort Inn - Pottstown Route 100 and Shoemaker Road Pottstown
118 Super 8 - Frederick 5579 Spectrum Avenue Federick
119 Best Western Crowne Park - Harrisburg 765 Eisenhower Blvd. Harrisburg
120 Comfort Inn - Harrisburg 4021 Union Deposit Road Harrisburg
121 Comfort Inn - Macon 2690 Riverside Drive Macon
122 Comfort Inn - Oakridge 433 S. Rutgers Avenue Oak Ridge
123 Holiday Inn - Clarion Route 68 and I80 (Exit 9) Clarion
124 Marriot Courtyard 3327 Street Road Bensalem
125 Holiday Inn Express - Johnstown 1440 Scalp Avenue (Route 56) Johnstown
126 Holiday Inn - Beaver Falls Route 18 North Beaver Falls
127 Holiday Inn - Cumberland 100 South George Street Cumberland
CROWN TOTALS (15)
<CAPTION>
Year # of Units/
Loan Prop Anchor Year Renovated Sq. Ft.
Number State Property Type Anchor Sq. Ft. Built (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
91 TX Multifamily 1975 1994 81
92 TX Office 1986 38,069
93 TX Multifamily 1962 1995 50
94 NJ Multifamily 1950 1995 52
95 CA Multifamily 1986 1995 58
96 CA Multifamily 1990 34
97 CA Multifamily 1984 46
98 TX Multifamily 1972 99
99 SC Multifamily 1951 1994 90
100 TX Hotel 1994 46
101 CA Industrial 1976 49,600
102 TX Retail 1984 38,349
103 CA Multifamily 1978 1994 80
104 CA Multifamily 1988 21
105 NJ Multifamily 1917 1995 42
106 NJ Multifamily 1950 1995 29
CROWN PROPERTIES (15)
107 GA Hotel 1987 260
108 PA Hotel 1982 1990 181
109 MD Hotel 1980 155
110 NC Hotel 1990 177
111 PA Hotel 1968 1993 180
112 PA Hotel 1973 1991 164
113 PA Hotel 1965 1990 159
114 NC Hotel 1989 125
115 NC Hotel 1990 177
116 VA Hotel 1988 125
117 PA Hotel 1989 121
118 MD Hotel 1986 104
119 PA Hotel 1988 1990 167
120 PA Hotel 1990 116
121 GA Hotel 1988 120
122 TN Hotel 1989 122
123 PA Hotel 1976 1986 122
124 PA Hotel 1988 1991 167
125 PA Hotel 1988 105
126 PA Hotel 1966 1991 156
127 MD Hotel 1972 1986 130
CROWN TOTALS (15)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Occupancy Occupancy Appraised Appraisal Original Original
Number Percentage as of Date Value Date LTV Ratio Balance
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
91 98.0% 9/30/96 2,300,000 03/14/96 60.22 1,385,000
92 93.3% 9/30/96 1,900,000 02/21/96 73.03 1,387,500
93 100.0% 9/30/96 1,750,000 06/14/96 77.14 1,350,000
94 98.0% 8/16/96 1,900,000 12/21/95 71.05 1,350,000
95 96.6% 7/1/96 1,780,000 05/08/96 75.00 1,335,000
96 91.0% 10/10/96 1,610,000 05/28/96 76.40 1,230,000
97 89.1% 9/1/96 1,530,000 04/24/96 78.43 1,200,000
98 93.9% 10/4/96 1,900,000 05/02/96 60.53 1,150,000
99 91.0% 7/1/96 2,300,000 04/04/96 50.00 1,150,000
100 86.0% 9/95-8/96 avg. 2,100,000 08/01/96 54.76 1,150,000
101 100.0% 7/25/96 1,660,000 02/07/96 66.27 1,100,000
102 74.0% 6/26/96 2,300,000 02/08/96 47.39 1,090,000
103 94.9% 9/1/96 1,415,000 01/16/96 74.91 1,060,000
104 100.0% 8/1/96 1,820,000 03/26/96 54.95 1,000,000
105 97.6% 8/16/96 1,200,000 01/11/96 62.50 750,000
106 100.0% 8/16/96 975,000 01/10/96 66.67 650,000
CROWN PROPERTIES (15)
<CAPTION>
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
91 1,378,688 1,378,688 8.960% 139,020 115
92 1,375,210 1,375,210 9.250% 142,588 110
93 1,346,176 1,346,176 8.700% 132,637 117
94 1,336,221 1,336,221 8.375% 129,085 110
95 1,331,002 1,331,002 8.625% 124,602 115
96 1,225,976 1,225,976 9.100% 119,826 114
97 1,193,859 1,193,859 8.250% 113,537 115
98 1,146,874 1,146,874 8.950% 115,337 177
99 1,139,637 1,139,637 9.125% 125,274 234
100 1,138,265 1,138,265 9.520% 144,270 176
101 1,092,880 1,092,880 9.750% 117,630 112
102 1,080,146 1,080,146 9.125% 110,889 110
103 1,051,408 1,051,408 9.125% 107,837 111
104 994,547 994,547 9.000% 100,704 294
105 742,190 742,190 8.250% 70,961 110
106 643,231 643,231 8.250% 61,499 110
CROWN PROPERTIES (15)
<CAPTION>
Remaining Ballon Mat. Date
Loan Am Term Orig Maturity Balance LTV Ratio
Number (3) Date Date (4) (5)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
91 295 08/23/96 09/01/06 1,144,884 49.78%
92 290 03/29/96 04/01/06 1,154,526 60.76%
93 297 10/22/96 11/01/06 1,109,195 63.38%
94 290 03/29/96 04/01/06 1,100,552 57.92%
95 355 08/01/96 09/01/06 1,185,666 66.61%
96 354 07/17/96 08/01/06 1,101,947 68.44%
97 295 08/12/96 09/01/06 975,260 63.74%
98 297 10/18/96 11/01/11 760,366 40.02%
99 234 07/30/96 08/01/16 -
100 176 10/01/96 10/01/11 -
101 292 05/10/96 06/01/06 925,322 55.74%
102 290 03/28/96 04/01/06 904,432 39.32%
103 291 04/01/96 05/01/06 879,537 62.16%
104 294 07/18/96 08/01/21 -
105 290 03/29/96 04/01/06 609,537 50.79%
106 290 03/29/96 04/01/06 528,266 54.18%
CROWN PROPERTIES (15)
<CAPTION>
Loan Occupancy Occupancy Appraised Appraisal Original Original
Number Percentage as of Date Value Date LTV Ratio Balance
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
107 63.6% 2/96 - 8/96 avg. 16,500,000 01/01/95 47.90 7,903,000
108 72.1% 2/96 - 8/96 avg. 9,400,000 01/01/95 53.54 5,033,000
109 81.2% 2/96 - 8/96 avg. 9,000,000 01/01/95 55.37 4,983,000
110 72.4% 2/96 - 8/96 avg. 8,400,000 01/01/95 55.57 4,668,000
111 69.0% 2/96 - 8/96 avg. 8,100,000 01/01/95 55.41 4,488,000
112 64.2% 2/96 - 8/96 avg. 8,400,000 01/01/95 53.06 4,457,000
113 67.8% 2/96 - 8/96 avg. 6,900,000 01/01/95 59.23 4,087,000
114 84.5% 2/96 - 8/96 avg. 6,100,000 01/01/95 65.16 3,975,000
115 77.9% 2/96 - 8/96 avg. 7,200,000 01/01/95 54.86 3,950,000
116 88.8% 2/96 - 8/96 avg. 7,200,000 01/01/95 50.22 3,616,000
117 82.6% 2/96 - 8/96 avg. 6,000,000 01/01/95 53.07 3,184,000
118 71.2% 2/96 - 8/96 avg. 5,300,000 01/01/95 54.81 2,905,000
119 84.0% 2/96 - 8/96 avg. 5,000,000 01/01/95 54.36 2,718,000
120 83.9% 2/96 - 8/96 avg. 4,600,000 01/01/95 55.15 2,537,000
121 86.2% 2/96 - 8/96 avg. 4,100,000 01/01/95 61.73 2,531,000
122 78.5% 2/96 - 8/96 avg. 5,100,000 01/01/95 49.53 2,526,000
123 67.9% 2/96 - 8/96 avg. 4,200,000 01/01/95 58.50 2,457,000
124 76.1% 2/96 - 8/96 avg. 5,000,000 01/01/95 44.60 2,230,000
125 62.2% 2/96 - 8/96 avg. 3,600,000 01/01/95 53.78 1,936,000
126 65.9% 2/96 - 8/96 avg. 4,200,000 01/01/95 45.81 1,924,000
127 85.5% 2/96 - 8/96 avg. 3,300,000 01/01/95 36.85 1,216,000
CROWN TOTALS (15) 137,600,000 01/01/95 73,324,000
<CAPTION>
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
107 7,790,773 2,441,813
108 4,961,529 1,555,061
109 4,912,239 1,539,612
110 4,601,712 1,442,286
111 4,424,268 1,386,671
112 4,393,708 1,377,093
113 4,028,963 1,262,773
114 3,918,553 1,228,168
115 3,893,908 1,220,443
116 3,564,651 1,117,246
117 3,138,785 983,770
118 2,863,747 897,566
119 2,679,403 839,789
120 2,500,973 783,864
121 2,495,058 782,011
122 2,490,129 780,466
123 2,422,109 759,147
124 2,198,333 689,010
125 1,908,508 598,172
126 1,896,678 594,464
127 1,198,732 375,711
CROWN TOTALS (15) 72,282,758 22,655,134 9.820% 7,884,173 99
<CAPTION>
Remaining Ballon Mat. Date
Loan Am Term Orig Maturity Balance LTV Ratio
Number (3) Date Date (4) (5)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN TOTALS (15) 296 04/24/95 04/30/05 63,516,593 46.16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Prepayment
Loan Provisions Required 94 NOI 95 NOI 96
Number (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
91 LO-44,YM1-22,0%-49 Quarterly 147,552 208,521 1.50 9
92 LO-37,YM1-66,0%-7 Quarterly 220,531 259,964 1.82 6
93 LO-46,YM1-64,0%-7 Quarterly - 221,959(8) 1.67 5
94 LO-37,YM1-66,0%-7 Quarterly 133,232 197,165 1.53 6
95 LO-42,YM1-60,0%-13 Quarterly - 206,230 1.66 6
96 LO-41,YM1-60,0%-13 Quarterly - - - 2.4
97 LO-42,YM1-60,0%-13 Quarterly 184,992 198,903 1.75 6
98 LO-82,YM1-88,0%-7 Quarterly 159,327 186,653 1.62 7
99 LO-77,YM1-150,0%-7 Quarterly 115,942 174,952 1.40 6
100 LO-80,YM1-89,0%-7 Quarterly - - - 12
101 LO-39,YM1-66,0%-7 Quarterly 203,440 194,010 1.65 6
102 LO-39,YM1-64,0%-7 Quarterly 195,625 209,292 1.89 6
103 LO-38,YM1-60,0%-13 Quarterly - 114,871 1.07 9
104 LO-77,YM1-204,0%-13 Quarterly 150,519 158,891 1.58 9
105 LO-37,YM1-66,0%-7 Quarterly 91,953 119,147 1.68 6
106 LO-37,YM1-66,0%-7 Quarterly 65,672 105,462 1.71 6
CROWN PROPERTIES (15)
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
- ------------------------------------------------------
<S> <C> <C> <C>
91 9/1/96 195,993 1.88
92 9/30/96 142,626 2.00
93 5/1/96 106,381 1.92
94 6/30/96 95,106 1.47
95 6/1/96 113,157 1.82
96 9/1/96 50,562 2.11
97 6/30/96 103,669 1.83
98 7/31/96 84,229 1.25
99 6/1/96 87,442 1.40
100 6/30/96 274,237 1.90
101 6/1/96 97,640 1.66
102 6/25/96 109,191 1.97
103 9/30/96 21,493 0.27
104 9/1/96 119,875 1.59
105 6/30/96 59,450 1.68
106 6/30/96 56,166 1.83
CROWN PROPERTIES(15)
<CAPTION>
Upfront Reserves
------------------------------------------------------------
Loan Repair & Environ-
Number Remediation TI/LC P&I mental Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
91 89,154 - - - 89,154
92 7,450 150,000 - - 157,450
93 24,375 - - - 24,375
94 35,538 - - 10,500 46,038
95 43,965 - - - 43,965
96 1,663 - - - 1,663
97 - - - - -
98 4,848 - - - 4,848
99 50,000 - - - 50,000
100 10,719 - - - 10,719
101 33,225 9,000 - - 42,225
102 3,785 10,252 - - 14,037
103 77,738 - - - 77,738
104 - - - - -
105 12,075 - - 10,500 22,575
106 21,750 - - 9,000 30,750
CROWN PROPERTIES(15)
<CAPTION> Prepayment
Loan Provisions Required 94 NOI 95 NOI 96
Number (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN TOTALS (15) LO-27,3%-24,2%-24,1%-24 Monthly 12,762,101 13,857,021 1.76 7
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
- ----------------------------------------------------
<S> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN TOTALS(15) 8/1/96 10,484,945 2.28
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------
Loan Repair & Environ-
Number Remediation TI/LC P&I mental Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN TOTALS(15) 869,515 - - - 869,515
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ongoing Monthly Reserves
---------------------------------------------------------------------
Loan Number Replacement Taxes Insurance TI/LC Originator Servicer
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
91 1,504 ** * - A A
92 476 ** * 3,750 B B
93 972 ** * - B B
94 - ** * - MB B
95 367 ** - - H B
96 - ** - - H B
97 - ** - - H B
98 2,167 ** * - B B
99 1,688 ** * - A A
100 - ** - - J B
101 267 ** * - N B
102 1,172 ** * 2,563 A A
103 1,380 ** - - H B
104 - ** - - H B
105 - ** * - MB B
106 - ** * - MB B
CROWN PROPERTIES(15)
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN TOTALS(15) 352,411(16) ** - - A B
</TABLE>
<PAGE>
- ----------------------------
(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, cooperative / vacation homes, and
self storage properties and square feet for all other properties.
(3) Number of months required to fully amortize the Cut-off Date Balance using
current payment amount and mortgage interest rate.
(4) 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 the table entitled "Balloon
Mortgage Loans Remaining Amortization Term" in "Description of the Mortgage
Pool--Certain Characteristics of the Mortgage Loans."
(5) 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.
(6) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM1 = greater of 1%
or Yield Maintenance, YM2 = greater of 1% or Yield Maintenance calculated
based on a discount rate equal to 50 basis points over the U.S. Treasury
rate specified therein; Example: LO-45, YM1-12, 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%, 1%, respectively, of amount prepaid followed
by a 3 month period where there is no Prepayment Premium. See the table
entitled "Prepayment Lock-out/Prepayment Premium Analysis Percentage of
Mortgage Loans by Outstanding Principal Balance as of the Date Indicated
Assuming No Prepayments" in "Description of the Mortgage Pool--Certain
Characteristics of the Mortgage Loans."
(7) 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 commission and
similar items.
(8) Net operating Income represents in the case of 1994 and 1995 NOI,
operating income based on a 12 month fiscal operating statement, except for
loan numbers 42 and 93 for which 1995 NOI is annualized based on a 8 month
and 10 month operating statement, respectively; in the case of 1996 NOI,
operating income is based on the number of months specified in the "96
Months" column.
(9) Property is owned by a cooperative corporation. 1994 NOI and 1995
NOI are $258,423 and $293,629, respectively, resulting in a 1995 DSCR of
1.07x, 1996 NOI and 1996 DSCR set forth herein are based on the appraisal
obtained in connection with the origination of the related note. The
partial year (6 months) 1996 NOI and 1996 DSCR reported by the Mortgagor
were $134,422 and 0.98x, respectively.
(10) Upfront TI/LC Reserve is in the form of a Letter of Credit.
(11) A monthly replacement reserve of $1,657 is collected when the upfront
replacement reserve balance falls below the initial amount.
(12) A monthly TI/LC reserve of $4,743 is collected when the upfront TI/LC
reserve balance falls below the initial amount.
(13) The TI/LC monthly reserve will increase to $6,134 commencing July 1, 1997.
(14) This property underwent substantial renovation throughout part of 1994 and
1995 due to an earthquake in 1994. 1994 NOI reported by the Mortgagor was
$(14,550); no operating statement for 1995 was obtained.
(15) Except for the Cut-off Balance, all amounts and terms were calculated based
on a 100% participation interest in the Crown Hotel Notes.
(16) Represents average monthly amount. See "Description of the Mortgage
Pool--The Crown Participation--Reserves."
* = 1/12 of Annual Amount.
** = 1/12 of Annual Taxes.
Key for Originator and Servicer: A: AMRESCO Capital Corporation B: BOMCC
G: GMAC H: Home Savings of America, FSB HC: Hanover Capital Mortgage
Corporation J: John Hancock Real Estate Finance, Inc. M: MGT MB:
Midlantic Bank N: Norwest Bank Minnesota U: First Union.
<PAGE>
FORM OF MONTHLY REPORTS N ANNEX B
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Report to Certificateholders
Quick Reference
<TABLE>
<CAPTION>
Scheduled
Beginning Principal Ending
Balance Certificate Interest Distribution Principal Interest Balance
Class Factor Rate Type Percentages Distribution Distribution Factors
---- ---------- ----------- -------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
A1
A2
A3
B
C
D
E
X
F
G
NR
R-I
R-II
R-III
Total
</TABLE>
Payment Summary
<TABLE>
<CAPTION>
Principal Principal Interest Interest Total
Class Payable Adjustments Payable Adjustments Payable
----- ---------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
A1
A2
A3
B
C
D
E
X
F
G
NR
R-I
R-II
R-III
Total
</TABLE>
B-1
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Report to Certificateholders (Continued)
Principal Distribution Detail
<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>
A1
A2
A3
B
C
D
E
X
F
G
NR
R-I
R-II
R-III
Total
</TABLE>
Interest Distribution Detail
<TABLE>
<CAPTION>
Distribution
Certificate Unpaid
Accrued Prepayment Prepayment Interest Distribution Distribution
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>
A1
A2
A3
B
C
D
E
X
F
G
NR
R-I
R-II
R-III
Total
</TABLE>
B-2
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Report to Certificateholders (Continued)
Fees and Advances
Special
Servicing Servicing Current Cumulative Reimbursement
Class Fees Fees Advances Advances on Advances
- ------ --------- --------- -------- ---------- -------------
A1
A2
A3
B
C
D
E
X
F
G
NR
R-I
R-II
R-III
Total
B-3
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Portfolio Summary Statistics
<TABLE>
<CAPTION>
Wtd Avg Wtd Avg
Percent Percent of Rem Rem
Average of At At Wtd Months Months Wtd Wtd Avg
Number Current Current Current Issue Issue Avg To To Avg Amortized
of Loans Balance Balance Balance Balance Balance Coupon(1) Maturity(1) Amortize(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ------- ------- --------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <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.
Gross Coupons
7.50% - 7.75%
7.76% - 8.00%
8.01% - 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%
10.01% - 10.25%
10.26% - 10.50%
10.51% - 10.75%
Property Types
Multi-Family
Retail - with anchor
tenant
Retail - without
anchor tenant
Hotel
Nursing Home
Office
Industrial
Mobile Home Park
Self Storage
Cooperative / Vacation Homes
B-4
<PAGE>
<TABLE>
<CAPTION>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Portfolio Summary Statistics (Continued)
Wtd Avg Wtd Avg
Average Percent of At Percent of Rem Months Rem Months Wtd Avg
Number Current Current Current Issue At Issue Wtd Avg To To Wtd Avg Amortized
of Loans Balance Balance Balance Balance Balance Coupon(1) Maturity(1) Amortize(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ------- ------- ------- --------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Months to Maturity
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.
Current Balances
$1,000,001 - 2,000,000
$2,000,001 - 3,000,000
$3,000,001 - 4,000,000
$4,000,001 - 5,000,000
$5,000,001 - 6,000,000
$6,000,001 - 7,000,000
$7,000,001 - 8,000,000
$8,000,001 - 9,000,000
$9,000,001 - 10,000,000
$10,000,001 - 11,000,000
$11,000,001 - 12,000,000
$12,000,001 - 13,000,000
Over $13,000,000
Amortized LTV
50.00% or less
50.01% - 55.00%
55.01% - 60.00%
60.01% - 65.00%
65.01% - 70.00%
70.01% - 75.00%
B-5
<PAGE>
<TABLE>
<CAPTION>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Portfolio Summary Statistics (Continued)
Wtd Avg Wtd Avg
Average Percent of At Percent of Rem Months Rem Months Wtd Avg
Number Current Current Current Issue At Issue Wtd Avg To To Wtd Avg Amortized
of Loans Balance Balance Balance Balance Balance Coupon(1) Maturity(1) Amortize(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ------- ------- ------- --------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State
Arizona
California
Colorado
Florida
Georgia
Illinois
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Nevada
New Jersey
New York
N. Carolina
Oklahoma
Pennsylvania
S. Carolina
S. Dakota
Tennessee
Texas
Virginia
Wisconsin
</TABLE>
(1) Weighted averages based on the current principal balance.
(2) DSCR based on most current available information.
Debt Service Coverage
1.901x - 2.000x
1.801x - 1.900x
1.701x - 1.800x
1.601x - 1.700x
1.501x - 1.600x
1.401x - 1.500x
1.301x - 1.400x
1.251x - 1.300x
1.200x - 1.250x
Under 1.200x
Not available
B-6
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Portfolio Summary Statistics (Continued)
<TABLE>
<CAPTION>
Wtd Avg Wtd Avg
Average Percent of At Percent of Rem Months Rem Months Wtd Avg
Number Current Current Current Issue At Issue Wtd Avg To To Wtd Avg Amortized
of Loans Balance Balance Balance Balance Balance Coupon(1) Maturity(1) Amortize(1) DSCR(1)(2) LTV(1)(2)
-------- ------- ------- ------- ------- ------- --------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property Age (In Years)
Under 5
6 - 10
11 - 15
16 - 20
21 - 25
26 - 30
Over 30
Current Delinquency Status
31 - 60 Days
61 - 90 Days
91 - 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>
<TABLE>
<CAPTION>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Portfolio Summary Statistics (Continued)
Delinquency Trend
Current and Each Current 31-60 61-90 91-180 Over 180 Foreclosure REO
Prior Days Days Days Days
Distribution Date -------- ------ ----- ------ --------- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ % # $ % # $ % # $ % # $ % # $ % # $ % #
</TABLE>
<TABLE>
<CAPTION>
Prepayment Penalty
Current +1 Year +2 Years +3 Years +4 Years +5 Years
------- ------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
L/O
YM
5%
4%
3%
2%
1%
None
</TABLE>
Stated as a Percentage of Current Principal Outstanding
B-8
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Portfolio Summary Statistics (Continued)
<TABLE>
<CAPTION>
Occupancy
Average Occupancy Most Percent of
Per Most Recent Recent Current Current
Property Type Rent Roll Avg Rent Balance Balance
- ------------- ----------------- -------- ------- ----------
<S> <C> <C> <C> <C>
Multi-Family
Retail - with anchor
tenant
Retail - without
anchor tenant
Hotel
Nursing Home
Office
Industrial
Mobile Home Park
Self Storage
Cooperative/Vacation Homes
Loan Payoff/Property Disposal Detail
</TABLE>
<TABLE>
<CAPTION>
Disposal Proceeds
Payoff/ Nature of Payoff/ Payoff/ Reimbursable To
Disposition Payoff/ Disposition Disposition Servicer (Unpaid Fees, Realized
Property Type Date Disposition Balance Proceeds Advances, Interest) Loss
- ------------- ----------- ----------- ----------- ----------- ---------------------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
B-9
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
Payment Date:
Collateral Performance Report (1)(2)
<TABLE>
<CAPTION>
Date of
Fiscal Fiscal
Number Net Year End Year End
Loan Number Property Name Type City State Zip of Units Sq Feet DSCR DSCR
- ----------- ------------- ---- ---- ----- --- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Date of Date of
Trailing Fiscal Year Fiscal Year Date of Date of
Trailing 12 12 End Annual End Annual Trailing 12 Trailing 12 Effective Effective Date of
DSCR DSCR NOI NOI NOI NOI Gross Income Gross Income Occupancy Occupancy
- ----------- -------- ----------- ----------- ----------- ----------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</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.
Portfolio Loan Characteristics
<TABLE>
<CAPTION>
Beginning Ending
Scheduled Scheduled
Principal Principal Paid To Days Past Months to Remaining Gross Service Trustee Net
Loan Number Balance Balance Date Due Maturity Amort. Terms Coupon Fee Rate Fee Rate Coupon
- ----------- --------- --------- ------- --------- --------- ------------ ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-10
<PAGE>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
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>
J.P. Morgan Commercial Mortgage Finance Corp.
Mortgage Pass-Through Certificates
Series 1997-C4
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 PurchaserOs Name(s)
Asset Officer
Asset Officer Phone Number
COMMENTS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-12
<PAGE>
ANNEX C
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered J.P. Morgan
Commercial Mortgage Finance Corp. Mortgage Pass-Through Certificates, Series
1997-C4 (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in sameday funds. Capitalized
terms used but not defined in this Annex I have the meanings assigned to them
in the Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues of pass-through
certificates. Investors' securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to similar issues
of pass-through certificates in same-day funds.
C-1
<PAGE>
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the ease may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date. Payment will then be made by the
respective Depositary to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or
Euroclear Participant's account. The Global Securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment
will then be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-
valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i e., the
trade fails), receipt of the
C-2
<PAGE>
cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use CEDEL or Euroclear and that purchase Global Securities from DTC
Participants for delivery to CEDEL Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A Beneficial Owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business in the chain of intermediaries between such Beneficial Owner
and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial Owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Beneficial Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership,~ Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Beneficial Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
C-3
<PAGE>
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust. This summary does not deal
with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
C-4
<PAGE>
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 AC-
CURACY 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.
JANUARY 17, 1997
<PAGE>
(continued from the preceding page)
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............................................................... 13
Description of the Trust Funds............................................. 20
Use of Proceeds............................................................ 26
Yield Considerations....................................................... 26
The Depositor.............................................................. 30
Description of the Certificates............................................ 30
Description of the Agreements.............................................. 38
Description of Credit Support.............................................. 53
Certain Legal Aspects of the Mortgage Loans and the Leases................. 56
Certain Federal Income Tax Consequences.................................... 71
State Tax Considerations................................................... 96
ERISA Considerations....................................................... 96
Legal Investment........................................................... 98
Plan of Distribution....................................................... 99
Legal Matters.............................................................. 100
Financial Information...................................................... 100
Rating..................................................................... 100
Index of Principal Definitions............................................. 101
</TABLE>
2
<PAGE>
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. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
J.P. Morgan Commercial Mortgage Finance Corp., that file electronically with
the Commission.
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,
3
<PAGE>
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 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>
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
5
<PAGE>
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-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
6
<PAGE>
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 Each Trust Fund will include one or more accounts
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 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
7
<PAGE>
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 Each Series of Certificates evidencing an interest in
Certificates............ 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
evidencing 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 Each Series of Certificates will consist of one or
Certificates............ 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,
8
<PAGE>
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 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
9
<PAGE>
"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 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 If so provided in the related Prospectus Supplement,
Certificates............ 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 The Certificates of each Series will constitute
Certificates............ either (i) "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC
10
<PAGE>
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)
"loans" within the meaning of the assets described in
section 7701(a)(19)(C) of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii) "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 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
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<PAGE>
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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<PAGE>
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 the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
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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. 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
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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.
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.
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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."
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
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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 in excess of the levels contemplated by such Rating Agency at
the time of its initial rating analysis. None of the Depositor, the
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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 Agreements--Events of Default," "--Rights Upon Event of
Default," "--Amendment" and "--List of Certificateholders."
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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 District of
Columbia or the Commonwealth of Puerto Rico. To the extent specified in the
related Prospectus Supplement, the Mortgage
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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
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Balloon Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to 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
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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 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
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(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 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
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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."
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.
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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 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.
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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.
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.
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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 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
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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.
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
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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 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.
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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
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
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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.
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
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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 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;
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(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;
(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
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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 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.
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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 ("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
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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.
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
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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 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.
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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.
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.
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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.
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
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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 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
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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.
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.
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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.
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
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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,
(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
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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 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."
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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.
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
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(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 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
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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 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.
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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 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
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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 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.
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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.
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
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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.
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,
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(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.
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
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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 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.
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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
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
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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.
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.
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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 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
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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, 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
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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 "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.
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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.
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.
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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-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
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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 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
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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 of
any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus
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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.
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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 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 protections afforded 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
assessments, 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
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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
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 and 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.
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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 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.
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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.
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.
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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 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 llp, 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 llp 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 llp 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 llp 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 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
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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
(iii) 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).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
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.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable Bond
Premium Regulations") dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
Section 1272(a)(6) such as the Securities. Absent further guidance from the
IRS, the Trustee intends to account for amortizable bond premium in the manner
described above. Prospective purchasers of the Securities should consult their
tax advisors regarding the possible application of the Amortizable Bond
Premium Regulations.
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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 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
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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 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
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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.
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 "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
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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 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
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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 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.
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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
restrictions apply to Mortgage Assets of where the Mortgagor is not a natural
person in order to qualify for the exemption from withholding.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
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 llp
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
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("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
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
Code Section 856(c)(6)(B); and (iii) 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 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 llp, 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) "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code; (ii) "loans secured by
an interest in real property" under Section 7701(a)(19)(C) of the Code; and
(iii) whether the income on such Certificates is interest described in Section
856(c)(3)(B) of the Code.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
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.
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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 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
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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 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
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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 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.
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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 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
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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 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.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable Bond
Premium Regulations") dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
Section 1272(a)(6) such as the Securities. Absent further guidance from the
IRS, the Trustee intends to account for amortizable bond premium in the manner
described above. Prospective purchasers of the Securities should consult their
tax advisors regarding the possible application of the Amortizable Bond
Premium Regulations.
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
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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 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
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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.
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
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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.
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.
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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 Certificateholders 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
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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 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 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.
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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 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.
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.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have
such rules apply only to tax years beginning after August 20, 1996.
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 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.
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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.
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.
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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.
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
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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.
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, 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
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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.
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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
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
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<PAGE>
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
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
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<PAGE>
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" 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.
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<PAGE>
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.
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
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<PAGE>
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.
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 llp, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will 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............................................................... 77
Accounts............................................................... 41
Accrual Certificates................................................... 8, 30
Accrual Period......................................................... 82
Accrued Certificate Interest........................................... 32
ADA.................................................................... 70
Agreements............................................................. 8
Applicable Amount...................................................... 90
Amortizable Bond Premium Regulations................................... 73, 85
ARM Loans.............................................................. 24, 77
Asset Seller........................................................... 20
Available Distribution Amount.......................................... 31
Balloon Mortgage Loans................................................. 16
Bankruptcy Code........................................................ 62
Beneficial Owners...................................................... 37
Benefit Plan Investors................................................. 97
Book-Entry Certificates................................................ 31
Cash Flow Agreement.................................................... 7, 26
Cash Flow Agreements................................................... 1
Cede................................................................... 4, 37
CERCLA................................................................. 18, 66
Certificate............................................................ 38
Certificate Balance.................................................... 8, 32
Certificateholder...................................................... 37
Certificateholders..................................................... 20
Certificates........................................................... 5
Closing Date........................................................... 81
CMBS................................................................... 1, 5, 20
CMBS Agreement......................................................... 24
CMBS Issuer............................................................ 24
CMBS Servicer.......................................................... 24
CMBS Trustee........................................................... 25
Code................................................................... 11
Commercial Loans....................................................... 20
Commercial Properties.................................................. 6, 20
Commission............................................................. 3
Contributions Tax...................................................... 92
Cooperative............................................................ 57
Cooperative Loans...................................................... 57
Cooperatives........................................................... 21
Covered Trust.......................................................... 17, 53
CPR.................................................................... 28
Credit Support......................................................... 1, 7, 26
Crime Control Act...................................................... 71
Cut-off Date........................................................... 9
Debt Service Coverage Ratio............................................ 22
Deferred Interest...................................................... 78
Definitive Certificates................................................ 31, 38
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Depositor..................................................... 20
Determination Date............................................ 31
Disqualifying Condition....................................... 68
Distribution Account.......................................... 43
Distribution Date............................................. 9
DTC........................................................... 4, 37
Environmental Hazard Condition................................ 67
EPA........................................................... 66
Equity Participations......................................... 24
ERISA......................................................... 11, 96
Excess Servicing.............................................. 75
Exchange Act.................................................. 4
Exemption..................................................... 97
FDIC.......................................................... 41, 98
Grantor Trust Certificates.................................... 11
Hazardous Materials........................................... 68
Indirect Participants......................................... 37
Insurance Proceeds............................................ 42
IRS........................................................... 74
JPMSI......................................................... 99
Labor......................................................... 96
L/C Bank...................................................... 54
Lease......................................................... 3, 6
Lease Assignment.............................................. 1
Legislative History........................................... 77
Lessee........................................................ 4, 6
Liquidation Proceeds.......................................... 42, 43
Loan-to-Value Ratio........................................... 23
Lock-out Date................................................. 24
Lock-out Period............................................... 24
Master REMIC.................................................. 80
Master Servicer............................................... 5
Model Law..................................................... 99
Mortgage Assets............................................... 1, 20
Mortgage Loans................................................ 1, 5, 20
Mortgage Notes................................................ 21
Mortgage Interest Rate........................................ 6, 24
Mortgaged Properties.......................................... 6
Mortgages..................................................... 21
Mortgagor..................................................... 56
Multifamily Loans............................................. 20
Multifamily Properties........................................ 6, 20
NCUA.......................................................... 98
Net Operating Income.......................................... 22
Nonrecoverable Advance........................................ 34
Offered Certificates.......................................... 1
OID........................................................... 72, 74
OID Regulations............................................... 74
Originator.................................................... 21
OTS........................................................... 98
Participants.................................................. 37
Parties in Interest........................................... 96
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Pass-Through Rate............................................. 8, 32
Payment Lag Certificates...................................... 86
Permitted Investments......................................... 41
Plans......................................................... 96
Policy Statement.............................................. 98
Pre-Issuance Accrued Interest................................. 86
Prepayment.................................................... 28
Prepayment Assumption......................................... 77
Prepayment Premium............................................ 24
Primary Servicer.............................................. 5
Prohibited Transactions Tax................................... 92
Proposed Mark-to-Market Regulations........................... 90
Purchase Price................................................ 41
Qualified Mortgage............................................ 80
Rating Agency................................................. 12
RCRA.......................................................... 67
Record Date................................................... 31
Refinance Loans............................................... 23
Related Proceeds.............................................. 34
Relief Act.................................................... 71
REMIC......................................................... 11
REMIC Certificates............................................ 79
REMIC Regular Certificateholders.............................. 80
REMIC Regular Certificates.................................... 10, 79
REMIC Regulations............................................. 71
REMIC Residual Certificateholder.............................. 87
REMIC Residual Certificates................................... 10, 80
Restricted Group.............................................. 97
Retained Interest............................................. 49
RICO.......................................................... 71
Senior Certificates........................................... 8, 30
Series........................................................ 1
Servicer...................................................... 10
Servicing Standard............................................ 44
Servicing Transfer Event...................................... 45
SMMEA......................................................... 98
SMMEA Certificates............................................ 98
Special Servicer.............................................. 5
Specially Serviced Mortgage Loan.............................. 45
Stripped ARM Obligations...................................... 78
Stripped Bond Certificates.................................... 75
Stripped Coupon Certificates.................................. 75
Stripped Interest Certificates................................ 8, 30
Stripped Principal Certificates............................... 8, 30
Subordinate Certificates...................................... 8, 30
Subsidiary REMIC.............................................. 80
Super-Premium Certificates.................................... 82
Thrift Institutions........................................... 91
Title V....................................................... 69
Trust Assets.................................................. 3
Trust Fund.................................................... 1
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Trustee....................................................... 5
U.S. Person................................................... 79
UCC........................................................... 37
Underlying CMBS............................................... 20
Underlying Mortgage Loans..................................... 20
Value......................................................... 23
Voting Rights................................................. 19
Warrantying Party............................................. 13, 40
</TABLE>
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Disclaimer
Additional information is available upon request. Information
herein is believed to be reliable but J.P. Morgan does not warrant its
completeness or accuracy. These materials are subject to change from time to
time without notice. Past performance is not indicative of future results. Any
description of the mortgage loans contained herein supersedes any previous
collateral information and will be superseded by the final prospectus relating
to the securities. These materials are not intended as an offer or solicitation
with respect to the purchase or sale of any security, and have been provided to
you for informational purposes only and may not be relied upon by you in
evaluating the merits of investing in the securities. Any investment decision
with respect to the securities should be made by you based solely upon the
information contained in the final prospectus relating to the securities. No
assurance or representation can be made as to the actual rate or timing of
principal payments or prepayments on any of the mortgage loans or the
performance characteristics of the securities. J.P. Morgan may hold a position
or act as market maker in the financial instruments of any issuer discussed
herein or act as advisor or lender to such issuer.
By accepting and using this information, you hereby agree to the following
terms and conditions. These materials are provided for information purposes only
and any use for other purposes is disclaimed. The information contained herein
is provided by J.P. Morgan "as is" and all expressed or implied warranties and
representations of any kind with regard to the information are hereby
disclaimed, including, but not limited to, warranties of merchantability or
fitness for a particular purpose or warranties as to any results to be obtained
from any use of the information or any information derived from the information.
The information is intended solely for your internal use and may not be
distributed in any form to any third party. J.P. Morgan does not guarantee the
timeliness, accuracy or completeness of the information. The information is
calculated on the basis of historical information and should not be relied upon
to predict future results. In no event shall J.P. Morgan be liable for any use
by any party of, any decision made or action taken by any party in reliance
upon, or for any inaccuracies, errors in, or omissions of, the information. J.P.
Morgan shall not be liable (in contract, tort or otherwise) for any ordinary,
direct, indirect, consequential, incidental, special, punitive or exemplary
damages in connection with your use of the information contained herein, even if
J.P. Morgan has been apprised of such use or the likelihood of such damages
occurring.
JPMSI is a member of SIPC and SFA.
Copyright 1997 J.P. Morgan & Co. Incorporated.
Page 1
<PAGE>
The attached diskette contains two spreadsheet files (the "Spreadsheet
Files") that can be put on a user-specified hard drive or network drive. These
two files are "JPM97C4.XLW" and "JPM97C4.WK4". The file "JPM97C4.XLW" is a
Microsoft Excel/1/, Version 4.0 spreadsheet, and the file "JPM97C4.WK4" is a
Lotus 123/1/, Version 4.01 spreadsheet. Each file provides, in electronic
format, certain statistical information that appears under the caption
"Description of the Mortgage Pool--Certain Characteristics of the Mortgage
Loans" in the Prospectus Supplement and in Annex A to the Prospectus
Supplement. Defined terms used in the Spreadsheet Files but not otherwise
defined therein shall have the respective meanings assigned to them in the
Prospectus Supplement. All the information contained in the Spreadsheet Files
are subject to the same limitations and qualifications contained in this
Prospectus Supplement. Prospective investors are strongly urged to read the
Prospectus Supplement in its entirety prior to accessing the Spreadsheet
Files.
- --------
/1/Microsoft Excel and Lotus 123 are registered trademarks of Microsoft
Corporation and Lotus Development Corporation, respectively.
<PAGE>
JP MORGAN C-4 ANNEX A
<TABLE>
<CAPTION>
Loan
Number Property Name Property Address Property City
<S> <C> <C> <C>
1 Heritage Pavillion Shopping Center U.S. Highway 41 & Hargrove Road Smyrna
2 Hillside Manor Nursing Home Hillside Avenue Queens
3 Dorchester Park Apartments 3010-3260 W. 14th Avenue Denver
4 Radisson Heritage Hotel 10 Independence Drive Chelmsford
5 The Mall at Lexington Green Nicholasville Road Lexington
6 Pak N' Save 4946-4950 Almaden Expressway San Jose
7 Bloomingdale Pavillion 311 Edgewater Drive Bloomington
8 Humbert Lane Health Centre 90 Humbert Lane South Strabane
9 Saratoga Office Center 12900-12980 Saratoga Ave. Saratoga
10 Plano Market Square Shopping Center 1717 Spring Creek Parkway Plano
11 West Colonial Oaks Shopping Center 7038 W. Colonial Drive Orlando
12 Colonial Gardens Apartments 3025-3121 S. Barrington Ave. & 11730-810 National Blvd. Los Angeles
13 Square Lake Park II 1750 Telegraph Road Bloomfield
14 Ashwaubenon Plaza 2763 Oneida Street Ashwaubenon
15 Basin Office Park 1150-1160 Pittsford Victor Road Perinton
16 Long Island Care Center 144-61 38th Ave. Queens
17 London Park Condominiums 15889 Preston Road Dallas
18 Lincoln Square Shopping Center 901 West Morton Avenue Jacksonville
19 Princeton Plaza Shopping Center 3220-3380 San Pablo Dam Road San Pablo
20 Vintage Ridge Apartments 2705 Range Avenue Santa Rosa
21 Pembroke Pines Plaza West SEC Palm Ave. & Pines Blvd. Pembroke Pines
22 Sky Ridge Plaza 2000 S. IH-35 Round Rock
23 Covered Bridge Apartments 1810 NW 23rd Blvd Gainesville
24 Sav-Max Center 885 Blossom Hill Road San Jose
25 Burlington Court Apartments Route 130 and Columbus Road Burlington
26 Newport Village Apartments 2901 Sunset Drive San Angelo
27 Fireside Thrift Building 5600 Mowry School Road Newark
28 Gilbert Town Center 645-745 N. Gilbert Rd. Gilbert
29 Satellite Self Storage of Ocean 2120 Kings Highway Ocean
30 Almond Plaza Shopping Center 7154-7222 Regional Street Dublin
31 Park Terrace Apartments 3830 Swenson Street Las Vegas
32 Inn of Sedona 1200 W. Highway 89A Sedona
33 Sunset Manor Apts 1230, 1234, 1238, 1242 West Cameron Ave West Covina
34 Three Fountains 1810-1940 Fountainview Houston
35 Hampton Court Apartments 5689 North Christine Westland
36 Holiday Inn - Ontario Airport 3400 Shelby Street Ontario
37 Preston Summerside Shopping Center 17401-17489 Preston Road Dallas
38 Northtown Village Apartments 7879 University Avenue, NE Spring Lake Park
39 Brentwood Timberlane Apartments 4515 Maplewood Avenue Wichita Falls
40 Day's Inn Rocky Point 7627 Courtney Campbell Causeway Tampa
41 Country Oaks Apts. 2913 Mustang Dr. Grapevine
42 The Colony Park Apartments 4700 Taft Blvd Wichita Falls
43 Cedar Ridge Apartments 4945 Mack Road Sacramento
44 Santa Fe Apartments 1210 N. Cherokee Avenue Los Angeles
45 Lanewood Apts 7005 Lanewood & 7000 Hawthorne Los Angeles
<CAPTION>
Loan Property Year Year Renov # of Units/
Number State Property Type Anchor Anchor Sq. Ft. Built (1) Sq Ft (2)
<S> <C> <C> <C> <C> <C> <C> <C>
1 GA Anchored Retail Marshall's/Computer City 30,688/18,750 1995 262,875
2 NY Nursing Home 1975 400
3 CO Multifamily 1965 1994 476
4 MA Hotel 1983 1993 213
5 KY Anchored Retail Joseph-Beth Booksellers 44,587 1986 1996 163,022
6 CA Anchored Retail Safeway 76,852 1973 1992 139,052
7 IL Nursing Home 1975 1994 259
8 PA Nursing Home 1983 180
9 CA Office 1986 89,825
10 TX Anchored Retail Garden Ridge Corporation 150,852 1983 1994 275,270
11 FL Anchored Retail Winn Dixie 35,000 1986 161,060
12 CA Multifamily 1969 160
13 MI Office 1988 70,595
14 WI Anchored Retail Shawando Foodland 46,034 1990 211,642
15 NY Office 1983 145,231
16 NY Nursing Home 1969 1992 200
17 TX Multifamily 1979 1982 221
18 IL Anchored Retail JC Penney/Walgreen Co. 40,000/15,000 1964 1994 207,363
19 CA Anchored Retail Raley's Grocery Corporation 60,114 1990 113,544
20 CA Multifamily 1987 140
21 FL Anchored Retail Eckerd Drugs 10,800 1983 1995 116,197
22 TX Anchored Retail Walgreen Drug Co. 10,998 1987 1994 141,293
23 FL Multifamily 1972 1995 176
24 CA Anchored Retail Food 4 Less 48,648 1973 61,680
25 NJ Multifamily 1971 1995 210
26 TX Multifamily 1979 1992 302
27 CA Office 1988 56,213
28 AZ Anchored Retail Osco Drug Store 9,100 1986 91,855
29 NJ Self Storage 1986 1993 950
30 CA Retail 1978 51,155
31 NV Multifamily 1975 1990 199
32 AZ Hotel 1995 110
33 CA Multifamily 1963 1986 120
34 TX Retail 1968 1995 41,969
35 MI Multifamily 1969 183
36 CA Hotel 1990 150
37 TX Retail 1983 47,311
38 MN Multifamily 1971 1995 161
39 TX Multifamily 1980 1992 216
40 FL Hotel 1961 1994 144
41 TX Multifamily 1973 228
42 TX Multifamily 1978 1993 272
43 CA Multifamily 1985 274
44 CA Multifamily 1988 90
45 CA Multifamily 1969 1996 111
</TABLE>
Page 1 of 15
<PAGE>
JP MORGAN C-4 ANNEX A
<TABLE>
<CAPTION>
Loan
Number Property Name Property Address Property City
<S> <C> <C> <C>
46 Woodbend Apartments 7040 Archibald Avenue Rancho Cucamonga
47 Edgewater Apartments 10286 W. Winston Drive Baton Rouge
48 Saddleback Village Modular Homes 73G Sipprelle Dr. Battlement Mesa
49 Oakwood Villas Apartments 6603 N. 65th Ave. Glendale
50 Days Inn - Research Triangle Park 1000 Airport Road Morrisville
51 Cleveland Heights Apartment 221 N. Cleveland Avenue Sioux Falls
52 Suburban Square 1664 Suburban Avenue St. Paul
53 Loggerhead Plaza 14255 U.S. Highway One Juno Beach
54 Park Forest Apartments 50 N. 21st St. Las Vegas
55 Days Inn - Raleigh 6329 Glenwood Avenue Raleigh
56 The Chateaus/Summit Ridge 408 Summit Ridge Drive Oklahoma City
57 Fairmount Heights Apartments - 77 77 Fairmount Avenue Oakland
58 Pine Plaza Shopping Center Route 589 & Cathell Road Berlin
59 Michael's Plaza 3320-3330 S. Price Road Tempe
60 300 Pond Street 300 Pond Street Randolph
61 Lake Front Healthcare Center, Inc. 7618 N. Sheridan Road Chicago
62 Fountain Square Shopping Center 8026 West Broad Street Henrico County
63 Charmont Apartments 330 California Avenue Santa Monica
64 Versailles Apartments 8001 Fulton Houston
65 Columbia Plaza 7420-7440 West Cactus Road Peoria
66 Ventana Apartments 1200 N. Mansfield Avenue Los Angeles
67 Wetmore Plaza 4343 Oracle Road Tucson
68 Guthrie Creek Apartments 600 Baylor Drive Longview
69 Cross Creek Centre 1301&1311 W. Boynton Beach Blvd. Boynton Beach
70 Fairmount Heights Apartments - 55 55 Fairmount Avenue Oakland
71 Beachcomber Resort 727 Old Montauk Road Montauk
72 The St. Andrews Apartments 5555 Harold Way Los Angeles
73 Shelby Crossing SEC Macon Road & Sycamore View East Shelby County
74 Windsong Apartments 15223 Plaza South Dr. Taylor
75 Palm Plaza NWC Elliot and Arizona Ave Chandler
76 Del Prado Apartments 928 Del Prado Drive Euless
77 Goldstone Commercial Retail Building 529 Broadway New York
78 Hillcrest Estates Townhouse Apartments 101-129 N. Crestland Drive Norman
79 The Place Apts. 1341 Castle Court Houston
80 Country Hollow Apartments 5858 Morgan Place Stockton
81 Minikahda Ministorage IV 300 N. 5th St. Minneapolis
82 Freeport Shopping Center 1601-1645 Southwest Avenue Freeport
83 Bell Plaza 7420 West Cactus Road Phoenix
84 Chateau Brentana Apartments 11666 Montana Avenue Los Angeles
85 U-STORE 1450 Russell Street Baltimore
86 Park Place Apartments 3611 Maplewood Avenue Wichita Falls
87 East Lake Self Storage 2351 Boswell Road Chula Vista
88 St. Tropez Apartments 5811-5821 Tujunga Los Angeles
89 Quail Run Apartments 4001 Rawleigh Street Lower Paxton
90 The Kingsley 400 400 S. Kingsley Drive Los Angeles
<CAPTION>
Year
Loan Property Year Renovated # of Units/
Number State Property Type Anchor Anchor Sq Ft Built (1) Sq Ft (2)
<S> <C> <C> <C> <C> <C> <C> <C>
46 CA Multifamily 1986 120
47 LA Multifamily 1973 1992 161
48 CO Mobile Home Park 1981 312
49 AZ Multifamily 1963 205
50 NC Hotel 1986 110
51 SD Multifamily 1984 144
52 MN Retail 1987 39,381
53 FL Retail 1986 42,949
54 NV Multifamily 1980 202
55 NC Hotel 1975 1993 122
56 OK Multifamily 1983 1984 133
57 CA Multifamily 1972 1989 63
58 MD Anchored Retail Food City 24,650 1986 63,900
59 AZ Anchored Retail Michaels 24,993 1987 67,373
60 MA Industrial 1964 1987 132,500
61 IL Nursing Home 1971 99
62 VA Anchored Retail Ukrop's Grocery 31,650 1977 89,438
63 CA Multifamily 1929 1994 50
64 TX Multifamily 1966 1993 292
65 AZ Retail 1987 48,509
66 CA Multifamily 1988 67
67 AZ Anchored Retail Michaels 14,740 1984 34,987
68 TX Multifamily 1979 160
69 FL Anchored Retail Blockbuster Entertainment 5,537 1988 35,079
70 CA Multifamily 1972 1989 51
71 NY Cooperative Vacation Homes 1983 88
72 CA Multifamily 1989 70
73 TN Retail 1988 32,570
74 MI Multifamily 1984 101
75 AZ Retail 1986 66,147
76 TX Multifamily 1972 132
77 NY Retail 1920 1990 15,350
78 OK Multifamily 1984 1995 112
79 TX Multifamily 1974 1994 113
80 CA Multifamily 1984 1992 99
81 MN Self Storage 1912 1989 529
82 IL Retail 1968 1991 49,220
83 AZ Retail 1979 27,230
84 CA Multifamily 1969 1994 36
85 MD Self Storage 1985 828
86 TX Multifamily 1973 100
87 CA Self Storage 1986 690
88 CA Multifamily 1986 69
89 PA Multifamily 1973 1994 88
90 CA Multifamily 1971 57
</TABLE>
Page 2 of 15
<PAGE>
JP MORGAN C-4 ANNEX A
<TABLE>
<CAPTION>
Loan
Number Property Name Property Address Property City
<S> <C> <C> <C>
91 Hidden Village Apartments 1200 Aquarena Springs Drive San Marcos
92 Plantation Village Corporate Park 457 This Way Street Lake Jackson
93 Lantana Apartments 1802 West Avenue Austin
94 Woodbridge Apartments 585 Rahway Avenue Woodbridge
95 Allegheny Apartments 11970-11980 Allegheny Street Los Angeles
96 Edgemont Court Apartments 1603 N. Edgemont St. Los Angeles
97 Ridge Route II 31727 Ridge Route Road Los Angeles
98 Parkwood Place Apartments 2716 Parkwood Drive Huntsville
99 The Schuyler Apartments 275 South Church Street Spartanburg
100 The Comfort Inn 4760 Sherwood Lane Houston
101 Power Inn Business Park 4225-4275 Power Inn Road Sacramento
102 Crosspoint Plaza Shopping Center 2011 W. Spring St. Plano
103 Crystal Springs Manor 7603-7629 Franklin Blvd. Sacramento
104 Cozy Villa Apts 2418-2420 Huntington Street Huntington Beach
105 Belleville Apartments 560 Washington Avenue Belleville
106 Chestnut Street Apartments 304 Chestnut Street Roselle Park
CROWN PROPERTIES: (15)
107 Comfort Inns - Atlanta 101 International Boulevard Atlanta
108 Holiday Inn - York 200 Loucks Rd. York
109 Holiday Inn - Frederick 5400 Holiday Inn Drive Frederick
110 Holiday Inn - Charlotte 8520 University Executive Park Charlotte
111 Holiday Inn - Uniontown 700 West Main Street Uniontown
112 Holiday Inn - Johnstown 250 Market Street Johnstown
113 Holiday Inn - Indiana Route 119 & Indian Springs Rd. Indiana
114 Comfort Inns - Asheville 890 Brevard Road Asheville
115 Best Western - Raleigh 4620 South Miami Boulevard Durham
116 Comfort Inn - Newport 12330 Jefferson Ave Newport News
117 Comfort Inn - Pottstown Route 100 and Shoemaker Road Pottstown
118 Super 8 - Frederick 5579 Spectrum Ave Federick
119 Best Western Crowne Park-Harrisburg 765 Eisenhower Blvd Harrisburg
120 Comfort Inn - Harrisburg 4021 Union Deposit Road Harrisburg
121 Comfort Inn - Macon 2690 Riverside Dr. Macon
122 Comfort Inn - Oakridge 433 S. Rutgers Avenue Oak Ridge
123 Holiday Inn Clarion Route 68 and I80 (Exit 9 ) Clarion
124 Marriot Courtyard 3327 Street Road Bensalem
125 Holiday Inn Express - Johnstown 1440 Scalp Ave(Route 56) Johnstown
126 Holiday Inn - Beaver Falls Route 18 North Beaver Falls
127 Holiday Inn - Cumberland 100 South George Street Cumberland
CROWN TOTALS (15) Various Various
<CAPTION>
Year
Loan Property Year Renovated # of Units/
Number State Property Type Anchor Anchor Sq Ft Built (1) Sq Ft (2)
<S> <C> <C> <C> <C> <C> <C> <C>
91 TX Multifamily 1975 1994 81
92 TX Office 1986 38,069
93 TX Multifamily 1962 1995 50
94 NJ Multifamily 1950 1995 52
95 CA Multifamily 1986 1995 58
96 CA Multifamily 1990 34
97 CA Multifamily 1984 46
98 TX Multifamily 1972 99
99 SC Multifamily 1951 1994 90
100 TX Hotel 1994 46
101 CA Industrial 1976 49,600
102 TX Retail 1984 38,349
103 CA Multifamily 1978 1994 80
104 CA Multifamily 1988 21
105 NJ Multifamily 1917 1995 42
106 NJ Multifamily 1950 1995 29
CROWN PROPERTIES: (15)
107 GA 1987 260
108 PA 1982 1990 181
109 MD 1980 155
110 NC 1990 177
111 PA 1968 1993 180
112 PA 1973 1991 164
113 PA 1965 1990 159
114 NC 1989 125
115 NC 1990 177
116 VA 1988 125
117 PA 1989 121
118 MD 1986 104
119 PA 1988 1990 167
120 PA 1990 116
121 GA 1988 120
122 TN 1989 122
123 PA 1976 1986 122
124 PA 1988 1991 167
125 PA 1988 105
126 PA 1966 1991 156
127 MD 1972 1986 130
CROWN TOTALS (15) Various Hotel
</TABLE>
Page 3 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Occupancy Occupancy as of Appraised Appraisal Original
Number Percentage Date Value Date Original LTV Balance
<S> <C> <C> <C> <C> <C> <C>
1 100.0% 8/1/96 33,000,000 08/01/1996 65.15% 21,500,000
2 98.8% 1/96 - 6/96 avg. 21,000,000 06/10/1996 57.14% 12,000,000
3 92.9% 11/6/96 16,200,000 04/05/1996 67.28% 10,900,000
4 77.0% 9/95 - 8/96 avg. 15,900,000 09/01/1996 59.75% 9,500,000
5 86.5% 8/1/96 15,850,000 08/23/1996 59.31% 9,400,000
6 100.0% 10/9/96 13,000,000 06/01/1996 64.62% 8,400,000
7 86.1% 8/1/96 14,000,000 07/24/1996 60.00% 8,400,000
8 90.8% 7/95 - 6/96 avg. 10,400,000 10/26/1995 75.00% 7,800,000
9 100.0% 6/27/96 12,100,000 10/16/1995 60.33% 7,300,000
10 91.4% 7/22/96 12,400,000 08/23/1995 58.47% 7,250,000
11 95.8% 7/31/96 11,900,000 12/01/1995 59.16% 7,040,000
12 98.8% 6/1/96 9,550,000 11/13/1995 72.25% 6,900,000
13 95.4% 6/30/96 9,800,000 04/16/1996 70.10% 6,870,000
14 89.1% 10/15/96 8,900,000 11/01/1996 71.35% 6,350,000
15 92.9% 10/1/96 9,500,000 05/17/1996 63.16% 6,000,000
16 97.6% 1/96 - 5/96 avg. 11,000,000 3/27/1996 54.55% 6,000,000
17 96.8% 7/31/96 8,210,000 02/08/1996 73.08% 6,000,000
18 86.9% 8/14/96 8,500,000 09/04/1996 68.24% 5,800,000
19 90.0% 8/6/96 7,800,000 11/06/1995 74.36% 5,800,000
20 94.1% 6/26/96 7,800,000 10/26/1995 73.40% 5,725,000
21 100.0% 9/30/96 11,710,000 02/22/1996 44.41% 5,200,000
22 83.5% 7/31/96 7,650,000 12/02/1995 65.36% 5,000,000
23 95.5% 8/18/96 6,900,000 09/22/1995 68.41% 4,720,000
24 100.0% 8/14/96 8,000,000 06/01/1996 57.81% 4,625,000
25 95.0% 7/1/96 6,200,000 10/24/1995 74.19% 4,600,000
26 95.0% 6/25/96 6,100,000 03/08/1996 73.77% 4,500,000
27 97.5% 8/1/96 6,500,000 04/01/1996 66.15% 4,300,000
28 96.7% 8/18/96 6,000,000 05/10/1996 70.00% 4,200,000
29 98.6% 6/30/96 6,495,000 02/20/1996 64.67% 4,200,000
30 82.7% 9/1/96 6,100,000 12/14/1995 68.85% 4,200,000
31 96.9% 10/1/96 7,500,000 04/15/1996 54.67% 4,100,000
32 66.9% 9/30/96 9,000,000 06/17/1996 45.56% 4,100,000
33 91.6% 10/30/96 5,050,000 02/16/1996 80.00% 4,040,000
34 100.0% 6/1/96 6,000,000 03/22/1996 65.83% 3,950,000
35 93.0% 6/1/96 5,480,000 03/07/1996 69.34% 3,800,000
36 65.3% 1/96 - 8/96 avg. 6,250,000 11/22/1995 60.80% 3,800,000
37 89.7% 6/30/96 5,300,000 10/26/1995 70.75% 3,750,000
38 98.0% 10/9/96 4,800,000 05/01/1996 75.00% 3,600,000
39 95.3% 8/24/96 5,000,000 06/26/1996 70.60% 3,530,000
40 77.4% 1/96 - 9/96 avg. 5,650,000 04/18/1995 63.72% 3,600,000
41 97.0% 6/29/96 4,600,000 09/22/1995 73.26% 3,370,000
42 98.0% 8/24/96 4,350,000 07/08/1996 76.32% 3,320,000
43 93.5% 8/1/96 4,260,000 02/01/1996 74.82% 3,187,500
44 96.6% 10/28/96 4,500,000 12/12/1995 70.00% 3,150,000
45 97.3% 7/1/96 4,030,000 04/12/1996 76.92% 3,100,000
<CAPTION>
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
<S> <C> <C> <C> <C> <C>
1 21,450,490 21,450,490 8.800% 2,038,907 116
2 11,912,736 11,912,736 9.350% 1,328,195 235
3 10,838,074 10,838,074 8.750% 1,075,364 113
4 9,459,444 9,459,444 9.460% 1,059,654 117
5 9,373,719 9,373,719 8.780% 929,678 117
6 8,381,841 8,381,841 8.600% 794,520 117
7 8,377,540 8,377,540 9.050% 849,364 117
8 7,630,877 7,630,877 9.125% 849,683 106
9 7,232,645 7,232,645 9.000% 735,136 110
10 7,154,694 7,154,694 8.500% 700,548 107
11 6,943,702 6,943,702 8.250% 666,083 107
12 6,861,296 6,861,296 8.500% 636,660 171
13 6,848,773 6,848,773 9.375% 685,694 114
14 6,341,363 6,341,363 7.950% 556,475 82
15 5,986,954 5,986,954 9.090% 597,189 117
16 5,964,114 5,964,114 9.100% 652,440 236
17 5,955,138 5,955,138 8.875% 598,070 112
18 5,789,104 5,789,104 8.710% 570,322 118
19 5,746,534 5,746,534 7.500% 486,653 108
20 5,671,715 5,671,715 7.875% 498,123 107
21 5,154,280 5,154,280 8.625% 507,729 111
22 4,949,979 4,949,979 8.500% 483,136 74
23 4,641,978 4,641,978 8.000% 437,157 105
24 4,615,002 4,615,002 8.600% 437,459 117
25 4,578,279 4,578,279 8.750% 434,259 172
26 4,485,356 4,485,356 9.125% 439,362 114
27 4,289,029 4,289,029 9.400% 430,121 115
28 4,175,811 4,175,811 9.625% 444,730 113
29 4,175,303 4,175,303 9.500% 440,343 113
30 4,168,935 4,168,935 9.125% 419,270 110
31 4,076,323 4,076,323 8.650% 401,157 114
32 4,070,279 4,070,279 9.375% 454,600 235
33 4,005,191 4,005,191 8.750% 398,575 111
34 3,926,773 3,926,773 9.500% 414,132 113
35 3,782,439 3,782,439 8.875% 378,778 115
36 3,726,632 3,726,632 8.750% 402,972 168
37 3,700,704 3,700,704 8.500% 362,352 107
38 3,577,010 3,577,010 9.000% 362,533 113
39 3,523,539 3,523,539 8.500% 325,712 117
40 3,508,344 3,508,344 10.000% 416,889 162
41 3,323,463 3,323,463 8.190% 317,229 107
42 3,313,923 3,313,923 8.500% 306,335 117
43 3,171,352 3,171,352 9.000% 307,768 111
44 3,134,350 3,134,350 8.500% 290,649 112
45 3,088,185 3,088,185 9.125% 302,672 113
<CAPTION>
Loan Remaining Maturity Balloon Mat Date
Number Am Term (3) Orig Date Date Balance (4) LTV (5)
<S> <C> <C> <C> <C> <C>
1 356 09/20/1996 10/01/2006 19,157,544 58.05%
2 235 08/30/1996 09/01/2016 - -
3 294 07/29/1996 07/01/2006 8,990,367 55.50%
4 237 10/10/1996 11/01/2006 6,835,841 42.99%
5 297 10/07/1996 11/01/2006 7,737,870 48.82%
6 333 10/30/1996 11/01/2006 7,262,923 55.87%
7 297 10/10/1996 11/01/2006 6,958,054 49.70%
8 226 11/16/1995 12/01/2005 5,559,882 53.46%
9 290 03/27/1996 04/01/2006 6,039,965 49.92%
10 287 12/21/1995 01/01/2006 5,928,367 47.81%
11 287 12/28/1995 01/01/2006 5,721,532 48.08%
12 351 04/03/1996 05/01/2011 5,387,722 56.42%
13 354 07/15/1996 08/01/2006 6,184,220 63.10%
14 358 11/25/1996 12/01/2003 5,868,352 65.94%
15 321 10/22/1996 11/01/2006 5,160,574 54.32%
16 236 09/18/1996 10/01/2016 - -
17 292 05/09/1996 06/01/2006 4,950,041 60.29%
18 298 11/14/1996 12/01/2006 4,766,562 56.08%
19 348 01/31/1996 02/01/2006 5,034,110 64.54%
20 347 12/01/1995 01/01/2006 5,009,212 64.22%
21 291 04/04/1996 05/01/2006 4,264,850 36.42%
22 290 03/14/1996 04/01/2003 4,446,521 58.12%
23 285 10/31/1995 11/01/2005 3,812,027 55.25%
24 333 10/30/1996 11/01/2006 3,998,931 49.99%
25 352 05/30/1996 06/01/2011 3,620,818 58.40%
26 354 07/19/1996 08/01/2006 4,033,296 66.12%
27 355 08/30/1996 09/01/2006 3,872,407 59.58%
28 293 06/28/1996 07/01/2006 3,523,632 58.73%
29 293 06/11/1996 07/01/2006 3,514,115 54.10%
30 314 03/15/1996 04/01/2006 3,615,005 59.26%
31 294 07/25/1996 08/01/2006 3,364,674 44.86%
32 235 08/16/1996 09/01/2016 - -
33 291 04/12/1996 05/01/2006 3,323,291 65.81%
34 293 06/19/1996 07/01/2006 3,304,941 55.08%
35 295 08/08/1996 09/01/2006 3,135,026 57.21%
36 228 01/08/1996 02/01/2011 1,627,204 26.04%
37 287 12/08/1995 01/01/2006 3,066,395 57.86%
38 293 06/26/1996 07/01/2006 2,978,612 62.05%
39 357 10/07/1996 11/01/2006 3,127,669 62.55%
40 222 07/17/1995 08/01/2010 1,635,087 28.94%
41 287 12/21/1995 01/01/2006 2,734,776 59.45%
42 357 10/07/1996 11/01/2006 2,941,604 67.62%
43 351 04/01/1996 05/01/2006 2,850,572 66.91%
44 352 05/01/1996 06/01/2006 2,790,981 62.02%
45 353 06/12/1996 07/01/2006 2,778,491 68.95%
</TABLE>
Page 4 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Occupancy Occupancy as of Appraised Appraisal Original
Number Percentage Date Value Date Original LTV Balance
<S> <C> <C> <C> <C> <C> <C>
46 96.0% 9/1/96 4,275,000 12/13/1995 72.51% 3,100,000
47 87.6% 10/1/96 4,080,000 04/08/1996 75.25% 3,070,000
48 95.5% 6/30/96 5,750,000 02/29/1996 52.17% 3,000,000
49 98.0% 7/31/96 4,550,000 05/10/1996 64.29% 2,925,000
50 93.6% 1/96 - 6/96 avg. 4,650,000 05/10/1995 64.52% 3,000,000
51 93.8% 10/31/96 3,900,000 06/07/1996 74.36% 2,900,000
52 87.3% 5/10/96 4,000,000 01/12/1996 71.75% 2,870,000
53 99.0% 8/1/96 4,150,000 06/07/1996 68.67% 2,850,000
54 97.5% 9/1/96 4,640,000 08/09/1996 61.42% 2,850,000
55 65.5% 6/30/96 4,500,000 05/10/1995 65.00% 2,925,000
56 93.2% 8/24/96 3,900,000 07/24/1996 72.56% 2,830,000
57 96.8% 9/28/96 3,725,000 11/02/1995 74.23% 2,765,000
58 100.0% 6/30/96 3,830,000 02/26/1996 71.80% 2,750,000
59 85.4% 8/1/96 4,550,000 08/01/1996 58.68% 2,670,000
60 100.0% 7/16/96 4,100,000 10/06/1995 65.85% 2,700,000
61 91.1% 6/30/96 4,300,000 03/06/1996 60.47% 2,600,000
62 96.6% 9/30/96 4,525,000 05/09/1996 57.46% 2,600,000
63 98.0% 4/1/96 4,000,000 02/16/1996 62.50% 2,500,000
64 99.3% 9/26/96 3,500,000 02/21/1996 71.43% 2,500,000
65 95.0% 8/1/96 3,400,000 08/01/1996 69.12% 2,350,000
66 97.0% 10/28/96 3,235,000 12/12/1995 72.64% 2,350,000
67 100.0% 8/26/96 3,925,000 11/04/1995 58.60% 2,300,000
68 83.1% 11/8/96 3,100,000 02/05/1996 74.19% 2,300,000
69 86.0% 8/15/96 3,500,000 03/11/1996 64.57% 2,260,000
70 94.0% 6/30/96 2,975,000 11/02/1995 75.13% 2,235,000
71 100.0% 3/25/96 6,800,000 01/25/1996 33.09% 2,250,000
72 91.4% 10/1/96 3,175,000 01/19/1996 65.35% 2,075,000
73 93.9% 5/31/96 3,025,000 06/13/1996 68.26% 2,065,000
74 93.9% 9/30/96 3,100,000 03/29/1996 66.13% 2,050,000
75 83.6% 8/1/96 3,250,000 08/01/1996 62.46% 2,030,000
76 100.0% 2/1/96 3,000,000 05/09/1996 66.67% 2,000,000
77 84.7% 3/29/96 4,800,000 11/01/1995 41.67% 2,000,000
78 98.2% 8/24/96 2,610,000 07/24/1996 73.75% 1,925,000
79 85.6% 11/1/96 2,850,000 10/06/1995 68.06% 1,939,600
80 100.0% 9/9/96 3,015,000 04/16/1996 63.02% 1,900,000
81 95.3% 9/30/96 2,540,000 04/09/1996 70.87% 1,800,000
82 89.8% 11/1/96 2,540,000 08/01/1996 68.90% 1,750,000
83 100.0% 8/1/96 2,400,000 08/01/1996 71.25% 1,710,000
84 97.1% 6/1/96 5,000,000 04/15/1996 34.00% 1,700,000
85 93.4% 6/1/96 3,500,000 07/15/1996 48.29% 1,690,000
86 93.0% 8/24/96 2,250,000 07/15/1996 72.67% 1,635,000
87 94.9% 8/25/96 2,760,000 03/04/1996 57.97% 1,600,000
88 90.0% 8/15/96 2,100,000 07/19/1996 75.00% 1,575,000
89 95.5% 5/13/96 2,500,000 03/27/1996 62.00% 1,550,000
90 98.2% 10/10/96 1,891,000 08/01/1996 76.15% 1,440,000
<CAPTION>
Loan Current Cut Mortgage Annual Debt Remaining
Number Balance Off Balance Interest Rate Service Term
<S> <C> <C> <C> <C> <C>
46 3,082,611 3,082,611 8.500% 286,036 111
47 3,051,185 3,051,185 9.250% 315,491 113
48 2,970,731 2,970,731 9.750% 341,466 113
49 2,908,369 2,908,369 9.500% 327,178 116
50 2,907,271 2,907,271 8.875% 321,013 221
51 2,884,186 2,884,186 9.000% 292,040 114
52 2,848,975 2,848,975 9.000% 289,019 112
53 2,842,691 2,842,691 9.375% 284,458 115
54 2,842,418 2,842,418 9.080% 288,881 117
55 2,834,590 2,834,590 8.875% 312,988 221
56 2,824,820 2,824,820 8.500% 261,123 117
57 2,739,265 2,739,265 7.875% 240,578 107
58 2,724,419 2,724,419 8.950% 275,806 110
59 2,660,834 2,660,834 9.300% 275,491 116
60 2,657,141 2,657,141 8.800% 287,357 110
61 2,580,488 2,580,488 9.100% 282,724 235
62 2,576,570 2,576,570 9.125% 283,228 234
63 2,477,571 2,477,571 8.500% 241,568 111
64 2,477,115 2,477,115 8.375% 239,046 111
65 2,343,820 2,343,820 9.150% 239,557 117
66 2,338,325 2,338,325 8.500% 216,834 112
67 2,281,735 2,281,735 9.250% 236,361 291
68 2,279,365 2,279,365 8.500% 222,243 75
69 2,249,236 2,249,236 9.300% 224,093 111
70 2,214,198 2,214,198 7.875% 194,464 107
71 2,207,430 2,207,430 9.000% 273,852 174
72 2,064,691 2,064,691 8.500% 191,460 112
73 2,054,847 2,054,847 9.625% 218,659 114
74 2,046,248 2,046,248 8.500% 189,153 117
75 2,024,617 2,024,617 9.100% 206,099 117
76 1,989,094 1,989,094 9.000% 201,407 114
77 1,944,135 1,944,135 8.750% 239,868 170
78 1,921,477 1,921,477 8.500% 177,619 117
79 1,915,884 1,915,884 7.860% 177,489 73
80 1,893,147 1,893,147 8.625% 177,336 114
81 1,791,512 1,791,512 9.875% 194,379 114
82 1,746,729 1,746,729 8.740% 172,508 118
83 1,703,981 1,703,981 9.150% 174,316 116
84 1,692,821 1,692,821 8.625% 158,669 113
85 1,676,295 1,676,295 8.830% 203,647 177
86 1,630,214 1,630,214 8.500% 157,986 117
87 1,580,927 1,580,927 9.250% 175,846 172
88 1,571,236 1,571,236 8.620% 146,935 116
89 1,541,720 1,541,720 9.125% 157,686 114
90 1,435,771 1,435,771 8.480% 138,910 117
<CAPTION>
Loan Remaining Maturity Balloon Mat Date
Number Am Term (3) Orig Date Date Balance (4) LTV (5)
<S> <C> <C> <C> <C> <C>
46 351 04/01/1996 05/01/2006 2,746,679 64.25%
47 293 06/10/1996 07/01/2006 2,554,520 62.61%
48 233 06/06/1996 07/01/2006 2,175,992 37.84%
49 236 09/13/1996 10/01/2006 2,107,061 46.31%
50 221 06/26/1995 07/01/2015 - -
51 294 07/24/1996 08/01/2006 2,399,439 61.52%
52 292 05/03/1996 06/01/2006 2,374,615 59.37%
53 355 08/09/1996 09/01/2006 2,565,505 61.82%
54 297 11/01/1996 11/01/2006 2,362,383 50.91%
55 221 06/26/1995 07/01/2015 - -
56 357 10/07/1996 11/01/2006 2,507,452 64.29%
57 347 12/06/1995 01/01/2006 2,419,297 64.95%
58 290 03/30/1996 04/01/2006 2,272,714 59.34%
59 296 09/26/1996 10/01/2006 2,224,163 48.88%
60 230 03/29/1996 04/01/2006 1,906,622 46.50%
61 235 08/22/1996 09/01/2016 - -
62 234 07/05/1996 08/01/2016 - -
63 291 04/09/1996 05/01/2006 2,044,264 51.11%
64 291 04/04/1996 05/01/2006 2,038,060 58.23%
65 297 10/02/1996 11/01/2006 1,951,025 57.38%
66 352 05/01/1996 06/01/2006 2,082,159 64.36%
67 291 04/29/1996 05/01/2021 - -
68 291 04/17/1996 05/01/2003 2,045,400 65.98%
69 351 04/05/1996 05/01/2006 2,031,792 58.05%
70 347 12/06/1995 01/01/2006 1,955,560 65.73%
71 173 06/20/1996 08/01/2011 - -
72 352 05/20/1996 06/01/2006 1,838,502 57.91%
73 294 07/15/1996 08/01/2006 1,732,452 57.27%
74 357 10/28/1996 11/01/2006 1,816,352 58.59%
75 297 10/01/1996 11/01/2006 1,683,446 51.80%
76 294 07/31/1996 08/01/2006 1,654,784 55.16%
77 170 03/29/1996 04/01/2011 - -
78 357 10/07/1996 11/01/2006 1,705,598 65.35%
79 289 02/02/1996 03/01/2003 1,706,921 59.89%
80 354 07/01/1996 08/01/2006 1,687,466 55.97%
81 294 07/16/1996 08/01/2006 1,518,155 59.77%
82 298 11/04/1996 12/01/2006 1,439,205 56.66%
83 296 09/30/1996 10/01/2006 1,419,682 59.15%
84 353 06/20/1996 07/01/2006 1,509,838 30.20%
85 177 10/09/1996 11/01/2011 - -
86 297 10/07/1996 11/01/2006 1,336,949 59.42%
87 232 05/30/1996 06/01/2011 701,817 25.43%
88 356 09/24/1996 10/01/2006 1,398,688 66.60%
89 294 07/29/1996 08/01/2006 1,286,118 51.44%
90 297 10/18/1996 11/01/2006 1,176,926 62.24%
</TABLE>
Page 5 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Occupancy Occupancy as of Appraised Appraisal Original
Number Percentage Date Value Date Original LTV Balance
<S> <C> <C> <C> <C> <C> <C>
91 98.0% 9/30/96 2,300,000 03/14/1996 60.22% 1,385,000
92 93.3% 9/30/96 1,900,000 02/21/1996 73.03% 1,387,500
93 100.0% 9/30/96 1,750,000 06/14/1996 77.14% 1,350,000
94 98.0% 8/16/96 1,900,000 12/21/1995 71.05% 1,350,000
95 96.6% 7/1/96 1,780,000 05/08/1996 75.00% 1,335,000
96 91.0% 10/10/96 1,610,000 05/28/1996 76.40% 1,230,000
97 89.1% 9/1/96 1,530,000 04/24/1996 78.43% 1,200,000
98 93.9% 10/4/96 1,900,000 05/02/1996 60.53% 1,150,000
99 91.0% 7/1/96 2,300,000 04/04/1996 50.00% 1,150,000
100 86.0% 9/95 - 8/96 avg. 2,100,000 08/01/1996 54.76% 1,150,000
101 100.0% 7/25/96 1,660,000 02/07/1996 66.27% 1,100,000
102 74.0% 6/26/96 2,300,000 02/08/1996 47.39% 1,090,000
103 94.9% 9/1/96 1,415,000 01/16/1996 74.91% 1,060,000
104 100.0% 8/1/96 1,820,000 03/26/1996 54.95% 1,000,000
105 97.6% 8/16/96 1,200,000 01/11/1996 62.50% 750,000
106 100.0% 8/16/96 975,000 01/10/1996 66.67% 650,000
CROWN
<CAPTION>
Loan Current Cut Off Mortgage Annual Debt Remaining
Number Balance Balance Interest Rate Service Term
<S> <C> <C> <C> <C> <C>
91 1,378,688 1,378,688 8.960% 139,020 115
92 1,375,210 1,375,210 9.250% 142,588 110
93 1,346,176 1,346,176 8.700% 132,637 117
94 1,336,221 1,336,221 8.375% 129,085 110
95 1,331,002 1,331,002 8.625% 124,602 115
96 1,225,976 1,225,976 9.100% 119,826 114
97 1,193,859 1,193,859 8.250% 113,537 115
98 1,146,874 1,146,874 8.950% 115,337 177
99 1,139,637 1,139,637 9.125% 125,274 234
100 1,138,265 1,138,265 9.520% 144,270 176
101 1,092,880 1,092,880 9.750% 117,630 112
102 1,080,146 1,080,146 9.125% 110,889 110
103 1,051,408 1,051,408 9.125% 107,837 111
104 994,547 994,547 9.000% 100,704 294
105 742,190 742,190 8.250% 70,961 110
106 643,231 643,231 8.250% 61,499 110
CROWN
<CAPTION>
Loan Remaining Maturity Balloon Mat Date
Number Am Term (3) Orig Date Date Balance (4) LTV (5)
<S> <C> <C> <C> <C> <C>
91 295 08/23/1996 09/01/2006 1,144,884 49.78%
92 290 03/29/1996 04/01/2006 1,154,526 60.76%
93 297 10/22/1996 11/01/2006 1,109,195 63.38%
94 290 03/29/1996 04/01/2006 1,100,552 57.92%
95 355 08/01/1996 09/01/2006 1,185,666 66.61%
96 354 07/17/1996 08/01/2006 1,101,947 68.44%
97 295 08/12/1996 09/01/2006 975,260 63.74%
98 297 10/18/1996 11/01/2011 760,366 40.02%
99 234 07/30/1996 08/01/2016 - -
100 176 10/01/1996 10/01/2011 - -
101 292 05/10/1996 06/01/2006 925,322 55.74%
102 290 03/28/1996 04/01/2006 904,432 39.32%
103 291 04/01/1996 05/01/2006 879,537 62.16%
104 294 07/18/1996 08/01/2021 - -
105 290 03/29/1996 04/01/2006 609,537 50.79%
106 290 03/29/1996 04/01/2006 528,266 54.18%
CROWN
<CAPTION>
Loan Occupancy Occupancy as of Appraised Appraisal Original
Number Percentage Date Value Date Original LTV Balance
<S> <C> <C> <C> <C> <C> <C>
107 63.6% 2/96 - 8/96 avg. 16,500,000 01/01/1995 47.90% 7,903,000
108 72.1% 2/96 - 8/96 avg. 9,400,000 01/01/1995 53.54% 5,033,000
109 81.2% 2/96 - 8/96 avg. 9,000,000 01/01/1995 55.37% 4,983,000
110 72.4% 2/96 - 8/96 avg. 8,400,000 01/01/1995 55.57% 4,668,000
111 69.0% 2/96 - 8/96 avg. 8,100,000 01/01/1995 55.41% 4,488,000
112 64.2% 2/96 - 8/96 avg. 8,400,000 01/01/1995 53.06% 4,457,000
113 67.8% 2/96 - 8/96 avg. 6,900,000 01/01/1995 59.23% 4,087,000
114 84.5% 2/96 - 8/96 avg. 6,100,000 01/01/1995 65.16% 3,975,000
115 77.9% 2/96 - 8/96 avg. 7,200,000 01/01/1995 54.86% 3,950,000
116 88.8% 2/96 - 8/96 avg. 7,200,000 01/01/1995 50.22% 3,616,000
117 82.6% 2/96 - 8/96 avg. 6,000,000 01/01/1995 53.07% 3,184,000
118 71.2% 2/96 - 8/96 avg. 5,300,000 01/01/1995 54.81% 2,905,000
119 84.0% 2/96 - 8/96 avg. 5,000,000 01/01/1995 54.36% 2,718,000
120 83.9% 2/96 - 8/96 avg. 4,600,000 01/01/1995 55.15% 2,537,000
121 86.2% 2/96 - 8/96 avg. 4,100,000 01/01/1995 61.73% 2,531,000
122 78.5% 2/96 - 8/96 avg. 5,100,000 01/01/1995 49.53% 2,526,000
123 67.9% 2/96 - 8/96 avg. 4,200,000 01/01/1995 58.50% 2,457,000
124 76.1% 2/96 - 8/96 avg. 5,000,000 01/01/1995 44.60% 2,230,000
125 62.2% 2/96 - 8/96 avg. 3,600,000 01/01/1995 53.78% 1,936,000
126 65.9% 2/96 - 8/96 avg. 4,200,000 01/01/1995 45.81% 1,924,000
127 85.5% 2/96 - 8/96 avg. 3,300,000 01/01/1995 36.85% 1,216,000
CROWN 137,600,000 01/01/1995 75,000,000
<CAPTION>
Loan Current Cut Off Mortgage Annual Debt Remaining
Number Balance Balance Interest Rate Service Term
<S> <C> <C> <C> <C> <C>
107 7,790,773 2,441,813
108 4,961,529 1,555,061
109 4,912,239 1,539,612
110 4,601,712 1,442,286
111 4,424,268 1,386,671
112 4,393,708 1,377,093
113 4,028,963 1,262,773
114 3,918,553 1,228,168
115 3,893,908 1,220,443
116 3,564,651 1,117,246
117 3,138,785 983,770
118 2,863,747 897,566
119 2,679,403 839,789
120 2,500,973 783,864
121 2,495,058 782,011
122 2,490,129 780,466
123 2,422,109 759,147
124 2,198,333 689,010
125 1,908,508 598,172
126 1,896,678 594,464
127 1,198,732 375,711
CROWN 72,282,758 22,655,134 9.820% 7,884,173 99
<CAPTION>
Loan Remaining Maturity Balloon Mat Date
Number Am Term (3) Orig Date Date Balance (4) LTV (5)
<S> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN 296 04/24/1995 04/30/2005 63,516,593 46.16%
</TABLE>
(1)
(2)
(3)
(4) Mortgage Loans Remaining
Page 6 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
1 LO-45,YM1-58,0%-13 Quarterly - - - 6
2 LO-44,7%-24,6%-12,5%-12,4%-12,3%-12,2%-12,1%-100,0%-7 Quarterly 4,195,556 4,117,838 3.10 6
3 LO-41,YM1-65,0%-7 Quarterly 1,043,701 1,350,064 1.26 8
4 YM1-110,0%-7 Quarterly 1,085,858 1,323,259 1.25 8
5 LO-44,YM1-66,0%-7 Quarterly - 1,060,123 1.14 9
6 LO-46,YM1-64,0%-7 Quarterly 1,142,961 1,191,707 1.50 9
7 LO-44,YM1-66,0%-7 Quarterly 1,890,654 1,565,256 1.84 6
8 LO-35,YM1-64,0%-7 Quarterly 1,623,858 1,566,139 1.84 12
9 LO-37,YM1-66,0%-7 Quarterly 926,911 1,165,569 1.59 6
10 LO-10,YM1-24,1%-66,0%-7 Quarterly 428,281 890,998 1.27 7
11 LO-34,YM1-66,0%-7 Quarterly 919,152 1,073,720 1.61 7
12 LO-74,YM1-84,0%-13 Quarterly 844,295 865,346 1.36 9
13 LO-43,YM1-64,0%-7 Quarterly 806,275 1,059,354 1.54 6
14 LO-21,YM1-54,0%-7 Quarterly 802,392 1,061,869 1.91 9
15 LO-57,YM1-53,0%-7 Quarterly 1,052,047 1,142,991 1.91 8
16 LO-81,YM1-148,0%-7 Quarterly 1,895,185 2,308,849 3.54 5
17 LO-41,YM1-64,0%-7 Quarterly 754,572 840,541 1.41 4.7
18 LO-45,YM1-66,0%-7 Quarterly 782,796 980,168 1.72 9
19 LO-35,YM1-66,0%-7 Quarterly - 716,874 1.47 6
20 LO-34,YM1-60,0%-13 Quarterly 633,493 695,023 1.40 7
21 LO-38,YM1-66,0%-7 Quarterly 666,313 712,790 1.40 6
22 LO-13,YM1-54,0%-7 Quarterly - 642,819 1.33 6
23 LO-32,YM1-66,0%-7 Quarterly 553,889 612,773 1.40 6
24 LO-46,YM1-64,0%-7 Quarterly 768,740 769,690 1.76 8
25 LO-75,YM1-90,0%-7 Quarterly 611,726 565,866 1.30 6
26 LO-41,YM1-66,0%-7 Quarterly 380,938 549,239 1.25 6
27 LO-42,YM1-66,0%-7 Quarterly 652,295 636,473 1.48 5
28 LO-42,YM1-64,0%-7 Quarterly 424,575 434,149 0.98 5
29 LO-40,YM1-66,0%-7 Quarterly 596,296 714,463 1.62 6
30 LO-37,YM1-66,0%-7 Quarterly 529,311 532,178 1.27 7
31 LO-41,YM1-66,0%-7 Quarterly 651,020 667,527 1.66 9
32 LO-80,YM1-148,0%-7 Quarterly - 787,959 1.73 9
33 LO-38,YM1-60,0%-13 Quarterly 515,703 586,940 1.47 6
34 LO-40,YM1-66,0%-7 Quarterly 555,980 542,715 1.31 10
35 LO-42,YM1-66,0%-7 Quarterly 339,093 357,487 0.94 5
36 LO-35,YM1-66,0%-67 Quarterly 288,767 614,317 1.52 9
37 LO-34,YM1-66,0%-7 Quarterly 522,080 566,862 1.56 6
38 LO-40,YM1-66,0%-7 Quarterly 427,169 455,540 1.26 7
39 LO-46,YM1-64,0%-7 Quarterly 542,992 562,927 1.73 6
40 LO-29,YM2-60,1%-66,0%-7 Quarterly 659,109 607,720 1.46 9
41 YM1-100,0%-7 Quarterly 264,797 384,182 1.21 6
42 LO-46,YM1-64,0%-7 Quarterly 231,418 635,595 2.07 6
43 YM1-38,3%-12,2%-12,1%-35,0%-14 Quarterly - - - 5.5
44 LO-39,YM1-60,0%-13 Quarterly 307,975 542,704 1.87 6
45 LO-40,YM1-60,0%-13 Quarterly - 231,523 0.76 7
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
1 06/30/1996 1,559,142 1.53
2 06/30/1996 3,926,399 5.91
3 08/31/1996 1,071,300 1.49
4 08/01/1996 983,868 1.39
5 09/30/1996 822,254 1.18
6 09/01/1996 906,356 1.52
7 06/01/1996 721,096 1.70
8 06/01/1996 1,357,364 1.60
9 06/20/1996 647,348 1.76
10 07/20/1996 593,687 1.45
11 07/31/1996 695,929 1.79
12 09/01/1996 560,896 1.17
13 06/30/1996 522,854 1.53
14 09/01/1996 859,137 2.06
15 08/01/1996 661,234 1.66
16 05/31/1996 1,464,409 5.39
17 09/30/1996 275,638 1.18
18 09/01/1996 633,369 1.48
19 06/30/1996 363,462 1.49
20 07/31/1996 406,350 1.40
21 06/01/1996 516,716 2.04
22 06/30/1996 359,020 1.49
23 06/30/1996 318,775 1.46
24 08/31/1996 508,194 1.74
25 06/01/1996 286,816 1.32
26 06/01/1996 296,628 1.35
27 05/01/1996 335,865 1.87
28 05/31/1996 233,858 1.26
29 06/30/1996 376,622 1.71
30 07/01/1996 304,700 1.25
31 09/30/1996 477,148 1.59
32 09/01/1996 733,555 2.15
33 10/01/1996 203,752 1.02
34 10/31/1996 437,718 1.27
35 05/01/1996 191,944 1.22
36 09/30/1996 492,485 1.63
37 06/01/1996 278,556 1.54
38 07/31/1996 271,745 1.28
39 06/30/1996 240,065 1.47
40 09/30/1996 709,577 2.27
41 06/01/1996 205,286 1.29
42 06/30/1996 306,192 2.00
43 09/30/1996 152,672 1.08
44 06/30/1996 197,563 1.36
45 07/01/1996 246,793 1.40
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------------------
Loan Repair &
Number Remediation TI/LC P&I Environmental Total Replacement
<S> <C> <C> <C> <C> <C> <C>
1 - - - - - 2,192
2 200,000 - - - 200,000 -
3 134,250 - - - 134,250 -
4 - - - - - -
5 - 140,000 - - 140,000 2,038
6 48,750 - - 60,000 108,750 1,723
7 32,000 - - - 32,000 -
8 - - - 10,000 10,000 4,000
9 - 400,000 - - 400,000 1,497
10 8,250 277,973 - - 286,223 4,598
11 1,813 - - - 1,813 2,684
12 - - - - - 909
13 - - - - - -
14 - 50,000 150,000 - 200,000 2,645
15 - 100,000 - - 100,000 -
16 31,469 - 300,000 - 331,469 6,000
17 494,394 - - - 494,394 4,167
18 22,500 50,000 - - 72,500 2,563
19 13,938 92,000 - - 105,938 1,667
20 6,000 - - - 6,000 -
21 - - - - - 968
22 4,063 - - - 4,063 1,785
23 5,000 - - - 5,000 3,916
24 26,195 - - - 26,195 771
25 21,475 - - - 21,475 5,250
26 40,000 - - - 40,000 5,700
27 - 100,000 - - 100,000 937
28 - 116,266 - - 116,266 1,149
29 2,750 - - - 2,750 1,086
30 - 50,000 - - 50,000 1,062
31 - - - - - -
32 7,750 - - - 7,750 -
33 37,000 - - - 37,000 819
34 2,425 47,000 - 62,500 111,925 525
35 237,500 - - - 237,500 2,288
36 27,600 - - - 27,600 7,858
37 4,403 - - - 4,403 675
38 100,150 - - - 100,150 3,059
39 30,000 - - - 30,000 4,104
40 6,250 - - - 6,250 7,075
41 128,124 - - - 128,124 3,876
42 70,000 - - - 70,000 6,143
43 223,772 - - - 223,772 4,239
44 4,638 - - - 4,638 781
45 - - - - - -
</TABLE>
Page 7 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
46 LO-38,YM1-60,0%-13 Quarterly 349,450 344,086 1.20 5
47 LO-40,YM1-66,0%-7 Quarterly 401,751 394,422 1.25 6
48 LO-40,1%-66,0%-7 Quarterly 419,730 490,168 1.44 6
49 LO-45,YM1-64,0%-7 Quarterly 142,320 241,879 0.74 8
50 LO-64,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-73 Quarterly 465,094 641,395 2.00 6
51 LO-41,YM1-66,0%-7 Quarterly 400,450 356,450 1.22 6
52 LO-39,YM1-66,0%-7 Quarterly 444,975 445,643 1.54 6
53 LO-44,YM1-64,0%-7 Quarterly 426,879 440,688 1.55 6
54 LO-45,YM1-65,0%-7 Quarterly 342,357 379,607 1.31 8
55 LO-64,7%-12,6%-12,5%-12,4%-12,3%-12,2%-12,1%-12,0%-73 Quarterly 525,655 649,694 2.08 6
56 LO-46,YM1-64,0%-7 Quarterly 434,333 453,244 1.74 6
57 LO-34,YM1-60,0%-13 Quarterly 343,813 330,359 1.37 6
58 LO-39,YM1-64,0%-7 Quarterly 463,907 450,300 1.63 6
59 LO-45,YM1-64,0%-7 Quarterly 339,898 369,194 1.34 6
60 LO-39,5%-12,4%-12,3%-12,2%-12,1%-16,0%-7 Quarterly - 568,646 1.98 6
61 LO-79,YM1-149,0%-7 Quarterly 578,836 559,234 1.98 6
62 LO-79,YM1-148,0%-7 Quarterly 415,871 390,859 1.38 6
63 LO-38,YM1-60,0%-13 Quarterly - - - 5
64 LO-38,YM1-66,0%-7 Quarterly 254,466 387,536 1.62 6
65 LO-46,YM1-64,0%-7 Quarterly - 275,963 1.15 6
66 LO-39,YM1-60,0%-13 Quarterly 284,656 355,816 1.64 9
67 LO-74,YM1-204,0%-13 Quarterly 441,895 452,369 1.91 6
68 LO-14,YM1-54,0%-7 Quarterly 300,286 308,440 1.39 5.4
69 LO-38,YM1-66,0%-7 Quarterly 333,135 401,768 1.79 7
70 LO-34,YM1-60,0%-13 Quarterly 277,894 266,966 1.37 6
71 LO-42,YM1-125,0%-7 Quarterly -
72 LO-39,YM1-66,0%-7 Quarterly 304,278 279,414 1.46 9
73 LO-43,YM1-64,0%-7 Quarterly 295,899 302,956 1.39 6
74 LO-44,YM1-66,0%-7 Quarterly 266,286 283,496 1.50 5
75 LO-46,YM1-64,0%-7 Quarterly 170,175 210,866 1.02 6
76 LO-41,YM1-66,0%-7 Quarterly 220,943 277,271 1.38 9
77 LO-73,YM1-84,0%-13 Quarterly 373,097 364,831 1.52 6
78 LO-46,YM1-64,0%-7 Quarterly 338,550 292,120 1.64 6
79 YM1-66,0%-7 Quarterly 210,570 247,252 1.39 6
80 LO-41,YM1-60,0%-13 Quarterly 303,705 281,725 1.59 6
81 LO-43,YM1-64,0%-7 Quarterly 222,410 277,794 1.43 6
82 LO-45,YM1-66,0%-7 Quarterly 236,402 259,973 1.51 9
83 LO-45,YM1-64,0%-7 Quarterly 216,253 229,663 1.32 6
84 LO-40,YM1-60,0%-13 Quarterly 266,764 438,948 2.77 6
85 LO-81,YM1-89,0%-7 Quarterly 307,560 383,589 1.88 7
86 LO-46,YM1-64,0%-7 Quarterly 257,428 271,300 1.72 6
87 LO-75,YM1-90,0%-7 Quarterly 246,155 293,367 1.67 6
88 LO-43,YM1-60,0%-13 Quarterly - - - 12
89 LO-43,YM1-64,0%-7 Quarterly 124,106 171,965 1.09 9
90 LO-44,YM1-60,0%-13 Quarterly 209,613 200,976 1.45 9
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
46 09/01/1996 174,291 1.46
47 06/30/1996 206,914 1.31
48 06/01/1996 371,192 2.17
49 08/31/1996 303,018 1.39
50 06/01/1996 406,482 2.53
51 06/30/1996 190,752 1.31
52 06/30/1996 237,159 1.64
53 06/30/1996 197,297 1.39
54 08/31/1996 305,257 1.59
55 06/01/1996 328,938 2.10
56 06/01/1996 202,324 1.55
57 06/30/1996 153,702 1.28
58 06/01/1996 195,564 1.42
59 06/30/1996 253,006 1.84
60 06/30/1996 265,000 1.84
61 06/30/1996 307,453 2.17
62 06/30/1996 147,954 1.04
63 06/30/1996 149,943 1.49
64 06/30/1996 205,114 1.72
65 06/30/1996 166,401 1.39
66 09/30/1996 170,690 1.05
67 06/30/1996 207,254 1.75
68 09/30/1996 114,103 1.14
69 07/31/1996 224,668 1.72
70 06/30/1996 124,229 1.28
71 751,266 2.74
72 09/30/1996 188,670 1.31
73 06/30/1996 159,083 1.46
74 05/01/1996 123,100 1.56
75 06/30/1996 109,148 1.06
76 09/01/1996 204,881 1.36
77 06/30/1996 138,858 1.16
78 06/30/1996 123,140 1.39
79 06/01/1996 128,556 1.45
80 06/30/1996 162,558 1.83
81 06/30/1996 135,192 1.39
82 09/01/1996 194,685 1.50
83 06/30/1996 149,976 1.72
84 06/30/1996 163,756 2.06
85 07/01/1996 247,521 2.08
86 06/30/1996 126,817 1.61
87 06/30/1996 172,749 1.96
88 07/31/1996 246,602 1.68
89 09/30/1996 140,355 1.19
90 09/30/1996 143,379 1.38
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------------------
Loan Repair &
Number Remediation TI/LC P&I Environmental Total Replacement
<S> <C> <C> <C> <C> <C> <C>
46 38,532 - - - 38,532 -
47 308,375 - - - 308,375 2,988
48 60,650 - - - 60,650 6,583
49 75,375 - - - 75,375 5,382
50 57,500 - - - 57,500 5,667
51 171,570 - - - 171,570 3,300
52 - - - - - 495
53 - - - - - 1,002
54 - - - - - 5,146
55 51,000 - - - 51,000 9,544
56 30,000 - - - 30,000 2,760
57 - - - 9,255 9,255 -
58 43,500 - - - 43,500 1,442
59 - 20,000 - - 20,000 1,408
60 39,600 - - - 39,600 -
61 37,431 - 70,681 - 108,112 2,063
62 50,124 25,000 - - 75,124 5,658
63 - - - - - -
64 10,213 - - - 10,213 6,083
65 - 250,000 - 7,400 257,400 1,044
66 20,988 - - - 20,988 -
67 25,000 - - - 25,000 2,084
68 110,313 - - - 110,313 -
69 8,900 - - - 8,900 2,522
70 - - - 8,475 8,475 -
71 4,063 - - 13,500 17,563 413
72 50,000 - - - 50,000 1,458
73 - - - - - 407
74 58,500 - - - 58,500 -
75 - 60,200 - - 60,200 992
76 12,500 - - - 12,500 -
77 60,000 - - - 60,000 -
78 25,000 - - - 25,000 3,401
79 36,184 - - - 36,184 1,745
80 - - - - - -
81 - - - - - 1,507
82 24,750 - - - 24,750 -
83 - 12,000 - - 12,000 539
84 - - - - - -
85 18,030 - - - 18,030 -
86 35,000 - - - 35,000 2,092
87 - - - - - 792
88 30,000 - - - 30,000 1,685
89 7,188 - - - 7,188 1,119
90 5,840 - - 2,080 7,920 1,190
</TABLE>
Page 8 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
91 LO-44,YM1-22,0%-49 Quarterly 147,552 208,521 1.50 9
92 LO-37,YM1-66,0%-7 Quarterly 220,531 259,964 1.82 6
93 LO-46,YM1-64,0%-7 Quarterly - 221,959 1.67 5
94 LO-37,YM1-66,0%-7 Quarterly 133,232 197,165 1.53 6
95 LO-42,YM1-60,0%-13 Quarterly - 206,230 1.66 6
96 LO-41,YM1-60,0%-13 Quarterly - - - 2.4
97 LO-42,YM1-60,0%-13 Quarterly 184,992 198,903 1.75 6
98 LO-82,YM1-88,0%-7 Quarterly 159,327 186,653 1.62 7
99 LO-77,YM1-150,0%-7 Quarterly 115,942 174,952 1.40 6
100 LO-80,YM1-89,0%-7 Quarterly - - - 12
101 LO-39,YM1-66,0%-7 Quarterly 203,440 194,010 1.65 6
102 LO-39,YM1-64,0%-7 Quarterly 195,625 209,292 1.89 6
103 LO-38,YM1-60,0%-13 Quarterly - 114,871 1.07 9
104 LO-77,YM1-204,0%-13 Quarterly 150,519 158,891 1.58 9
105 LO-37,YM1-66,0%-7 Quarterly 91,953 119,147 1.68 6
106 LO-37,YM1-66,0%-7 Quarterly 65,672 105,462 1.71 6
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
91 09/01/1996 195,993 1.88
92 09/30/1996 142,626 2.00
93 05/01/1996 106,381 1.92
94 06/30/1996 95,106 1.47
95 06/01/1996 113,157 1.82
96 09/01/1996 50,562 2.11
97 06/30/1996 103,669 1.83
98 07/31/1996 84,229 1.25
99 06/01/1996 87,442 1.40
100 06/30/1996 274,237 1.90
101 06/01/1996 97,640 1.66
102 06/25/1996 109,191 1.97
103 09/30/1996 21,493 0.27
104 09/01/1996 119,875 1.59
105 06/30/1996 59,450 1.68
106 06/30/1996 56,166 1.83
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------------------
Loan Repair &
Number Remediation TI/LC P&I Environmental Total Replacement
<S> <C> <C> <C> <C> <C> <C>
91 89,154 - - - 89,154 1,504
92 7,450 150,000 - - 157,450 476
93 24,375 - - - 24,375 972
94 35,538 - - 10,500 46,038 -
95 43,965 - - - 43,965 367
96 1,663 - - - 1,663 -
97 - - - - - -
98 4,848 - - - 4,848 2,167
99 50,000 - - - 50,000 1,688
100 10,719 - - - 10,719 -
101 33,225 9,000 - - 42,225 267
102 3,785 10,252 - - 14,037 1,172
103 77,738 - - - 77,738 1,380
104 - - - - - -
105 12,075 - - 10,500 22,575 -
106 21,750 - - 9,000 30,750 -
CROWN
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN LO-27,3%-24,2%-24,1%-24 Monthly 12,762,101 13,857,021 1.76 7
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN 08/01/1996 10,484,945 2.28
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------------------
Loan Repair &
Number Remediation TI/LC P&I Environmental Total Replacement
<S> <C> <C> <C> <C> <C> <C>
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN 869,515 - - - 869,515 352,411
</TABLE>
(1)
(2)
(3)
(4)
Page 9 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Loan Required 94 NOI 95 NOI 96
Number Prepayment Provisions (6) Stmt Freq (7)(8) (7)(8) 95 DSCR Months
<S> <C> <C> <C> <C> <C> <C>
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
<CAPTION>
Loan 96 End 96
Number Date 96 NOI (7)(8) DSCR
<S> <C> <C> <C>
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
<CAPTION>
Upfront Reserves
--------------------------------------------------------------------------------
Loan Repair &
Number Remediation TI/LC P&I Environmental Total Replacement
<S> <C> <C> <C> <C> <C> <C>
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
</TABLE>
Page 10 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Ongoing Reserves
-----------------------------------------------------------------------------------------------
Loan
Number Taxes Insurance TI/LC Originator Servicers
<S> <C> <C> <C> <C> <C>
1 1/12 of annual taxes 4,583 M B
2 1/12 of annual taxes 1/12 of annual amount - A A
3 1/12 of annual taxes - J B
4 1/12 of annual taxes - B B
5 1/12 of annual taxes 1/12 of annual amount - A A
6 1/12 of annual taxes 3,890 M B
7 1/12 of annual taxes - J B
8 1/12 of annual taxes 1/12 of annual amount - A A
9 1/12 of annual taxes 1/12 of annual amount - B B
10 1/12 of annual taxes 1/12 of annual amount 6,500 B B
11 1/12 of annual taxes 1/12 of annual amount 8,677 A A
12 1/12 of annual taxes - H B
13 1/12 of annual taxes 1/12 of annual amount 8,333 A A
14 1/12 of annual taxes 1/12 of annual amount 6,596 B B
15 1/12 of annual taxes - J B
16 1/12 of annual taxes 1/12 of annual amount - A A
17 1/12 of annual taxes 1/12 of annual amount - A A
18 1/12 of annual taxes 1/12 of annual amount 8,333 B B
19 1/12 of annual taxes 1/12 of annual amount 1,542 B B
20 1/12 of annual taxes - H G
21 1/12 of annual taxes 1/12 of annual amount 5,717 A A
22 1/12 of annual taxes 1/12 of annual amount 5,833 B B
23 1/12 of annual taxes 1/12 of annual amount - B B
24 1/12 of annual taxes 2,367 M B
25 1/12 of annual taxes 1/12 of annual amount - B B
26 1/12 of annual taxes 1/12 of annual amount - A A
27 1/12 of annual taxes 1/12 of annual amount 4,300 B B
28 1/12 of annual taxes 1/12 of annual amount - A A
29 1/12 of annual taxes 1/12 of annual amount - MB B
30 1/12 of annual taxes 1/12 of annual amount 3,405 B B
31 1/12 of annual taxes - J B
32 1/12 of annual taxes 1/12 of annual amount - B B
33 1/12 of annual taxes - H B
34 1/12 of annual taxes 1/12 of annual amount 2,227 B B
35 1/12 of annual taxes - J B
36 1/12 of annual taxes 1/12 of annual amount - N B
37 1/12 of annual taxes 1/12 of annual amount 2,782 A A
38 1/12 of annual taxes 1/12 of annual amount - N B
39 1/12 of annual taxes 1/12 of annual amount - N B
40 1/12 of annual taxes 1/12 of annual amount - U B
41 1/12 of annual taxes 1/12 of annual amount - HC G
42 1/12 of annual taxes 1/12 of annual amount - N B
43 1/12 of annual taxes - H B
44 1/12 of annual taxes - H B
45 1/12 of annual taxes - H B
</TABLE>
Page 11 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Ongoing Reserves
-----------------------------------------------------------------------------------------------
Loan
Number Taxes Insurance TI/LC Originator Servicers
<S> <C> <C> <C> <C> <C>
46 1/12 of annual taxes - H B
47 1/12 of annual taxes 1/12 of annual amount - A A
48 1/12 of annual taxes 1/12 of annual amount - B B
49 1/12 of annual taxes 1/12 of annual amount - HC B
50 1/12 of annual taxes - A A
51 1/12 of annual taxes 1/12 of annual amount - N B
52 1/12 of annual taxes 3,500 N B
53 1/12 of annual taxes 2,042 B B
54 1/12 of annual taxes 1/12 of annual amount - M B
55 1/12 of annual taxes - A A
56 1/12 of annual taxes 1/12 of annual amount - N B
57 1/12 of annual taxes - H G
58 1/12 of annual taxes 1/12 of annual amount 3,350 A A
59 1/12 of annual taxes 4,626 M B
60 1/12 of annual taxes - A A
61 1/12 of annual taxes - J B
62 1/12 of annual taxes 1/12 of annual amount 2,800 A A
63 1/12 of annual taxes - H B
64 1/12 of annual taxes 1/12 of annual amount - A A
65 1/12 of annual taxes 4,248 M B
66 1/12 of annual taxes - H B
67 1/12 of annual taxes 3,208 H B
68 1/12 of annual taxes 1/12 of annual amount - J B
69 1/12 of annual taxes 1/12 of annual amount 2,634 A A
70 1/12 of annual taxes - H G
71 1/12 of annual taxes 1/12 of annual amount - A A
72 1/12 of annual taxes - H B
73 1/12 of annual taxes 1/12 of annual amount 1,671 A A
74 1/12 of annual taxes - J B
75 1/12 of annual taxes 3,975 M B
76 1/12 of annual taxes - J B
77 1/12 of annual taxes 2,333 H B
78 1/12 of annual taxes 1/12 of annual amount - N B
79 1/12 of annual taxes 1/12 of annual amount - HC G
80 1/12 of annual taxes - H B
81 1/12 of annual taxes 1/12 of annual amount - A A
82 1/12 of annual taxes 1,250 J B
83 1/12 of annual taxes 1,674 M B
84 1/12 of annual taxes - H B
85 1/12 of annual taxes - J B
86 1/12 of annual taxes 1/12 of annual amount - N B
87 1/12 of annual taxes 1/12 of annual amount - B B
88 1/12 of annual taxes - H B
89 1/12 of annual taxes - A A
90 1/12 of annual taxes - H B
</TABLE>
Page 12 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Ongoing Reserves
--------------------------------------------------------------------
Loan
Number Taxes Insurance TI/LC Originator Servicers
<S> <C> <C> <C> <C> <C>
91 1/12 of annual taxes 1/12 of annual amount - A A
92 1/12 of annual taxes 1/12 of annual amount 3,750 B B
93 1/12 of annual taxes 1/12 of annual amount - B B
94 1/12 of annual taxes 1/12 of annual amount - MB B
95 1/12 of annual taxes - H B
96 1/12 of annual taxes - H B
97 1/12 of annual taxes - H B
98 1/12 of annual taxes 1/12 of annual amount - B B
99 1/12 of annual taxes 1/12 of annual amount - A A
100 1/12 of annual taxes - J B
101 1/12 of annual taxes 1/12 of annual amount - N B
102 1/12 of annual taxes 1/12 of annual amount 2,563 A A
103 1/12 of annual taxes - H B
104 1/12 of annual taxes - H B
105 1/12 of annual taxes 1/12 of annual amount - MB B
106 1/12 of annual taxes 1/12 of annual amount - MB B
CROWN
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
CROWN 1/12 of annual taxes - A B
</TABLE>
(1)
(2)
(3)
(4)
Page 13 of 15
<PAGE>
JP Morgan C-4 Annex A
<TABLE>
<CAPTION>
Ongoing Reserves
-----------------------------------------------------------------------------------------------
Loan
Number Taxes Insurance TI/LC Originator Servicers
<S> <C> <C> <C> <C> <C>
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
</TABLE>
Page 14 of 15
<PAGE>
(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, cooperative / vacation homes, and
self storage properties and square feet for all other properties.
(3) Number of months required to fully amortize the Cut-off Date Balance using
current payment amount and mortgage interest rate.
(4) 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 the table entitled "B
Amortization Term" in "Description of the Mortgage PooluCertain
Characteristics of the Mortgage Loans."
(5) 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.
(6) Key: LO = Lock-out Period, 0% = No Prepayment Premium, YM1 = greater of 1%
or Yield Maintenance, YM2 = greater of 1% or Yield Maintenance calculated
based on a discount rate equal to 50 basis points over the U.S. Treasury
rate specified therein; Example: LO-45, YM1-12, 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%, 1%, respectively, of amount prepaid followed
by a 3 month period where there is no Prepayment Premium. See the table
entitled "Prepayment Lock-out/Prepayment Premium Analysis Percentage of
Mortgage Loans by Outstanding Principal Balance as of the Date Indicated
Assuming No Prepayments" in "Description of the Mortgage Pool--Certain
Characteristics of the Mortgage Loans."
(7) 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 commission and
similar items.
(8) 94 NOI column; 95 NOI column; 96 NOI column; Loan Number 42-95 NOI column;
Loan Number 93-95 NOI column
Net operating Income represents in the case of 1994 and 1995 NOI, operating
income based on a 12 month fiscal operating statement, except for loan
numbers 42 and 93 for which 1995 NOI is annualized based on a 8 month and
10 month operating statement, respectively; in the case of 1996 NOI,
operating income is based on the number of months specified in the "96
Months" column.
(9) Loan Number 71-columns 94 NOI, 95 NOI, 95 DSCR, 96 NOI, and 96 DSCR
Property is owned by a cooperative corporation. 1994 NOI and 1995 NOI are
$258,423 and $293,629, respectively, resulting in a 1995 DSCR of 1.07x,
1996 NOI and 1996 DSCR set forth herein are based on the appraisal obtained
in connection with the origination of the related note. The partial year (6
months) 1996 NOI and 1996 DSCR reported by the Mortgagor were $134,422 and
0.98x, respectively.
(10) Loan Number 15-Upfront Reserve TI/LC column
Upfront TI/LC Reserve is in the form of a Letter of Credit.
(11) Loan Number 60-Ongoing Monthly Reserves Replacement column
A monthly replacement reserve of $1,657 is collected when the upfront
replacement reserve balance falls below the initial amount.
(12) Loan Number 5-Ongoing Monthly Reserves TI/LC column
A monthly TI/LC reserve of $4,743 is collected when the upfront TI/LC
reserve balance falls below the initial amount.
(13) Loan Number 62-Ongoing Monthly Reserves TI/LC column
The TI/LC monthly reserve will increase to $6,134 commencing July 1, 1997.
(14) Loan Number 63-columns 94 NOI and 95 NOI
This property underwent substantial renovation throughout part of 1994 and
1995 due to an earthquake in 1994. 1994 NOI reported by the Mortgagor was
$(14,550); no operating statement for 1995 was obtained.
(15) Except for the Cut-off Balance, all amounts and terms were calculated based
on a 100% participation interest in the Crown Hotel Notes.
(16) Crown Total-Ongoing Monthly Reserves Replacement column
Represents average monthly amount. See "Description of the Mortgage Pool--
The Crown Participation--Reserves."
* = 1/12 of Annual Amount.
** = 1/12 of Annual Taxes.
Key for Originator and Servicer: A: AMRESCO Capital Corporation B: BOMCC H: Home
Savings of America, FSB HC: Hanover Capital Mortgage Corporation J: John Hancock
Real Estate Finance, Inc. M: MGT MB: Midlantic Bank N: Norwest Bank Minnesota U:
First Union
Page 15 of 15
