<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 333-32019
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DLJ COMMERCIAL MORTGAGE CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3956945
(I.R.S. employer identification number)
277 Park Avenue
New York, New York 10172
(212) 892-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principle executive offices)
The Corporation Trust Company
Corporate Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
Copies to:
William J. Cullen, Esq.
Sidley & Austin
875 Third Avenue
New York, New York 10022
(212) 906-2258
<PAGE>
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount Price Offering Registration
Title of Securities Being Registered to be Registered Per Unit Price Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $3,000,000,000 100% $3,000,000,000 $885,008.03*
==========================================================================================================
</TABLE>
* $303.03 previously paid on the $1,000,000 amount registered upon the
initial filing of this Registration Statement. Accordingly, $884,705 is
being paid upon the filing of this Amendment No. 1.
<PAGE>
EXPLANATORY NOTE
Immediately following this explanatory note there are ten
separate sets of alternative pages labeled in the upper right corner as follows:
"Version 1: Multifamily Properties", "Version 2: Office Properties", "Version 3:
Retail Properties", "Version 4: Hotel and Motel Properties", "Version 5: Casino
Properties", "Version 6: Health Care-Related Facilities", "Version 7: Industrial
Properties", "Version 8: Warehouse, Mini-Warehouse and Self-Storage Facilities",
"Version 9: Restaurants" and "Version 10: Mobile Home Parks and Recreational
Vehicle Parks." Each such "version" contains inserts to the Prospectus included
herein showing the text specific to a material concentration in each of the ten
specified types of properties (i.e. multifamily properties, office properties,
retail properties, hotel and motel properties, casino properties, health
care-related facilities, industrial properties, warehouse, mini-warehouse and
self-storage facilities, restaurants and mobile home parks and recreational
vehicle parks).
The above described ten "versions" of changes to the
Prospectus included herein are being filed with this Registration Statement for
purposes of identifying changes that will be made thereto as a result of a
material concentration in any of the ten specified types of properties in any
specific securitization transaction. Depending on the types of properties that
involve a material concentration in any particular transaction, the respective
changes to the Prospectus from one or more of the above described "versions"
would be included in the specific Prospectus for that transaction. When multiple
sets of inserts are to be included in the specific Prospectus for any particular
transaction, such inserts will be included in each appropriate spot in an order
that goes from highest material concentration to lowest material concentration
(although one sentence inserts that simply identify properties that involve a
material concentration may be combined but will still present such properties in
the aforementioned order). The specific Prospectus for each particular
transaction reflecting such changes, together with the corresponding Prospectus
Supplement, would be filed at the time and in the manner provided by Rule 424
under the Securities Act of 1933.
<PAGE>
Version 1: Multifamily Properties
[The following to be inserted, as indicated on the next page,
on the cover of the Prospectus.]
Multifamily properties consisting of multiple rental or
cooperatively-owned dwellings will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
<PAGE>
Version 1: Multifamily Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Multifamily properties of multiple rental or cooperatively
owned dwellings will represent security for a material concentration of the
Mortgage Loans (and the mortgage loans underlying the MBS) constituting the
Trust Fund for any Series, based on principal balance at the time such Series is
issued. If so specified in the related Prospectus Supplement, the Trust Fund for
a Series may also include letters of credit, surety bonds, insurance policies,
guarantees, reserve funds, guaranteed investment contracts, interest rate
exchange agreements, interest rate cap or floor agreements, or other agreements
designed to reduce the effects of interest rate fluctuations on the Mortgage
Assets. See "Description of the Trust Funds", "Description of the Certificates"
and "Description of Credit Support".
(cover continued on next page)
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PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 1: Multifamily Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
-2-
<PAGE>
Version 1: Multifamily Properties
[The following to be inserted in the Prospectus under "Risk
Factors", immediately following "Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--General":]
Risks Particular to Multifamily Rental Properties. Adverse
economic conditions, either local, regional or national, may limit the amount of
rent that can be charged for rental units, may adversely affect tenants' ability
to pay rent and may result in a reduction in timely rent payments or a reduction
in occupancy levels without a corresponding decrease in expenses. Occupancy and
rent levels may also be affected by construction of additional housing units,
local military base closings, company relocations and closings and national and
local politics, including current or future rent stabilization and rent control
laws and agreements. Multifamily apartment units are typically leased on a
short-term basis, and consequently, the occupancy rate of a multifamily rental
property may be subject to rapid decline, including for some of the foregoing
reasons. In addition, the level of mortgage interest rates may encourage tenants
in multifamily rental properties to purchase single-family housing rather than
continue to lease housing. Further, the cost of operating a multifamily rental
property may increase, including the cost of utilities and the costs of required
capital expenditures. Also, multifamily rental properties may be subject to rent
control laws which could impact the future cash flows of such properties.
Certain multifamily rental properties are eligible to receive
low-income housing tax credits pursuant to Section 42 of the Code ("Section 42
Properties"). However, rent limitations associated therewith may adversely
affect the ability of the applicable borrowers to increase rents to maintain
such Mortgaged Properties in proper condition during periods of rapid inflation
or declining market value of such Mortgaged Properties. In addition, the income
restrictions on tenants imposed by Section 42 of the Code may reduce the number
of eligible tenants in such Mortgaged Properties and result in a reduction in
occupancy rates applicable thereto. Furthermore, some eligible tenants may not
find any differences in rents between the Section 42 Properties and other
multifamily rental properties in the same area to be a sufficient economic
incentive to reside at a Section 42 Property, which may have fewer amenities or
otherwise be less attractive as a residence. Additionally, the characteristics
of a neighborhood may change over time or in relation to newer developments. All
of these conditions and events may increase the possibility that a borrower may
be unable to meet its obligations under its Mortgage Loan.
Risks Particular to Cooperatively-Owned Apartment Buildings.
Generally, a tenant-shareholder of a cooperative corporation must make a monthly
maintenance payment to the cooperative corporation that owns the subject
apartment building representing such tenant-shareholder's pro rata share of the
corporation's payments in respect of the Mortgage Loan secured by, and all real
property taxes, maintenance expenses and other capital and ordinary expenses
with respect to, such property, less any other income that the cooperative
corporation may realize. Adverse economic conditions, either local regional or
national, may adversely affect tenant-shareholders' ability to make required
maintenance payments, either because such adverse economic conditions have
impaired the individual financial conditions of such tenant-shareholders or
their ability to sub-let the subject apartments. To the extent that a large
number of tenant-shareholders in a cooperatively-owned apartment building rely
on sub-letting their apartments to make maintenance payments, the lender on any
mortgage loan secured by such building will be subject to all the risks that it
would have in connection with lending on the security of a multifamily rental
property. See "--Risks Particular to Multifamily Rental Properties" above. In
addition, if in connection with any cooperative conversion of an apartment
building, the sponsor holds the shares allocated to a large number of the
apartment units, any lender secured by a mortgage on such building will be
subject to a risk associated with such sponsor's creditworthiness.
-3-
<PAGE>
Version 1: Multifamily Properties
[The following to be inserted in the Prospectus under
"Description of the Trust Funds," immediately following "Mortgage
Loans--General":]
Mortgage Loans Secured by Multifamily Rental Properties.
Significant factors determining the value and successful operation of a
multifamily rental property are the location of the property, the number of
competing residential developments in the local market (such as apartment
buildings, manufactured housing communities and site-built single family homes),
the physical attributes of the multifamily building (such as its age and
appearance) and state and local regulations affecting such property. In
addition, the successful operation of an apartment building will depend upon
other factors such as its reputation, the ability of management to provide
adequate maintenance and insurance, and the types of services it provides.
Certain states regulate the relationship of an owner and its
tenants. Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection. For
example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from terminating
a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control on
apartment buildings. These ordinances may limit rent increases to fixed
percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control laws
do not permit vacancy decontrol. Local authority to impose rent control is
preempted by state law in certain states, and rent control is not imposed at the
state level in those states. In some states, however, local rent control
ordinances are not pre-empted for tenants having short-term or month-to-month
leases, and properties there may be subject to various forms of rent control
with respect to those tenants. Any limitations on a borrower's ability to raise
property rents may impair such borrower's ability to repay its Mortgage Loan
from its net operating income or the proceeds of a sale or refinancing of the
related Mortgaged Property.
Adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged, may adversely affect
tenants' ability to pay rent and may result in a reduction in timely rent
payments or a reduction in occupancy levels. Occupancy and rent levels may also
be affected by construction of additional housing units, local military base
closings, company relocations and closings and national and local politics,
including current or future rent stabilization and rent control laws and
agreements. Multifamily apartment units are typically leased on a short-term
basis, and consequently, the occupancy rate of a multifamily rental property may
be subject to rapid decline, including for some of the foregoing reasons. In
addition, the level of mortgage interest rates may encourage tenants to purchase
single-family housing rather than continue to lease housing. The location and
construction quality of a particular building may affect the occupancy level as
well as the rents that may be charged for individual units. The characteristics
of a neighborhood may change over time or in relation to newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment
Buildings. A cooperative apartment building and the land under the building are
owned or leased by a non-profit cooperative
-4-
<PAGE>
Version 1: Multifamily Properties
corporation. The cooperative corporation is in turn owned by tenant-shareholders
who, through ownership of stock, shares or membership certificates in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific apartments or units. Generally, a
tenant-shareholder of a cooperative corporation must make a monthly maintenance
payment to the corporation representing such tenant-shareholder's pro rata share
of the corporation's payments in respect of any mortgage loan secured by, and
all real property taxes, maintenance expenses and other capital and ordinary
expenses with respect to, the real property owned by such cooperative
corporation, less any other income that the cooperative corporation may realize.
Such payments to the cooperative corporation are in addition to any payments of
principal and interest the tenant-shareholder must make on any loans of the
tenant-shareholder secured by its shares in the corporation.
A cooperative corporation is directly responsible for building
management and payment of real estate taxes and hazard and liability insurance
premiums. A cooperative corporation's ability to meet debt service obligations
on a mortgage loan secured by the real property owned by such corporation, as
well as all other operating expenses of such property, is dependent primarily
upon the receipt of maintenance payments from the tenant-shareholders, together
with any rental income from units or commercial space that the cooperative
corporation might control. Unanticipated expenditures may in some cases have to
be paid by special assessments on the tenant-shareholders. A cooperative
corporation's ability to pay the amount of any balloon payment due at the
maturity of a mortgage loan secured by the real property owned by such
cooperative corporation depends primarily on its ability to refinance the
mortgage loan. Neither the Depositor nor any other person will have any
obligation to provide refinancing for any of the Mortgage Loans.
In a typical cooperative conversion plan, the owner of a
rental apartment building contracts to sell the building to a newly formed
cooperative corporation. Shares are allocated to each apartment unit by the
owner or sponsor, and the current tenants have a certain period to subscribe at
prices discounted from the prices to be offered to the public after such period.
As part of the consideration for the sale, the owner or sponsor receives all the
unsold shares of the cooperative corporation. The sponsor usually also controls
the corporation's board of directors and management for a limited period of
time.
Each purchaser of shares in the cooperative corporation
generally enters into a long-term proprietary lease which provides the
shareholder with the right to occupy a particular apartment unit. However, many
cooperative conversion plans are "non-eviction" plans. Under a non-eviction
plan, a tenant at the time of conversion who chooses not to purchase shares is
entitled to reside in the unit as a subtenant from the owner of the shares
allocated to such apartment unit. Any applicable rent control or rent
stabilization laws would continue to be applicable to such subtenancy, and the
subtenant may be entitled to renew its lease for an indefinite number of times,
with continued protection from rent increases above those permitted by any
applicable rent control and rent stabilization laws. The shareholder is
responsible for the maintenance payments to the cooperative without regard to
its receipt or non-receipt of rent from the subtenant, which may be lower than
maintenance payments on the unit. Newly-formed cooperative corporations
typically have the greatest concentration of non-tenant shareholders.
-5-
<PAGE>
Version 2: Office Properties
[The following to be inserted, as indicated on the next page,
on the cover of the Prospectus.]
Office properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
<PAGE>
Version 2: Office Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation and personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Office properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 2: Office Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 2: Office Properties
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Office Properties. In addition to risks generally
associated with real estate, Mortgage Loans secured by office properties are
also affected significantly by adverse changes in population and employment
growth (which generally creates demand for office space), local competitive
conditions (such as the supply of office space or the existence or construction
of new competitive office buildings), the quality and management philosophy of
management, the attractiveness of the properties to tenants and their customers
or clients, the attractiveness of the surrounding neighborhood and the need to
make major repairs or improvements to satisfy the needs of major tenants. Office
properties that are not equipped to accommodate the needs of modern business may
become functionally obsolete and thus noncompetitive. In addition, office
properties may be adversely affected by an economic decline in the business
operated by their tenants. Such decline may result in one or more significant
tenants ceasing operations at such locations (which may occur on account of a
voluntary decision not to renew a lease, bankruptcy or insolvency of such
tenants, such tenants' general cessation of business activities or for other
reasons). The risk of such an economic decline is increased if revenue is
dependent on a single tenant or if there is a significant concentration of
tenants in a particular business or industry.
[The following to be inserted in the Base Prospectus under "Description
of the Trust Funds", immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Office Properties. Significant factors
affecting the value of office properties include, without limitation, the
quality of the tenants in the building, the physical attributes of the building
in relation to competing buildings, the location of the building with respect to
the central business district or population centers, demographic trends within
the metropolitan area to move away from or towards the central business
district, social trends combined with space management trends (which may change
towards options such as telecommuting or hoteling to satisfy space needs), tax
incentives offered to businesses by cities or suburbs adjacent to or near the
city where the building is located and the strength and stability of the market
area as a desirable business location. Office properties may be adversely
affected by an economic decline in the business operated by their tenants. The
risk of such an economic decline is increased if revenue is dependent on a
single tenant or if there is a significant concentration of tenants in a
particular business or industry.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a building's age,
condition, design (including floor sizes and layout), access to transportation,
availability of parking and ability to offer certain amenities to its tenants
(including sophisticated building systems, such as fiberoptic cables, satellite
communications or other base building technological features). Office properties
that are not equipped to accommodate the needs of modern business may become
functionally obsolete and thus non-competitive.
The success of an office property also depends on the local economy. A
company's decision to locate office headquarters in a given area, for example,
may be affected by such factors as labor cost and quality, tax environment and
quality of life matters, such as schools and cultural amenities. A central
business district may have a substantially different economy from that of a
suburb. The local economy will affect an office property's ability to attract
stable tenants on a consistent basis. In addition, the cost of refitting office
space for a new tenant is often higher than for other property types.
- 4 -
<PAGE>
Version 3: Retail Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Retail properties will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS) constituting
the Trust Fund for any Series, based on principal balance at the time such
Series is issued.
<PAGE>
Version 3: Retail Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 3: Retail Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 3: Retail Properties
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Retail Properties. In addition to risks generally
associated with real estate, Mortgage Loans secured by retail properties are
also affected significantly by adverse changes in consumer spending patterns,
local competitive conditions (such as the supply of retail space or the
existence or construction of new competitive shopping centers or shopping
malls), alternative forms of retailing (such as direct mail, video shopping
networks and selling through the Internet, which reduce the need for retail
space by retail companies), the quality and management philosophy of management,
the attractiveness of the properties and the surrounding neighborhood to tenants
and their customers, the public perception of the safety of customers (at
shopping malls and shopping centers, for example) and the need to make major
repairs or improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties may
be entitled to terminate their leases if an anchor tenant ceases operations at
such property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Retail Properties. Retail properties
generally derive all or a substantial percentage of their income from lease
payments from commercial tenants. Income from and the market value of retail
properties is dependent on various factors including, but not limited to, the
ability to lease space in such properties, the ability of tenants to meet their
lease obligations, the possibility of a significant tenant becoming a debtor in
a federal or state bankruptcy or insolvency case, as well as fundamental aspects
of real estate such as location and market demographics.
The correlation between the success of tenant businesses and property
value is more direct with respect to retail properties than other types of
commercial property because a significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Declines in sales
of tenants of retail properties will likely cause a corresponding decline in
percentage rents and such tenants may become unable to pay their rent or other
occupancy costs. The default by a tenant under its lease could result in delays
and costs in enforcing the lessor's rights. Repayment of the related mortgage
loans will be affected by the expiration of space leases and the ability of the
respective borrowers to renew or relet the space on comparable terms. Even if
vacated space is successfully relet, the costs associated with reletting,
including tenant improvements, leasing commissions and free rent, could be
substantial and could reduce cash flow from the retail properties.
Whether a retail property is "anchored" or "unanchored" is also an
important distinction. Anchor tenants in shopping centers traditionally have
been a major factor in the public's perception of a
- 4 -
<PAGE>
Version 3: Retail Properties
shopping center. The anchor tenants at a shopping center play an important part
in generating customer traffic and making a center a desirable location for
other tenants of the center. The failure of an anchor tenant to renew its
leases, the termination of an anchor tenant's lease, the bankruptcy or economic
decline of an anchor tenant, or the cessation of the business of an anchor
tenant (notwithstanding any continued payment of rent) can have a material
negative effect on the economic performance of a retail property. Furthermore,
the correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
Unlike certain other types of commercial properties, retail properties
also face competition from sources outside a given real estate market. Catalogue
retailers, home shopping networks, telemarketing, selling through the Internet,
and outlet centers all compete with more traditional retail properties for
consumer dollars. Continued growth of these alternative retail outlets (which
are often characterized by lower operating costs) could adversely affect the
rents collectible at retail properties.
- 5 -
<PAGE>
Version 4: Hotel and Motel Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Hotel and motel properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
<PAGE>
Version 4: Hotel and Motel Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Hotel and motel properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans underlying
the MBS) constituting the Trust Fund for any Series, based on principal balance
at the time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 4: Hotel and Motel Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 4: Hotel and Motel Properties
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Hotel and Motel Properties. Hotel and motel
properties are subject to operating risks common to the lodging industry. These
risks include, among other things, a high level of continuing capital
expenditures to keep necessary furniture, fixtures and equipment updated,
competition from other hotels and motels, increases in operating costs (which
increases may not necessarily in the future be offset by increased room rates),
dependence on business and commercial travelers and tourism, increases in energy
cots and other expenses of travel and adverse effects of general and local
economic conditions. These factors could adversely affect the related borrower's
ability to make payments on the related Mortgage Loans. Since limited service
hotels and motels are relatively quick and inexpensive to construct and may
quickly reflect a positive value, an over-building of such hotels and motels
could occur in any given region, which would likely adversely affect occupancy
and daily room rates. Further, because hotel and motel rooms are generally
rented for short periods of time, hotel and motel properties tend to be more
sensitive to adverse economic conditions and competition than many other
commercial properties. Additionally, the revenues of certain hotels and motels,
particularly those located in regions whose economies depend upon tourism, may
be highly seasonal in nature.
A hotel or motel property may present additional risks as compared to
other commercial property types in that: (i) hotels and motels may be operated
pursuant to franchise, management and operating agreements that may be
terminable by the franchisor, the manager or the operator; (ii) the
transferability of any operating, liquor and other licenses to the entity
acquiring such hotel or motel (either through purchase or foreclosure) is
subject to local law requirements; (iii) it may be difficult to terminate an
ineffective operator of a hotel or motel property subsequent to a foreclosure of
such property; and (iv) future occupancy rates may be adversely affected by,
among other factors, any negative perception of a hotel or motel based upon its
historical reputation.
Hotel and motel properties may be operated pursuant to franchise
agreements. The continuation of franchises is typically subject to specified
operating standards and other terms and conditions. The franchisor periodically
inspects its licensed properties to confirm adherence to its operating
standards. The failure of the hotel or motel property to maintain such standards
or adhere to such other terms and conditions could result in the loss or
cancellation of the franchise license. It is possible that the franchisor could
condition the continuation of a franchise license on the completion of capital
improvements or the making of certain capital expenditures that the related
borrower determines are too expensive or are otherwise unwarranted in light of
general economic conditions or the operating results or prospects of the
affected hotels. In that event, the related borrower may elect to allow the
franchise license to lapse. In any case, if the franchise is terminated, the
related borrower may seek to obtain a suitable replacement franchise or to
operate such hotel or motel property independently of a franchise license. The
loss of a franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel or motel covered by the
franchise because of the loss of associated name recognition, marketing support
and centralized reservation systems provided by the franchisor.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds", immediately following "Mortgage Loans--General":]
- 4 -
<PAGE>
Version 4: Hotel and Motel Properties
Mortgage Loans Secured by Hotel and Motel Properties. Hotel and motel
properties may involve different types of hotels and motels, including full
service hotels, resort hotels with many amenities, limited service hotels,
hotels and motels associated with national franchise chains, hotels and motels
associated with regional franchise chains and hotels that are not affiliated
with any franchise chain but may have their own brand identity. Various factors,
including location, quality and franchise affiliation affect the economic
performance of a hotel or motel. Adverse economic conditions, either local,
regional or national, may limit the amount that can be charged for a room and
may result in a reduction in occupancy levels. The construction of competing
hotels and motels can have similar effects. To meet competition in the industry
and to maintain economic values, continuing expenditures must be made for
modernizing, refurbishing, and maintaining existing facilities prior to the
expiration of their anticipated useful lives. Because hotel and motel rooms
generally are rented for short periods of time, hotels and motels tend to
respond more quickly to adverse economic conditions and competition than do
other commercial properties. Furthermore, the financial strength and
capabilities of the owner and operator of a hotel or motel may have an impact on
such hotel's or motel's quality of service and economic performance.
Additionally, the lodging industry, in certain locations, is seasonal in nature
and this seasonality can be expected to cause periodic fluctuations in room and
other revenues, occupancy levels, room rates and operating expenses. The demand
for particular accommodations may also be affected by changes in travel patterns
caused by changes in energy prices, strikes, relocation of highways, the
construction of additional highways and other factors.
The viability of any hotel or motel property that is a franchise of a
national or a regional hotel or motel chain depends in part on the continued
existence and financial strength of the franchisor, the public perception of the
franchise service mark and the duration of the franchise licensing agreement.
The transferability of franchise license agreements may be restricted and, in
the event of a foreclosure on any such hotel or motel property, the consent of
the franchisor for the continued use the franchise license by the hotel or motel
property would be required. Conversely, a lender may be unable to remove a
franchisor that it desires to replace following a foreclosure. Further, in the
event of a foreclosure on a hotel or motel property, it is unlikely that the
purchaser (or the trustee, servicer or special servicer, as the case may be) of
such hotel or motel property may be entitled to the rights under any liquor
license for such hotel or motel property, and such party would be required to
apply in its own right for such license or licenses. There can be no assurance
that a new license could be obtained or that it could be obtained promptly.
- 5 -
<PAGE>
Version 5: Casino Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Casino properties will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS) constituting
the Trust Fund for any Series, based on principal balance at the time such
Series is issued.
<PAGE>
Version 5: Casino Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Casino properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 5: Casino Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 5: Casino Properties
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Casino Properties. The income generated by a casino
is subject to several factors such as local, regional and national economic
conditions. Casinos are dependent on the willingness of patrons to gamble and,
accordingly, the availability of disposable income for such purposes. Additional
risks include, among others, a high level of continuing capital expenditure to
maintain attractive facilities, competition from other casinos, increases in
operating costs (which may not be able to be passed through to patrons) and,
depending on the geographic location, a dependence on tourism. In addition, to
avoid criminal influence, the ownership and operation of casino properties is
often subject to local or state governmental regulation. Gaming licenses are not
transferable (including in connection with a foreclosure), and there can be no
assurance that the Trustee, Special Servicer or other purchaser in foreclosure
or otherwise will be able to obtain the requisite approvals to operate the
subject property as a casino. The loss of a gaming license could have a material
adverse effect on the value of a casino property. In addition, any given state
or municipality that currently allows legalized gambling could pass legislation
banning it. In general, Mortgaged Properties operated as casinos will also be
operated as a hotel and prospective investors should also consider the risks
associated with hotel properties.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds", immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Casino Properties. Various factors, including
location and appearance affect the economic performance of a casino. Adverse
economic conditions, either local, regional or national, may limit the amount of
disposable income that potential patrons may have for gambling. The construction
of competing casinos can also have an adverse affect on the performance of a
casino property. To meet competition, continuing expenditures must be made for
modernizing, refurbishing and maintaining existing facilities. Because of the
nature of the business, casinos tend to respond more quickly to adverse economic
conditions and competition then do certain other commercial properties.
Depending on the geographic location of a casino property, it may be heavily
dependent on tourism for its clientele. In addition, to avoid criminal
influence, the ownership and operation of casino properties is often subject to
local or state governmental regulation. The appropriate government agency or
authority may also have jurisdiction over or influence with respect to the
foreclosure of a casino property and/or the bankruptcy of its owner or operator.
Gaming licenses are not transferable (including in connection with foreclosure),
and there can be no assurance that the Trustee, Special Servicer or other
purchaser in foreclosure or otherwise will be able to obtain the requisite
approvals to operate the subject property as a casino. The loss of a gaming
license could have a material adverse affect on the value of a casino property.
Further, any given state or municipality that currently allows legalized
gambling could pass legislation banning it. Depending upon what alternative use
may be made of a casino property, such legislation could have a material adverse
affect on the value of such property. In general, Mortgaged Properties operated
as casinos will also be operated as a hotel and prospective investors should
also consider the risks associated with hotel properties.
- 4 -
<PAGE>
Version 6: Health Care-Related Facilities
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Health care-related facilities will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
<PAGE>
Version 6: Health Care-Related Facilities
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Health care-related facilities will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans underlying
the MBS) constituting the Trust Fund for any Series, based on principal balance
at the time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 6: Health Care-Related Facilities
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 6: Health Care-Related Facilities
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Health Care-Related Properties. Certain types of
health care-related facilities (including nursing homes) typically receive a
substantial portion of their revenues from government reimbursement programs,
primarily Medicaid and Medicare. Medicaid and Medicare are subject to statutory
and regulatory changes, retroactive rate adjustments, administrative rulings,
policy interpretations, delays by fiscal intermediaries and government funding
restrictions, all of which can adversely affect revenues from operation.
Moreover, governmental payors have employed cost-containment measures that limit
payments to health care providers and there are currently under consideration
various proposals for national health care relief that could further limit these
payments. In addition, providers of long-term nursing care and other medical
services are highly regulated by federal, state and local law and are subject
to, among other things, federal and state licensing requirements, facility
inspections, rate setting, reimbursement policies, and laws relating to the
adequacy of medical care, distribution of pharmaceuticals, equipment, personnel
operating policies and maintenance of and additions to facilities and services,
any or all of which factors can increase the cost of operation, limit growth and
in extreme cases, require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property that
is operated as a health care-related facility, none of the Trustee, the Special
Servicer or a subsequent lessee or operator of the Mortgaged Property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective Mortgaged Properties prior to such foreclosure. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Special
Servicer) or purchaser in a foreclosure sale would be entitled to the rights
under any required licenses and regulatory approvals and such party may have to
apply in its own right for such licenses and approvals. There can be no
assurance that a new license could be obtained or that a new approval would be
granted. In addition, health care-related facilities are generally "special
purpose" properties that could not be readily converted to general residential,
retail or office use, and transfers of health care-related facilities are
subject to regulatory approvals under state, and in some cases federal, law not
required for transfers of most other types of commercial operations and other
types of real estate, all of which may adversely affect the liquidation value.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Health Care-Related Properties. The Mortgaged
Properties may include Senior Housing, Assisted Living Facilities, Skilled
Nursing Facilities and Acute Care Facilities (any of the foregoing, "Health
Care-Related Facilities"). "Senior Housing" generally consist of facilities with
respect to which the residents are ambulatory, handle their own affairs and
typically are couples whose children have left the home and at which the
accommodations are usually apartment style. "Assisted Living Facilities" are
typically single or double room occupancy, dormitory-style housing facilities
which provide food service, cleaning and some personal care and with respect to
which the tenants are able to medicate themselves
- 4 -
<PAGE>
Version 6: Health Care-Related Facilities
but may require assistance with certain daily routines. "Skilled Nursing
Facilities" provide services to post trauma and frail residents with limited
mobility who require extensive medical treatment. "Acute Care Facilities"
generally consist of hospital and other facilities providing short-term, acute
medical care services.
Certain types of Health Care-Related Facilities, particularly Acute
Care Facilities, Skilled Nursing Facilities and some Assisted Living Facilities,
typically receive a substantial portion of their revenues from government
reimbursement programs, primarily Medicaid and Medicare. Medicaid and Medicare
are 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 exist various proposals for national health care reform that could further
limit those payments. Accordingly, there can be no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those Health Care-Related Facilities that
receive revenues from those sources, and consequently the ability of the related
borrowers to meet their obligations under any Mortgage Loans secured thereby,
could be adversely affected.
Moreover, Health Care-Related Facilities are generally 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. In addition, facilities where such care or
other medical services are provided are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. Providers of assisted living
services are also subject to state licensing requirements in certain states. The
failure of an operator to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a Health Care-Related
Facility or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, under applicable federal and state laws and
regulations, Medicare and Medicaid reimbursements are generally not permitted to
be made to any person other than the provider who actually furnished the related
medical goods and services. Accordingly, in the event of foreclosure, none of
the Trustee, the Master Servicer, the Special Servicer or a subsequent lessee or
operator of any Health Care-Related Facility securing a defaulted Mortgage Loan
(a "Health Care-Related Mortgaged Property") would generally be entitled to
obtain from federal or state governments any outstanding reimbursement payments
relating to services furnished at such property prior to such foreclosure. Any
of the aforementioned events may adversely affect the ability of the related
borrowers to meet their Mortgage Loan obligations.
Government regulation applying specifically to Acute Care Facilities,
Skilled Nursing Facilities and certain types of Assisted Living Facilities
includes health planning legislation, enacted by most states, intended, at least
in part, to regulate the supply of nursing beds. The most common method of
control is the requirement that a state authority first make a determination of
need, evidenced by its issuance of a Certificate of Need ("CON"), before a
long-term care provider can establish a new facility, add beds to an existing
facility or, in some states, take certain other actions (for example, acquire
major medical equipment, make major capital expenditures, add services,
refinance long-term debt, or transfer ownership of a facility). States also
regulate nursing bed supply in other ways. For example, some states have imposed
moratoria on the licensing of new beds, or on the certification of new Medicaid
beds, or have discouraged the construction of new nursing facilities by limiting
Medicaid reimbursements allocable to the cost of new construction and equipment.
In general, a CON is site specific and operator specific; it cannot be
transferred from one site to
- 5 -
<PAGE>
Version 6: Health Care-Related Facilities
another, or to another operator, without the approval of the appropriate state
agency. Accordingly, if a Mortgage Loan secured by a lien on such a Health
Care-Related Mortgaged Property were foreclosed upon, the purchaser at
foreclosure might be required to obtain a new CON or an appropriate exemption.
In addition, compliance by a purchaser with applicable regulations may in any
case require the engagement of a new operator and the issuance of a new
operating license. Upon a foreclosure, a state regulatory agency may be willing
to expedite any necessary review and approval process to avoid interruption of
care to a facility's residents, but there can be no assurance that any will do
so or that any necessary licenses or approvals will be issued.
Further government regulation applicable to Health Care-Related
Facilities is found in the form of federal and state "fraud and abuse" laws that
generally prohibit payment or fee-splitting arrangements between health care
providers that are designed to induce or encourage the referral of patients to,
or the recommendation of, a particular provider for medical products or
services. Violation of these restrictions can result in license revocation,
civil and criminal penalties, and exclusion from participation in Medicare or
Medicaid programs. The state law restrictions in this area vary considerably
from state to state. Moreover, the federal anti-kickback law includes broad
language that potentially could be applied to a wide range of referral
arrangements, and regulations designed to create "safe harbors" under the law
provide only limited guidance. Accordingly, there can be no assurance that such
laws will be interpreted in a manner consistent with the practices of the owners
or operators of the Health Care-Related Mortgaged Properties that are subject to
such laws.
The operators of Health Care-Related Facilities are likely to compete
on a local and regional basis with others that operate similar facilities, some
of which competitors may be better capitalized, may offer services not offered
by such operators, or may be owned by non-profit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other sources not available to such operators. The successful operation of a
Health Care-Related Facility will generally depend upon the number of competing
facilities in the local market, as well as upon other factors such as its age,
appearance, reputation and management, the types of services it provides and,
where applicable, the quality of care and the cost of that care. The inability
of a Health Care-Related Mortgaged Property to flourish in a competitive market
may increase the likelihood of foreclosure on the related Mortgage Loan.
- 6 -
<PAGE>
Version 7: Industrial Properties
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Industrial properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.
<PAGE>
Version 7: Industrial Properties
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Industrial properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 7: Industrial Properties
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 7: Industrial Properties
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Industrial Properties. Industrial properties may be
adversely affected by reduced demand for industrial space occasioned by a
decline in a particular industry segment and/or by a general slow-down in the
economy, and an industrial property that suited the particular needs of its
original tenant may be difficult to relet to another tenant or may become
functionally obsolete relative to newer properties. Furthermore, industrial
properties may be adversely affected by the availability of labor sources or a
change in the proximity of supply sources. Because industrial properties
frequently have a single tenant, any such property is heavily dependent on the
success of such tenant's business.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Industrial Properties. Significant factors
determining the value of industrial properties are the quality of tenants,
building design and adaptability, the functionality of the finish-out and the
location of the property. Industrial properties may be adversely affected by an
economic decline in the businesses operated by their tenants. Such decline may
result in one or more significant tenants ceasing operations at such locations
(which may occur on account of a voluntary decision not to renew a lease,
bankruptcy or insolvency of such tenants, such tenants' general cessation of
business activities or for other reasons). The risk of such an economic decline
is increased if revenue is dependent on a single tenant as is frequently the
case with an industrial property.
Aspects of building site, design and adaptability affect the value of
an industrial property. Site characteristics which are valuable to an industrial
property include clear heights, column spacing, number of bays and bay depths,
divisibility, floor loading capacities, truck turning radius and overall
functionality and accessibility. Nevertheless, site characteristics of an
industrial property suitable for one tenant may not be appropriate for other
potential tenants, which may make it difficult to relet the property.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
Further, industrial properties may be adversely affected by economic declines in
the industry segment of their tenants.
- 4 -
<PAGE>
Version 8: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Warehouse, mini-warehouse and self-storage facilities will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.
<PAGE>
Version 8: Warehouse, Mini-Warehouse and Self-Storage Facilities
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Warehouse, mini-warehouse and self-storage facilities will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying the MBS) constituting the Trust Fund for any Series,
based on principal balance at the time such Series is issued. If so specified in
the related Prospectus Supplement, the Trust Fund for a Series may also include
letters of credit, surety bonds, insurance policies, guarantees, reserve funds,
guaranteed investment contracts, interest rate exchange agreements, interest
rate cap or floor agreements, or other agreements designed to reduce the effects
of interest rate fluctuations on the Mortgage Assets. See "Description of the
Trust Funds", "Description of the Certificates" and "Description of Credit
Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
- 2 -
<PAGE>
Version 8: Warehouse, Mini-Warehouse and Self-Storage Facilities
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 8: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Warehouse, Mini-Warehouse and Self-Storage
Facilities. Warehouse, mini-warehouse and self-storage properties ("Storage
Properties") are considered vulnerable to competition because both acquisition
costs and break-even occupancy are relatively low. The conversion of Storage
Properties to alternative uses would generally require substantial capital
expenditures. Thus, if the operation of any of the Storage Properties becomes
unprofitable due to decreased demand, competition, age of improvements or other
factors such that the borrower becomes unable to meet its obligation on the
related Mortgage Loan, the liquidation value of that Storage Property may be
substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Storage Property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access are important to the success of a
Storage Property, as is building design and location.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Warehouse, Mini-Warehouse and Self-Storage
Facilities. Because of relatively low acquisition costs and break-even occupancy
rates, warehouse, mini-warehouse and self-storage properties ("Storage
Properties") are considered vulnerable to competition. Despite their low
acquisition costs, and because of their particular building characteristics,
Storage Properties would require substantial capital investments in order to
adapt them to alternative uses. Such constraint in adaptability to other uses
may substantially reduce the liquidation value of a Storage Property. In
addition to competition, other factors that affect the success of a Storage
Property, and thus the ability of the borrower to meet its obligations on the
related mortgage loan, include the location and visibility of the facility, its
proximity to apartment complexes or commercial users, trends of apartment
tenants in the area moving to single-family homes, services provided (such as
security and accessibility), age of improvements, the appearance of the
improvements and the quality of management.
- 4 -
<PAGE>
Version 9: Restaurants
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Restaurants will represent security for a material concentration of the
Mortgage Loans (and the mortgage loans underlying the MBS) constituting the
Trust Fund for any Series, based on principal balance at the time such Series is
issued.
<PAGE>
Version 9: Restaurants
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Restaurants will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. If so specified in the related Prospectus
Supplement, the Trust Fund for a Series may also include letters of credit,
surety bonds, insurance policies, guarantees, reserve funds, guaranteed
investment contracts, interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets. See "Description of the Trust Funds",
"Description of the Certificates" and "Description of Credit Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 9: Restaurants
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
- 3 -
<PAGE>
Version 9: Restaurants
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Restaurants. Various factors may affect the
economic viability of individual restaurants and other establishments that are
part of the food and beverage service industry ("Restaurants"), including but
not limited to competition from facilities having businesses similar to the
particular Restaurant; perceptions by prospective customers of the safety,
convenience, services and attractiveness of the Restaurant; the quality of
available food products; changes in demographics, consumer habits and traffic
patterns; the ability to provide or contract for capable management and adequate
maintenance; and retroactive changes to building codes, similar ordinances and
other legal requirements. Additional factors that can affect the success of a
regionally or nationally-known chain Restaurant include actions and omissions of
any franchisor (including management practices that adversely affect the nature
of the business or that require renovation, refurbishment, expansion or other
expenditures); the degree of support provided or arranged by any such
franchisor, its franchisee organizations and third party providers of products
or services; the bankruptcy or business discontinuation of any such franchisor,
franchisee organization or third party; and increases in operating expenses.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Restaurants. The Mortgaged Properties that
constitute Restaurants may include those that are individually owned and
operated and those which are part of a regionally- or nationally-known chain of
Restaurants. As with loans secured by other income-producing properties, a
Mortgage Loan secured by a Restaurant is dependent on the successful operation
of the Restaurant, which, in turn, is dependent on various factors, many of
which are beyond the control of the Restaurant operator, including but not
limited to competition from facilities having businesses similar to the
Restaurant; perceptions by prospective customers of the safety, convenience,
services and attractiveness of the Restaurant; the quality of available food and
beverage products; changes in demographics, consumer habits and traffic
patterns; the ability to provide or contract for capable management and adequate
maintenance; and retroactive changes to building codes, similar ordinances and
other legal requirements. Adverse economic conditions, either local, regional or
national, may limit the amount that may be charged for food and beverages and
the extent to which consumers dine out, and may result in a reduction in
customers. The construction of competing food/drink establishments can have
similar effects. Because of the nature of the business, Restaurants tend to
respond to adverse economic conditions and competition more quickly than do many
other commercial properties.
The food and beverage service industry is highly competitive. The
principal means of competition are segment, product, price, value, quality,
service, convenience, location and the nature and condition of the Restaurant
facility. A Restaurant operator competes with the operators of comparable
restaurant facilities in the area in which its Restaurant is located. Other
restaurants could have lower operating costs, more favorable locations, more
effective marketing, more efficient operations or better facilities.
The location and condition of a particular Restaurant will affect the
number of customers and, to a certain extent, the prices that may be charged.
The characteristics of an area or neighborhood in which
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<PAGE>
Version 9: Restaurants
a Restaurant is located may change over time or in relation to competing
facilities, and the cleanliness and maintenance at a Restaurant will affect the
appeal of the Restaurant to customers. In addition, the effects of poor
construction quality will increase over time in the form of increased
maintenance and capital improvements. Even good construction will deteriorate
over time if management does not schedule and perform adequate maintenance in a
timely fashion. In the case of regionally- or nationally-known chain
restaurants, there may be expenditures for renovation, refurbishment or
expansion at a Restaurant regardless of its condition. While a Restaurant may be
renovated, refurbished or expanded to either maintain its condition or remain
competitive, such renovation, refurbishment or expansion may itself entail
significant risks. In addition, the business conducted at a Restaurant may face
competition from other industries and industry segments.
The success of a Restaurant which is part of either a regionally- or
nationally-known chain of restaurants can be affected by various factors such as
the management practices of the respective franchisor, a lack of support by such
franchisor, its franchisee organizations or third party providers of products or
services, or the bankruptcy or business discontinuation of any such franchisor,
franchisee organization or third party. Furthermore, the transferability of
franchise license agreements may be restricted and, in the event of foreclosure,
there can be no assurance that the related Restaurant would have the right to
continue to use the license. In addition, the ability of a Restaurant to attract
customers, and such Restaurant's revenues, may depend in large part on its
having a liquor license. Such a license may not be transferable (for example, in
connection with a foreclosure).
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<PAGE>
Version 10: Mobile Home Parks and Recreational Vehicle Parks
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Mobile Home Parks and Recreational Vehicle Parks will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued.
<PAGE>
Version 10: Mobile Home Parks and Recreational Vehicle Parks
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "Trust
Fund") to be formed by DLJ Commercial Mortgage Corp. (the "Depositor") and
including a segregated pool (a "Mortgage Asset Pool") of various types of
multifamily and commercial mortgage loans ("Mortgage Loans"), mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans, or
a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). The
Mortgage Loans in (and the mortgage loans underlying the MBS in) any Trust Fund
will be secured by first or junior liens on, or security interests in, fee
and/or leasehold estates in one or more of the following types of real property:
(i) residential properties consisting of multiple rental or cooperatively-owned
dwelling units and mobile home parks; (ii) commercial properties consisting of
office buildings, retail facilities related to the sales of products and goods
and facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Mobile home parks and recreational vehicle parks will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS) constituting the Trust Fund for any Series, based on
principal balance at the time such Series is issued. If so specified in the
related Prospectus Supplement, the Trust Fund for a Series may also include
letters of credit, surety bonds, insurance policies, guarantees, reserve funds,
guaranteed investment contracts, interest rate exchange agreements, interest
rate cap or floor agreements, or other agreements designed to reduce the effects
of interest rate fluctuations on the Mortgage Assets. See "Description of the
Trust Funds", "Description of the Certificates" and "Description of Credit
Support".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page
18 herein under the caption "Risk Factors" and such information as may be set
forth under the caption "Risk Factors" in the related Prospectus Supplement
before purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or
more different methods, including offerings through underwriters, as described
herein under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is ______, 1997.
<PAGE>
Version 10: Mobile Home Parks and Recreational Vehicle Parks
(cover continued)
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates of such Series, may consist of
one or more Classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other Classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence 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 thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each Series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
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" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for the
Offered Certificates of any Series will specify which Class or Classes of
Certificates of such Series will be considered to be regular interests in the
related REMIC and which Class of Certificates of such Series or other interests
will be designated as the residual interest in the related REMIC. See "Certain
Federal Income Tax Consequences".
An Index of Principal Definitions is included at the end of this
Prospectus specifying the location of definitions of important or frequently
used defined terms.
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<PAGE>
Version 10: Mobile Home Parks and Recreational Vehicle Parks
[The following to be inserted in the Prospectus under "Risk Factors",
immediately following "Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans--General":]
Risks Particular to Mobile Home Parks and Recreational Vehicle Parks.
The successful operation of a Mortgaged Property operated as a mobile home park
or recreational vehicle park will generally depend upon the number of competing
parks in the local market, as well as upon other factors such as its age,
appearance, reputation, management and the types of facilities and services it
provides. Mobile home parks also compete against alternative forms of
residential housing, including multifamily rental properties,
cooperatively-owned apartment buildings, condominium complexes and single-family
residential developments. Recreational vehicle parks also compete against
alternative forms of recreation and short-term lodging (for example, staying at
a hotel at the beach).
Mobile home parks and recreational vehicle parks are "special purpose"
properties that could not be readily converted to general residential, retail or
office use. Thus, if the operation of any Mortgaged Property constituting a
mobile home park or recreational vehicle park becomes unprofitable due to
competition, age of the improvements or other factors such that the borrower
becomes unable to meet its obligations on the related Mortgage Loan, the
liquidation value of that Mortgaged Property may be substantially less, relative
to the amount owing on the Mortgage Loan, than would be the case if the
Mortgaged Property were readily adaptable to other uses.
[The following to be inserted in the Prospectus under "Description of
the Trust Funds," immediately following "Mortgage Loans--General":]
Mortgage Loans Secured by Mobile Home Parks and Recreational Vehicle
Parks. Mobile home parks consist of land that is divided into "spaces" or
"homesites" that are primarily leased to mobile home owners. Accordingly, the
related Mortgage Loans will be secured by mortgage liens on the real estate (or
a leasehold interest therein) upon which the mobile homes are situated, but not
the mobile homes themselves. The mobile home owner often invests in
site-specific improvements such as carports, steps, fencing, skirts around the
base of the mobile home, and landscaping. The park owner typically provides
private roads within the park, common facilities and, in many cases, utilities.
Park amenities may include driveways, visitor parking, recreational vehicle and
pleasure boat storage, laundry facilities, community rooms, swimming pools,
tennis courts, security systems and healthclubs. Due to relocation costs and, in
some cases, demand for mobile home spaces, the value of a mobile home in place
in a park is generally higher, and can be significantly higher, than the value
of the same unit not placed in a park. As a result, a well-operated mobile home
park that has achieved stabilized occupancy is typically able to maintain
occupancy at or near that level. For the same reason, a lender that provided
financing for the mobile home of a tenant who defaulted in his or her space rent
generally has an incentive to keep rental payments current until the mobile home
can be resold in place, rather than to allow the unit to be removed from the
park.
Recreational vehicle parks lease spaces primarily or exclusively for
motor homes, travel trailers and portable truck campers primarily designed for
recreational, camping or travel use. In general, parks that lease recreational
vehicle spaces can be viewed as having a less stable tenant population than
parks occupied predominantly by mobile homes. However, it is not unusual for the
owner of a recreational vehicle
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<PAGE>
Version 10: Mobile Home Parks and Recreational Vehicle Parks
to leave the vehicle at the park on a year-round basis or to use the vehicle as
low cost housing and reside in the park indefinitely.
Mortgage Loans secured by liens on mobile home parks and recreational
vehicle parks are affected by factors not associated with loans secured by liens
on other types of income-producing real estate. The successful operation of such
types of properties will generally depend upon the number of competing parks, as
well as upon other factors such as its age, appearance, reputation, the ability
of management to provide adequate maintenance and insurance, and the types of
facilities and services it provides. Mobile home parks also compete against
alternative forms of residential housing, including multifamily rental
properties, cooperatively-owned apartment buildings, condominium complexes and
single-family residential developments. Recreational vehicle parks also compete
against alternative forms of recreation and short-term lodging (for example,
staying at a hotel at the beach). Mobile home parks and recreational vehicle
parks are "special purpose" properties that could not be readily converted to
general residential, retail or office use. Thus, if the operation of a mobile
home park or recreational vehicle park becomes unprofitable due to competition,
age of the improvements or other factors such that the borrower becomes unable
to meet its obligations on the related mortgage loan, the liquidation value of
that mobile home park or recreational vehicle park may be substantially less,
relative to the amount owing on the mortgage loan, than would be the case if the
park were readily adaptable to other uses.
Certain states regulate the relationship of a mobile home park owner
and its tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed land use,
while prohibiting unreasonable rules, retaliatory evictions, and restrictions on
a resident's choice of unit vendors. Mobile home park owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection. For
example, there are provisions that limit the basis on which a landlord may
terminate a mobile home owner's tenancy or increase its rent or prohibit a
landlord from terminating a tenancy solely by reason of the sale of the owner's
mobile home. Certain states also regulate changes in mobile home park use and
require that the landlord give written notice to its tenants a substantial
period of time prior to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on mobile home parks.
These ordinances may limit rent increases to fixed percentages, to percentages
of increases in the consumer price index, to increases set or approved by a
governmental agency, or to increases determined through mediation or binding
arbitration. In many cases, the rent control laws do not permit vacancy
decontrol, or permit vacancy decontrol only in the relatively rare event that
the mobile home is removed from the homesite. Local authority to impose rent
control on mobile home parks is pre-empted by state law in certain states, and
rent control is not imposed at the state level in those states. In some states,
however, local rent control ordinances are not pre-empted for tenants having
short-term or month-to-month leases, and properties there may be subject to
various forms of rent control with respect to those tenants. Any limitations on
a borrower's ability to raise property rents may impair such borrower's ability
to repay its mortgage loan from its net operating income or the proceeds of a
sale or refinancing of the related mortgaged property.
- 5 -
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
Mortgage Pass-Through Certificates
The mortgage pass-through certificates offered hereby (the "Offered
Certificates") and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series (each, a "Series"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"Certificates". Each Series will consist of one or more classes (each, a
"Class") of Certificates.
Each Series will represent in the aggregate the entire beneficial ownership
interest in a trust fund (with respect to any Series, the "Trust Fund") to be
formed by DLJ Commercial Mortgage Corp. (the "Depositor") and including a
segregated pool (a "Mortgage Asset Pool") of various types of multifamily and
commercial mortgage loans ("Mortgage Loans"), mortgage-backed securities ("MBS")
that evidence interests in, or that are secured by pledges of, one or more of
various types of multifamily or commercial mortgage loans, or a combination of
Mortgage Loans and MBS (collectively, "Mortgage Assets"). The Mortgage Loans in
(and the mortgage loans underlying the MBS in) any Trust Fund will be secured by
first or junior liens on, or security interests in, fee and/or leasehold estates
in one or more of the following types of real property: (i) residential
properties consisting of multiple rental or cooperatively-owned dwelling units
and mobile home parks; (ii) commercial properties consisting of office
buildings, retail facilities related to the sales of products and goods and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial facilities, parking lots and restaurants; and (iii) mixed use
properties (that is, any combination of the foregoing) and unimproved land. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
may also include letters of credit, surety bonds, insurance policies,
guarantees, reserve funds, guaranteed investment contracts, interest rate
exchange agreements, interest rate cap or floor agreements, or other agreements
designed to reduce the effects of interest rate fluctuations on the Mortgage
Assets. See "Description of the Trust Funds", "Description of the Certificates"
and "Description of Credit Support".
The yield on each Class of a Series will be affected by, among other
things, the rate of payment of principal (including prepayments) on the Mortgage
Assets in the related Trust Fund and the timing of receipt of such payments as
described herein and in the related Prospectus Supplement. See "Yield and
Maturity Considerations". A Trust Fund may be subject to early termination under
the circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination; Retirement of the Certificates".
(cover continued on next page)
--------
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE, THE REMIC ADMINISTRATOR OR ANY OF THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, TRUSTEES, BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE ASSETS WILL BE GUARANTEED OR
INSURED BY THE DEPOSITOR OR ANY OF ITS AFFILIATES OR, UNLESS OTHERWISE SPECIFIED
IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------
Prospective investors should review the information appearing on page 18
herein under the caption "Risk Factors" and such information as may be set forth
under the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
The Offered Certificates of any Series may be offered through one or more
different methods, including offerings through underwriters, as described herein
under "Method of Distribution" and in the related Prospectus Supplement.
There will be no secondary market for the Offered Certificates of any
Series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if one does develop, that
it will continue. Unless otherwise provided in the related Prospectus
Supplement, the Certificates will not be listed on any securities exchange.
Retain this Prospectus for future reference. 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.
-----------
The date of this Prospectus is December 23, 1997.
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of each
Series, including the Offered Certificates of such Series, may consist of one or
more Classes of Certificate that: (i) provide for the accrual of interest
thereon based on a fixed, variable or adjustable interest rate; (ii) are senior
or subordinate to one or more other Classes of Certificates in entitlement to
certain distributions on the Certificates; (iii) are entitled to distributions
of principal, with disproportionate, nominal or no distributions of interest;
(iv) are entitled to distributions of interest, with disproportionate, nominal
or no distributions of principal; (v) provide for distributions of interest
thereon or principal thereof that commence 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 thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; or
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology. Distributions in respect of the Certificates of each Series will be
made on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. See "Description of the
Certificates".
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" (each, a "REMIC") for federal income
tax purposes. If applicable, the Prospectus Supplement for the Offered
Certificates of any Series will specify which Class or Classes of Certificates
of such Series will be considered to be regular interests in the related REMIC
and which Class of Certificates of such Series or other interests will be
designated as the residual interest in the related REMIC. See "Certain Federal
Income Tax Consequences".
An Index of Principal Definitions is included at the end of this Prospectus
specifying the location of definitions of important or frequently used defined
terms.
- 2 -
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each Series will, among other things, set forth,
as and to the extent appropriate: (i) a description of the Class or Classes of
such Offered Certificates, including the payment provisions with respect to each
such Class, the aggregate principal amount, if any, of each such Class, the rate
at which interest accrues from time to time, if at all, with respect to each
such Class or the method of determining such rate, and whether interest with
respect to each such Class will accrue from time to time on its aggregate
principal amount, if any, or on a specified notional amount, if at all; (ii)
information with respect to any other Classes of Certificates of the same
Series; (iii) the respective dates on which distributions are to be made; (iv)
information as to the assets, including the Mortgage Assets, constituting the
related Trust Fund (all such assets, with respect to any Series, the "Trust
Assets"); (v) the circumstances, if any, under which the related Trust Fund may
be subject to early termination; (vi) additional information with respect to the
method of distribution of such Offered Certificates; (vii) whether one or more
REMIC elections will be made and the designation of the "regular interests" and
"residual interests" in each REMIC to be created and the identity of the person
(the "REMIC Administrator") responsible for the various tax-related duties in
respect of each REMIC to be created; (viii) information concerning the Trustee
(as defined herein) of the related Trust Fund; (ix) if the related Trust Fund
includes Mortgage Loans, information concerning the Master Servicer and any
Special Servicer (each as defined herein) of such Mortgage Loans and the
circumstances under which all or a portion, as specified, of the servicing of a
Mortgage Loan would transfer from the Master Servicer to the Special Servicer;
(x) information as to the nature and extent of subordination of any Class of
Certificates of such Series, including a Class of Offered Certificates; and (xi)
whether such Offered 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 (the "Securities Act"), with
respect to the Offered Certificates. This Prospectus and the Prospectus
Supplement relating to the Offered Certificates of each Series will 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, 500
West Madison, 14th Floor, Chicago, Illinois 60661; New York Regional Office,
Seven World Trade Center, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates and electronically
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system at the Commission's Web site (http://www.sec.gov).
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein since the date hereof or therein since the
date thereof. This
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<PAGE>
Prospectus and any related Prospectus Supplement are not an offer to sell or a
solicitation of an offer to buy any security in any jurisdiction in which it is
unlawful to make such offer or solicitation.
The Master Servicer, the Trustee or another specified person will cause to
be provided to registered holders of the Offered Certificates of each Series
periodic unaudited reports concerning the related Trust Fund. If beneficial
interests in a Class or Series of Offered Certificates are being held and
transferred in book-entry format through the facilities of The Depository Trust
Company ("DTC") as described herein, then unless otherwise provided in the
related Prospectus Supplement, such reports will be sent on behalf of the
related Trust Fund to a nominee of DTC as the registered holder of the Offered
Certificates. Conveyance of notices and other communications by DTC to its
participating organizations, and directly or indirectly through such
participating organizations to the beneficial owners of the applicable Offered
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. See
"Description of the Certificates--Reports to Certificateholders" and
"--Book-Entry Registration and Definitive Certificates".
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, upon written or oral request of such person, 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). Such requests to the Depositor should be directed in writing to the
Depositor at 277 Park Avenue, 9th Floor, New York, New York 10172, Attention: N.
Dante LaRocca, or by telephone at (212) 892-3000.
- 4 -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUPPLEMENT.................................................................................................3
AVAILABLE INFORMATION.................................................................................................3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.....................................................................4
SUMMARY OF PROSPECTUS.................................................................................................8
RISK FACTORS.........................................................................................................18
Limited Liquidity of Offered Certificates.................................................................18
Limited Assets............................................................................................19
Credit Support Limitations................................................................................19
Effect of Prepayments on Average Life of Certificates.....................................................20
Effect of Prepayments on Yield of Certificates ...........................................................21
Limited Nature of Ratings.................................................................................21
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans.........................22
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset Pool.........................27
Certain Federal Tax Considerations Regarding REMIC Residual Certificates..................................28
Book-Entry Registration...................................................................................28
Potential Conflicts of Interest...........................................................................29
Termination...............................................................................................29
DESCRIPTION OF THE TRUST FUNDS.......................................................................................29
General ................................................................................................29
Mortgage Loans............................................................................................30
MBS ................................................................................................34
Undelivered Mortgage Assets...............................................................................35
Certificate Accounts......................................................................................35
Credit Support............................................................................................36
Cash Flow Agreements......................................................................................36
YIELD AND MATURITY CONSIDERATIONS....................................................................................36
General ................................................................................................36
Pass-Through Rate.........................................................................................36
Payment Delays............................................................................................37
Certain Shortfalls in Collections of Interest.............................................................37
Yield and Prepayment Considerations.......................................................................37
Weighted Average Life and Maturity........................................................................39
Other Factors Affecting Yield, Weighted Average Life and Maturity.........................................40
THE DEPOSITOR........................................................................................................42
DESCRIPTION OF THE CERTIFICATES......................................................................................42
General ................................................................................................42
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Distributions.............................................................................................43
Distributions of Interest on the Certificates.............................................................44
Distributions of Principal of the Certificates............................................................45
Distributions on the Certificates in Respect of Prepayment Premiums or in Respect of Equity
Participations..................................................................................46
Allocation of Losses and Shortfalls.......................................................................46
Advances in Respect of Delinquencies......................................................................46
Reports to Certificateholders.............................................................................47
Voting Rights.............................................................................................48
Termination...............................................................................................48
Book-Entry Registration and Definitive Certificates.......................................................49
DESCRIPTION OF THE POOLING AGREEMENTS................................................................................50
General ................................................................................................50
Assignment of Mortgage Assets.............................................................................51
Representations and Warranties with respect to Mortgage Assets; Repurchases and Other Remedies............52
Collection and Other Servicing Procedures with respect to Mortgage Loans..................................53
Sub-Servicers.............................................................................................55
Collection of Payments on MBS.............................................................................56
Certificate Account.......................................................................................56
Modifications, Waivers and Amendments of Mortgage Loans...................................................60
Realization Upon Defaulted Mortgage Loans.................................................................60
Hazard Insurance Policies.................................................................................62
Due-on-Sale and Due-on-Encumbrance Provisions.............................................................63
Servicing Compensation and Payment of Expenses............................................................63
Evidence as to Compliance.................................................................................64
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC Administrator,
the Manager and the Depositor...................................................................64
Events of Default.........................................................................................66
Rights Upon Event of Default..............................................................................66
Amendment ................................................................................................67
List of Certificateholders................................................................................68
The Trustee...............................................................................................69
Duties of the Trustee.....................................................................................69
Certain Matters Regarding the Trustee.....................................................................69
Resignation and Removal of the Trustee....................................................................69
DESCRIPTION OF CREDIT SUPPORT........................................................................................70
General ................................................................................................70
Subordinate Certificates..................................................................................70
Insurance or Guarantees with Respect to Mortgage Loans....................................................71
Letter of Credit..........................................................................................71
Certificate Insurance and Surety Bonds....................................................................71
Reserve Funds.............................................................................................71
Credit Support with Respect to MBS........................................................................72
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..............................................................................72
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
General...................................................................................................72
Types of Mortgage Instruments.............................................................................73
Leases and Rents..........................................................................................73
Personalty................................................................................................74
Foreclosure...............................................................................................74
Bankruptcy Laws...........................................................................................77
Environmental Considerations..............................................................................78
Due-on-Sale and Due-on-Encumbrance Provisions.............................................................80
Junior Liens; Rights of Holders of Senior Liens...........................................................80
Subordinate Financing.....................................................................................81
Default Interest and Limitations on Prepayments...........................................................81
Applicability of Usury Laws...............................................................................81
Certain Laws and Regulations..............................................................................82
Americans with Disabilities Act...........................................................................82
Soldiers' and Sailors' Civil Relief Act of 1940...........................................................82
Forfeitures in Drug and RICO Proceedings..................................................................83
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..............................................................................83
General ................................................................................................83
REMICs ................................................................................................84
Grantor Trust Funds......................................................................................102
STATE AND OTHER TAX CONSEQUENCES....................................................................................111
ERISA CONSIDERATIONS................................................................................................112
General ...............................................................................................112
Plan Asset Regulations...................................................................................112
Prohibited Transaction Exemptions........................................................................113
Insurance Company General Accounts.......................................................................114
Consultation With Counsel................................................................................114
Tax Exempt Investors.....................................................................................115
LEGAL INVESTMENT....................................................................................................115
USE OF PROCEEDS.....................................................................................................117
METHOD OF DISTRIBUTION..............................................................................................117
LEGAL MATTERS.......................................................................................................118
FINANCIAL INFORMATION...............................................................................................118
RATING..............................................................................................................119
INDEX OF PRINCIPAL DEFINITIONS.......................................................................................120
</TABLE>
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<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 Offered Certificates of such
Series. An Index of Principal Definitions is included at the end of this
Prospectus.
Securities Offered..................... Mortgage pass-through certificates.
Depositor.............................. DLJ Commercial Mortgage Corp., a
Delaware corporation. See "The
Depositor".
Trustee................................ The trustee (the "Trustee") for each
Series will be named in the related
Prospectus Supplement. See "Description
of the Pooling Agreements--The Trustee".
Master Servicer........................ If a Trust Fund includes Mortgage Loans,
then the master servicer (the "Master
Servicer") for the corresponding Series
will be named in the related Prospectus
Supplement. See "Description of the
Pooling Agreements--Certain Matters
Regarding the Master Servicer, the
Special Servicer, the REMIC
Administrator, the Manager and the
Depositor".
Special Servicer....................... If a Trust Fund includes Mortgage Loans,
then the special servicer (the "Special
Servicer") for the corresponding Series
will be named, or the circumstances
under which a Special Servicer may be
appointed will be described, in the
related Prospectus Supplement. See
"Description of the Pooling
Agreements--Collection and Other
Servicing Procedures with respect to
Mortgage Loans".
MBS Administrator...................... If a Trust Fund includes MBS, then the
entity responsible for administering
such MBS (the "MBS Administrator") will
be named in the related Prospectus
Supplement. If an entity other than the
Trustee or the Master Servicer is the
MBS Administrator, such entity will be
referred to herein as the "Manager".
REMIC Administrator.................... The person (the "REMIC Administrator")
responsible for the various tax-related
administration duties for a Series as to
which one or more REMIC elections have
been made will be named in the related
Prospectus Supplement. See "Certain
Federal Income Tax
Consequences--REMICs--Reporting and
Other Administrative Matters".
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<PAGE>
The Mortgage Assets................... The Mortgage Assets will be the primary
assets of any Trust Fund. The Mortgage
Assets with respect to each Series will,
in general, consist of a pool of
mortgage loans ("Mortgage Loans")
secured by first or junior liens on, or
security interests in, fee and/or
leasehold estates in one or more of the
following types of real property: (i)
residential properties consisting of
multiple rental or cooperatively-owned
dwelling units in high-rise, mid-rise or
garden apartment buildings or other
residential structures, and mobile home
parks; (ii) commercial properties
consisting of office buildings, retail
shopping facilities (such as shopping
centers, malls, automotive sales centers
and individual stores, shops and
businesses related to sales of products
and goods), facilities related to
providing entertainment, recreation or
personal services (such as movie
theaters, fitness centers, bowling
alleys, salons, dry cleaners and
automotive service centers), hotels and
motels, casinos, health care-related
facilities (such as hospitals, skilled
nursing facilities, nursing homes,
congregate care facilities and senior
housing), recreational vehicle parks,
warehouse facilities, mini- warehouse
facilities, self-storage facilities,
industrial facilities, parking lots and
restaurants; and (iii) mixed use
properties (that is, any combination of
the foregoing) and unimproved land. The
Mortgage Loans will not be guaranteed or
insured by the Depositor or any of its
affiliates or, unless otherwise provided
in the related Prospectus Supplement, by
any governmental agency or
instrumentality or by any other person.
If so specified in the related
Prospectus Supplement, some Mortgage
Loans may be delinquent or nonperforming
as of the date the related Trust Fund is
formed.
As and to the extent described in the
related Prospectus Supplement, a
Mortgage Loan (i) may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its
term or that adjusts from time to time,
or that may be converted at the
borrower's election from an adjustable
to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage Rate,
(ii) may provide for level payments to
maturity or for payments that adjust
from time to time to accommodate changes
in the Mortgage Rate or to reflect the
occurrence of certain events, and may
permit negative amortization, (iii) may
be fully amortizing or may be partially
amortizing or nonamortizing, with a
balloon payment due on its stated
maturity date, (iv) may prohibit over
its term or for a certain period
prepayments and/or require payment of a
premium or a yield maintenance payment
in connection with certain prepayments
and (v) 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. Each Mortgage
Loan will have had an
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<PAGE>
original term to maturity of not more
than approximately 40 years. No Mortgage
Loan will have been originated by the
Depositor. See "Description of the Trust
Funds--Mortgage Loans".
If any Mortgage Loan, or group of
related Mortgage Loans (by reason of
cross-collateralization, common borrower
or affiliation of borrowers),
constitutes a material concentration of
credit risk, financial statements or
other financial information with respect
to the related Mortgaged Property or
Mortgaged Properties will be included in
the related Prospectus Supplement. See
"Description of the Trust
Funds--Mortgage Loans-Mortgage Loan
Information in Prospectus Supplements".
If and to the extent specified in the
related Prospectus Supplement, the
Mortgage Assets with respect to a Series
may also include, or consist of,
mortgage participations, mortgage
pass-through certificates,
collateralized mortgage obligations
and/or other mortgage-backed securities
(collectively, "MBS"), that evidence an
interest in, or are secured by a pledge
of, one or more mortgage loans that
conform to the descriptions of the
Mortgage Loans contained herein and
which may or may not be issued, insured
or guaranteed by the United States or an
agency or instrumentality thereof. See
"Description of the Trust Funds--MBS".
Unless otherwise specified in the
related Prospectus Supplement, the
aggregate outstanding principal balance
of a Mortgage Asset Pool as of the date
it is formed (the "Cut-off Date") will
equal or exceed the aggregate
outstanding principal balance of the
related Series as of the date the
Certificates of such Series are
initially issued (the "Closing Date").
In the event that the Mortgage Assets
initially delivered do not have an
aggregate outstanding principal balance
as of the related Cut-off Date at least
equal to the aggregate outstanding
principal balance of the related Series
as of the related Closing Date, the
Depositor may deposit cash or Permitted
Investments (as defined herein) on an
interim basis with the Trustee for such
Series on the related Closing Date in
lieu of delivering Mortgage Assets (the
"Undelivered Mortgage Assets") with an
aggregate outstanding principal balance
as of the related Cut-off Date equal to
the shortfall amount. During the 90-day
period following the related Closing
Date, the Depositor will be entitled to
obtain a release of such cash or
Permitted Investments to the extent that
the Depositor delivers a
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<PAGE>
corresponding amount of the Undelivered
Mortgage Assets. If and to the extent
that all the Undelivered Mortgage Assets
are not delivered during the 90-day
period following the related Closing
Date, such cash or, following
liquidation, such Permitted Investments
will be applied to pay a corresponding
amount of principal of the Certificates
of such Series to the extent set forth,
and on the dates specified, in the
related Prospectus Supplement.
The Certificates...................... Each Series will be issued in one or
more Classes of Certificates pursuant to
a pooling and servicing agreement or
other agreement specified in the related
Prospectus Supplement (in any case, a
"Pooling Agreement") and will represent
in the aggregate the entire beneficial
ownership interest in the related Trust
Fund.
As described in the related Prospectus
Supplement, the Certificates of each
Series, including the Offered
Certificates of such Series, may consist
of one or more Classes of Certificates
that, among other things: (i) are senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other
Classes of Certificates of the same
Series in entitlement to certain
distributions on the Certificates; (ii)
are entitled to distributions of
principal, with disproportionate,
nominal or no distributions of interest
(collectively, "Stripped Principal
Certificates"); (iii) are entitled to
distributions of interest, with
disproportionate, nominal or no
distributions of principal
(collectively, "Stripped Interest
Certificates"); (iv) provide for
distributions of interest thereon or
principal thereof that commence only
after the occurrence of certain events,
such as the retirement of one or more
other Classes of Certificates of such
Series; (v) provide for distributions of
principal thereof to be made, from time
to time or for designated periods, at a
rate that is faster (and, in some cases,
substantially faster) or slower (and, in
some cases, substantially slower) than
the rate at which payments or other
collections of principal are received on
the Mortgage Assets in the related Trust
Fund; (vi) provide for distributions of
principal thereof to be made, subject to
available funds, based on a specified
principal payment schedule or other
methodology; or (vii) provide for
distributions based on collections on
the Mortgage Assets in the related Trust
Fund attributable to prepayment
premiums, yield maintenance payments or
equity participations.
-11-
<PAGE>
If so specified in the related
Prospectus Supplement, a Series may
include one or more "Controlled
Amortization Classes", which will
entitle the holders thereof to receive
principal distributions according to a
specified principal payment schedule.
Although prepayment risk cannot be
eliminated entirely for any Class of
Certificates, a Controlled Amortization
Class will generally provide a
relatively stable cash flow so long as
the actual rate of prepayment on the
Mortgage Loans in the related Trust Fund
remains relatively constant at the rate,
or within the range of rates, of
prepayment used to establish the
specific principal payment schedule for
such Certificates. Prepayment risk with
respect to a given Mortgage Asset Pool
does not disappear, however, and the
stability afforded to a Controlled
Amortization Class comes at the expense
of one or more other Classes of
Certificates of the same Series, any of
which other Classes of Certificates may
also be a Class of Offered Certificates.
See "Risk Factors-Effect of Prepayments
on Average Life of Certificates" and
"--Effect of Prepayments on Yield of
Certificates".
Each Certificate, other than certain
Stripped Interest Certificates and
certain REMIC Residual Certificates (as
defined herein), will have an initial
stated principal amount (a "Certificate
Principal Balance"); and each
Certificate, other than certain Stripped
Principal Certificates and certain REMIC
Residual Certificates, will accrue
interest on its Certificate Principal
Balance or, in the case of certain
Stripped Interest Certificates, on a
notional amount (a "Certificate Notional
Amount"), based on a fixed, variable or
adjustable interest rate (a
"Pass-Through Rate"). The related
Prospectus Supplement will specify the
aggregate Certificate Principal Balance,
aggregate Certificate Notional Amount
and/or Pass-Through Rate (or, in the
case of a variable or adjustable
Pass-Through Rate, the method for
determining such rate), as applicable,
for each Class of Offered Certificates.
If so specified in the related
Prospectus Supplement, a Class of
Offered Certificates may have two or
more component parts, each having
characteristics that are otherwise
described herein as being attributable
to separate and distinct Classes.
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 or entity,
-12-
<PAGE>
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets".
Distributions of Interest on the
Certificates........................ Interest on each Class of Offered
Certificates (other than certain Classes
of Stripped Principal Certificates and
certain Classes of REMIC Residual
Certificates) of each Series will accrue
at the applicable Pass-Through Rate on
the aggregate Certificate Principal
Balance or, in the case of certain
Classes of Stripped Interest
Certificates, the aggregate Certificate
Notional Amount thereof outstanding from
time to time 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 of
interest with respect to one or more
Classes of Certificates (collectively,
"Accrual Certificates") may not commence
until the occurrence of certain events,
such as the retirement of one or more
other Classes of Certificates, and
interest accrued with respect to a Class
of Accrual Certificates prior to the
occurrence of such an event will either
be added to the Certificate Principal
Balance thereof or otherwise deferred 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
and other contingencies described herein
and in the related Prospectus
Supplement. See "Risk Factors--Effect of
Prepayments on Average Life of
Certificates" and "--Effect of
Prepayments on Yield of Certificates",
"Yield and Maturity
Considerations--Certain Shortfalls in
Collections of Interest" and
"Description of the
Certificates--Distributions of Interest
on the Certificates".
Distributions of Principal of
the Certificates.................... Each Class of Certificates of each
Series (other than certain Classes of
Stripped Interest Certificates and
certain Classes of REMIC Residual
Certificates) will have an aggregate
Certificate Principal Balance. The
aggregate Certificate Principal Balance
of a Class of Certificates outstanding
from time to time will represent the
maximum amount that the holders thereof
are then entitled to receive in respect
of principal from future cash flow on
the assets in the related Trust Fund.
Unless otherwise specified in the
related Prospectus Supplement, the
initial aggregate Certificate Principal
Balance of all Classes of a Series will
not be greater than the outstanding
principal balance of the related
-13-
<PAGE>
Mortgage Assets as of the related
Cut-off Date. As and to the extent
described in each Prospectus Supplement,
distributions of principal with respect
to the related Series will be made on
each Distribution Date to the holders of
the Class or Classes of Certificates of
such Series then entitled thereto until
the Certificate Principal Balances of
such Certificates have been reduced to
zero. Distributions of principal with
respect to one or more Classes of
Certificates: (i) may be made at a rate
that is faster (and, in some cases,
substantially faster) or slower (and, in
some cases, substantially slower) than
the rate at which payments or other
collections of principal are received on
the Mortgage Assets in the related Trust
Fund; (ii) may not commence until the
occurrence of certain events, such as
the retirement of one or more other
Classes of Certificates of the same
Series; (iii) may be made, subject to
certain limitations, based on a
specified principal payment schedule; or
(iv) may be contingent on the specified
principal payment schedule for another
Class of the same Series and the rate at
which payments and other collections of
principal on the Mortgage Assets in the
related Trust Fund are received. Unless
otherwise specified in the related
Prospectus Supplement, distributions of
principal of any Class of Offered
Certificates will be made on a pro rata
basis among all of the Certificates of
such Class. See "Description of the
Certificates--Distributions of Principal
of the Certificates".
Credit Support and
Cash Flow Agreements................ 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,
which may include a letter of credit, a
surety bond, an insurance policy, a
guarantee, a reserve fund, or a
combination thereof (any such coverage
with respect to the Certificates of any
Series, "Credit Support"). If so
provided in the related Prospectus
Supplement, a Trust Fund may include:
(i) guaranteed investment contracts
pursuant to which moneys held in the
funds and accounts established for the
related Series will be invested at a
specified rate; or (ii) interest rate
exchange agreements, interest rate cap
or floor agreements, or other agreements
designed to reduce the effects of
interest rate fluctuations on the
Mortgage Assets
-14-
<PAGE>
or on one or more Classes of
Certificates (any such agreement, in the
case of clause (i) or (ii), a "Cash Flow
Agreement"). Certain relevant
information regarding any Credit Support
or Cash Flow Agreement applicable to the
Offered Certificates of any Series will
be set forth in the related Prospectus
Supplement. See "Risk Factors--Credit
Support Limitations", "Description of
the Trust Funds--Credit Support" and
"--Cash Flow Agreements" and
"Description of Credit Support".
Advances.............................. If and to the extent provided in the
related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the
Master Servicer, the Special Servicer,
the Trustee, any provider of Credit
Support and/or any other specified
person may be obligated to make, or have
the option of making, certain advances
with respect to delinquent scheduled
payments of principal and/or interest on
such Mortgage Loans. Any such advances
made with respect to a particular
Mortgage Loan will be reimbursable from
subsequent recoveries in respect of such
Mortgage Loan and otherwise to the
extent described herein and in the
related Prospectus Supplement. See
"Description of the
Certificates--Advances in Respect of
Delinquencies". If and to the extent
provided in the Prospectus Supplement
for the Offered Certificates of any
Series, any entity making such advances
may be entitled to receive interest
thereon for a specified period during
which certain or all of such advances
are outstanding, payable from amounts in
the related Trust Fund. See "Description
of the Certificates--Advances in Respect
of Delinquencies". If a Trust Fund
includes MBS, any comparable advancing
obligation of a party to the related
Pooling Agreement, or of a party to the
related MBS Agreement, will be described
in the related Prospectus Supplement.
Optional Termination.................. If so specified in the related
Prospectus Supplement, a Trust Fund may
be subject to optional early termination
through the repurchase of the Mortgage
Assets included in such Trust Fund by
the party or parties specified in such
Prospectus Supplement, under the
circumstances and in the manner set
forth therein, thereby resulting in
early retirement for the Certificates of
the related Series. If so provided in
the related Prospectus Supplement, upon
the reduction of the aggregate
Certificate Principal Balance of a
specified Class or Classes of
Certificates by a specified percentage
or amount or upon a specified date, a
party specified therein may be
authorized or required to solicit bids
for the purchase of all of the Mortgage
Assets of the
-15-
<PAGE>
related Trust Fund, or of a sufficient
portion of such Mortgage Assets to
retire such Class or Classes, under the
circumstances and in the manner set
forth therein. See "Description of the
Certificates--Termination".
Certain Federal Income Tax
Consequences........................ The Certificates of each Series will
constitute or evidence ownership of
either (i) "regular interests" ("REMIC
Regular Certificates") and "residual
interests" ("REMIC Residual
Certificates") in a Trust Fund, or a
designated portion thereof, treated as a
REMIC under Sections 860A through 860G
of the Internal Revenue Code of 1986
(the "Code"), or (ii) interests
("Grantor Trust Certificates") in a
Trust Fund treated as a grantor trust
under applicable provisions of the Code.
Investors are advised to consult their
tax advisors concerning the specific tax
consequences to them of the purchase,
ownership and disposition of the Offered
Certificates and to review "Certain
Federal Income Tax Consequences" herein
and in the related Prospectus
Supplement.
ERISA Considerations.................. Fiduciaries of employee benefit plans
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 are
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code,
should review with their 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.
Legal Investment...................... The Offered Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as
amended ("SMMEA"), only if so specified
in the related Prospectus Supplement.
Investors whose investment authority is
subject to legal restrictions should
consult their legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
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<PAGE>
Rating................................ At their respective dates of issuance,
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.
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<PAGE>
RISK FACTORS
In considering an investment in the Offered Certificates of any Series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
Limited Liquidity of Offered Certificates
General. The Offered Certificates of any Series may have limited or no
liquidity. Accordingly, an investor may be forced to bear the risk of its
investment in any Offered Certificates for an indefinite period of time.
Furthermore, except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each Series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates--Termination".
Lack of a Secondary Market. There can be no assurance that a secondary
market for the Offered Certificates of any Series will develop or, if it does
develop, that it will provide holders with liquidity of investment or that it
will continue for as long as such Certificates remain outstanding. The
Prospectus Supplement for the Offered Certificates of any Series may indicate
that an underwriter specified therein intends to establish a secondary market in
such Offered Certificates; however, no underwriter will be obligated to do so.
Any such secondary market may provide less liquidity to investors than any
comparable market for securities that evidence interests in single-family
mortgage loans. Unless otherwise provided in the related Prospectus Supplement,
the Certificates will not be listed on any securities exchange.
Limited Nature of Ongoing Information. The primary source of ongoing
information regarding the Offered Certificates of any Series, including
information regarding the status of the related Mortgage Assets and any Credit
Support for such Certificates, will be the periodic reports to
Certificateholders to be delivered pursuant to the related Pooling Agreement as
described herein under the heading "Description of the Certificates--Reports to
Certificateholders". There can be no assurance that any additional ongoing
information regarding the Offered Certificates of any Series will be available
through any other source. The limited nature of such information in respect of
the Offered Certificates of any Series may adversely affect the liquidity
thereof, even if a secondary market for such Certificates does develop.
Sensitivity to Fluctuations in Prevailing Interest Rates. Insofar as a
secondary market does develop with respect to Offered Certificates of any Series
or with respect to any Class thereof, the market value of such Certificates will
be affected by several factors, including the perceived liquidity thereof, the
anticipated cash flow thereon (which may vary widely depending upon the
prepayment and default assumptions applied in respect of the underlying Mortgage
Loans) and prevailing interest rates. The price payable at any given time in
respect of certain Classes of Offered Certificates (in particular, a Class with
a relatively long average life, a Companion Class (as defined herein) or a Class
of Stripped Interest Certificates or Stripped Principal Certificates) may be
extremely sensitive to small fluctuations in prevailing interest rates; and the
relative change in price for an Offered Certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for such Offered Certificate in response to an equal
but opposite movement in such rates. Accordingly, the sale of Offered
Certificates by a holder in any secondary market that may develop may be at a
discount from the price paid by such holder. The
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<PAGE>
Depositor is not aware of any source through which price information about the
Offered Certificates will be generally available on an ongoing basis.
Limited Assets
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any Series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other person
or entity; and no Offered Certificate of any Series will represent a claim
against or security interest in the Trust Fund for any other Series.
Accordingly, if the related Trust Fund has insufficient assets to make payments
on a Series of Offered Certificates, no other assets will be available for
payment of the deficiency, and the holders of one or more Classes of such
Offered Certificates will be required to bear the consequent loss. Furthermore,
certain amounts on deposit from time to time in certain funds or accounts
constituting part of a Trust Fund, including the Certificate Account (as defined
herein) and any accounts maintained as Credit Support, may be withdrawn under
certain conditions, if and to the extent described in the related Prospectus
Supplement, for purposes other than the payment of principal of or interest on
the Certificates of the related Series. If and to the extent so provided in the
Prospectus Supplement relating to a Series 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, all or a
portion of 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.
Credit Support Limitations
Limitations Regarding Types of Losses Covered. The Prospectus Supplement
for the Offered Certificates of any Series will describe any Credit Support
provided with respect thereto. 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;
for example, Credit Support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any such losses not
covered by Credit Support may, at least in part, be allocated to one or more
Classes of Offered Certificates.
Disproportionate Benefits to Certain Classes and Series. A Series 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 likelihood of temporary
shortfalls and ultimate losses to holders of Senior Certificates, the amount of
subordination will be limited and may decline under certain circumstances. In
addition, if principal payments on one or more Classes of Offered Certificates
of a Series are made in a specified order of priority, any related Credit
Support may be exhausted before the principal of the later paid Classes of
Offered Certificates of such Series has been repaid in full. As a result, the
impact of losses and shortfalls experienced with respect to the Mortgage Assets
may fall primarily upon those Classes of Offered Certificates having a later
right of payment. Moreover, if a form of Credit Support covers the Offered
Certificates of more than one Series and losses on the related Mortgage Assets
exceed the amount of such Credit Support, it is possible that the holders of
Offered Certificates of one (or more) such Series will be disproportionately
benefited by such Credit Support to the detriment of the holders of Offered
Certificates of one (or more) other such Series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable Credit Support supporting one or more Classes of Offered
Certificates, including the subordination of one or more other
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<PAGE>
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 and losses on the underlying Mortgage Assets
and certain other factors. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed levels.
See "Description of the Certificates--Allocation of Losses and Shortfalls" and
"Description of Credit Support". If the losses on the related Mortgage Assets do
exceed such assumed levels, the holders of one or more Classes of Offered
Certificates will be required to bear such additional losses.
Effect of Prepayments on Average Life of Certificates
As a result of prepayments on the Mortgage Loans in any Trust Fund, the
amount and timing of distributions of principal and/or interest on the Offered
Certificates of the related Series may be highly unpredictable. Prepayments on
the Mortgage Loans in any Trust Fund will result in a faster rate of principal
payments on one or more Classes of Certificates of the related Series than if
payments on such Mortgage Loans were made as scheduled. Thus, the prepayment
experience on the Mortgage Loans in a Trust Fund may affect the average life of
one or more Classes of Certificates of the related Series, including a Class of
Offered Certificates. The rate of principal payments on pools of mortgage loans
varies among pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax and legal factors. For example, if
prevailing interest rates fall significantly below the Mortgage Rates borne by
the Mortgage Loans included in a Trust Fund, then, subject to the particular
terms of the Mortgage Loans (e.g., provisions that prohibit voluntary
prepayments during specified periods or impose penalties in connection
therewith) and the ability of borrowers to obtain new financing, principal
prepayments on such Mortgage Loans are likely to be higher than if prevailing
interest rates remain at or above the rates borne by those Mortgage Loans.
Conversely, if prevailing interest rates rise significantly above the Mortgage
Rates borne by the Mortgage Loans included in a Trust Fund, then principal
prepayments on such Mortgage Loans are likely to be lower than if prevailing
interest rates remain at or below the Mortgage Rates borne by those Mortgage
Loans. There can be no assurance as to the actual rate of prepayment on the
Mortgage Loans in any Trust Fund or that such rate of prepayment will conform to
any model described herein or in any Prospectus Supplement. As a result,
depending on the anticipated rate of prepayment for the Mortgage Loans in any
Trust Fund, the retirement of any Class of Certificates of the related Series
could occur significantly earlier or later, and the average life thereof could
be significantly shorter or longer, than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any Class of Certificates of the related
Series will depend on the terms and provisions of such Certificates. A Class of
Certificates, including a Class of Offered Certificates, may provide that on any
Distribution Date the holders of such Certificates are entitled to a pro rata
share of the prepayments on the Mortgage Loans in the related Trust Fund that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A Class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
increases the likelihood of early retirement of such Class ("Call Risk") if the
rate of prepayment is relatively fast; while a Class of Certificates that
entitles the holders thereof to a disproportionately small share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of an extended average life of such Class ("Extension Risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
Classes of Certificateholders of any Series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related Trust
Fund may vary based on the occurrence of certain events (e.g., the retirement of
one or more Classes
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<PAGE>
of Certificates of such Series) or subject to certain contingencies (e.g.,
prepayment and default rates with respect to such Mortgage Loans).
A Series may include one or more Controlled Amortization Classes, which
will entitle the holders thereof to receive principal distributions according to
a specified principal payment schedule. Although prepayment risk cannot be
eliminated entirely for any Class of Certificates, a Controlled Amortization
Class will generally provide a relatively stable cash flow so long as the actual
rate of prepayment on the Mortgage Loans in the related Trust Fund remains
relatively constant at the rate, or within the range of rates, of prepayment
used to establish the specific principal payment schedule for such Certificates.
Prepayment risk with respect to a given Mortgage Asset Pool does not disappear,
however, and the stability afforded to a Controlled Amortization Class comes at
the expense of one or more Companion Classes of the same Series, any of which
Companion Classes may also be a Class of Offered Certificates. In general, and
as more specifically described in the related Prospectus Supplement, a Companion
Class may entitle the holders thereof to a disproportionately large share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively fast, and/or may entitle the holders thereof to a
disproportionately small share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively slow. As and to the
extent described in the related Prospectus Supplement, a Companion Class absorbs
some (but not all) of the Call Risk and/or Extension Risk that would otherwise
belong to the related Controlled Amortization Class if all payments of principal
of the Mortgage Loans in the related Trust Fund were allocated on a pro rata
basis.
Effect of Prepayments on Yield of Certificates
A Series may include one or more Classes of Offered Certificates offered at
a premium or discount. Yields on such Classes of Certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the Mortgage Loans in
the related Trust Fund and, where the amount of interest payable with respect to
a Class is disproportionately large, as compared to the amount of principal, as
with certain Classes of Stripped Interest Certificates, a holder might fail to
recover its original investment under some prepayment scenarios. The extent to
which the yield to maturity of any Class of Offered Certificates may vary from
the anticipated yield will depend upon the degree to which such Certificates are
purchased at a discount or premium and the amount and timing of distributions
thereon. An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to such
investor that is lower than the anticipated yield. See "Yield and Maturity
Considerations".
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a Class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such Offered
Certificates will receive payments to which such Certificateholders are entitled
under the related Pooling Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Mortgage
Loans 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 related Trust Fund. Furthermore, such rating will not address
the possibility that prepayment of the related Mortgage Loans at a higher or
lower rate than anticipated by an investor may cause such investor to experience
a lower than anticipated yield or that an investor that purchases an Offered
Certificate at a significant premium might fail to recover its initial
investment under certain
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<PAGE>
prepayment scenarios. Hence, a rating assigned by a Rating Agency does not
guarantee or ensure the realization of any anticipated yield on a Class of
Offered Certificates.
The amount, type and nature of Credit Support, if any, provided with
respect to a Series will be determined on the basis of criteria established by
each Rating Agency rating one or more Classes of the Certificates of such
Series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. In other cases, such
criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. As a result, the
Credit Support required in respect of the Offered Certificates of any Series may
be insufficient to fully protect the holders thereof from losses on the related
Mortgage Asset Pool. See "Description of Credit Support" and "Rating".
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans
General. The payment performance of the Offered Certificates of any Series
will be directly related to the payment performance of the underlying Mortgage
Loans. Set forth below is a discussion of certain factors that will affect the
full and timely payment of the Mortgage Loans in any Trust Fund. In addition, a
description of certain material considerations associated with investments in
mortgage loans is included herein under "Certain Legal Aspects of Mortgage
Loans".
The Offered Certificates will be directly or indirectly backed by mortgage
loans secured by multifamily and/or commercial properties. Mortgage loans made
on the security of multifamily or commercial property may have a greater
likelihood of delinquency and foreclosure, and a greater likelihood of loss in
the event thereof, than loans made on the security of an owner-occupied
single-family property. See "Description of the Trust Funds--Mortgage
Loans-Default and Loss Considerations with Respect to the Mortgage Loans". The
ability of a borrower to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such property
rather than upon the existence of independent income or assets of the borrower;
thus, the value of an income-producing property is directly related to the net
operating income derived from such property. If the net operating income of the
property is reduced (for example, if rental or occupancy rates decline or real
estate tax rates or other operating expenses increase), the borrower's ability
to repay the loan may be impaired. A number of the Mortgage Loans may be secured
by liens on owner-occupied Mortgaged Properties or on Mortgaged Properties
leased to a single tenant or a small number of significant tenants. Accordingly,
a decline in the financial condition of the borrower or a significant 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. Furthermore, the value of any
Mortgaged Property may be adversely affected by factors generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; natural
disasters and civil disturbances such as earthquakes, hurricanes, floods,
eruptions or riots; and other circumstances, conditions or events beyond the
control of a Master Servicer or a Special Servicer.
Additional considerations may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals, nursing homes and other health care-related
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<PAGE>
facilities, as well as casinos, may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance
and/or financing of such properties. Hotel, motel and restaurant properties are
often operated pursuant to franchise, management or operating agreements, which
may be terminable by the franchisor or operator. Moreover, the transferability
of a hotel's or restaurant's operating, liquor and other licenses upon a
transfer of the hotel or restaurant, as the case may be, whether through
purchase or foreclosure, is subject to local law requirements. Properties used
as gas stations, drycleaners and industrial facilities may be more likely to
have environmental issues. If any specific type of Mortgaged Property secures or
underlies 10% or more of the Mortgage Assets included in any Trust Fund (based
on aggregate principal balance of the Mortgage Assets in such Trust Fund at the
time it is formed), the related Prospectus Supplement will include as part of
the "Risk Factors" section therein a discussion of the risks particular to such
type of property.
In addition, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans. It is anticipated that some
or all 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 any
such Mortgage Loan, recourse in the event of borrower default will be limited to
the specific real property and other assets, if any, that were pledged to secure
the Mortgage Loan. However, even with respect to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the borrower will be sufficient to permit a recovery in
respect of a defaulted Mortgage Loan in excess of the liquidation value of the
related Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans-Foreclosure--Anti-Deficiency Legislation".
Dependence on Management. In general, a Mortgaged Property will be managed
by a manager (which may be the borrower or an affiliate of the borrower), which
is responsible for responding to changes in the local market for the facilities
offered at the property, planning and implementing the rental or pricing
structure, including staggering durations of leases and establishing levels of
rent payments, and causing maintenance and capital improvements to be carried
out in a timely fashion. Management errors may adversely affect the long-term
viability of a Mortgaged Property. In the case of certain Trust Funds, multiple
Mortgaged Properties may be managed by the same property manager. A
concentration of property management of Mortgaged Properties securing or
underlying the Mortgage Assets in any Trust Fund will increase the risk that the
poor performance of a single property manager will have widespread effect on the
related Mortgage Asset Pool.
Dependence on Tenants. In most cases, the Mortgaged Properties will be
subject to leases, and the related borrowers will rely on periodic lease or
rental payments from tenants to pay for maintenance and other operating expenses
of such Mortgaged Properties, to fund capital improvements at such Mortgaged
Properties and to service the related Mortgage Loans and any other outstanding
debt or obligations they may have outstanding. Generally, there will be existing
leases that expire during the term of the related Mortgage Loans. There can be
no guaranty that tenants will renew leases upon expiration or, in the case of a
commercial tenant, that it will continue operations throughout the term of its
lease. Such borrowers' income would be adversely affected if tenants were unable
to pay rent, if space were unable to be rented on favorable terms or at all, or
if a significant tenant were to become a debtor in a bankruptcy case under the
United States Bankruptcy Code. For example, if any such borrower were to relet
or renew the existing leases for a significant amount of retail or office space
at rental rates significantly lower than expected rates, then such borrower's
funds from
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operations may be adversely affected. Changes in payment patterns by tenants may
result from a variety of social, legal and economic factors, including, without
limitation, the rate of inflation and unemployment levels and may be reflected
in the rental rates offered for comparable space. In addition, upon reletting or
renewing existing leases at commercial properties, borrowers will likely be
required to pay leasing commissions and tenant improvement costs which may
adversely affect cash flow from the related Mortgaged Property. There can be no
assurances whether, or to what extent, economic, legal or social factors will
affect future rental or repayment patterns.
In the case of Mortgaged Properties used for certain commercial purposes,
the performance and liquidation value of such properties may be dependent upon
the business operated by tenants, the creditworthiness of such tenants and/or
the number of tenants. In some cases, a single tenant or a relatively small
number of tenants may account for all or a disproportionately large share of the
rentable space or rental income of a Mortgaged Property. Accordingly, a decline
in the financial condition of a significant or sole tenant, as the case may be,
or other adverse circumstances of such a tenant (such as bankruptcy or
insolvency), may have a disproportionately greater effect on the net operating
income derived from such property than would be the case if rentable space or
rental income were more evenly distributed among a greater number of tenants at
such property.
Property Location and Condition. The location and construction quality of a
particular Mortgaged Property may affect the occupancy level as well as the
rents that may be charged. The characteristics of an area or neighborhood in
which a Mortgaged Property is located may change over time or in relation to
competing facilities. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if the management company does not
schedule and perform adequate maintenance in a timely fashion. Although the
Master Servicer or the Special Servicer, as applicable, generally will be
required to inspect the related Mortgaged Properties (but not mortgaged
properties securing mortgage loans underlying MBS) periodically, there can be no
assurance that such inspections will detect damage or prevent a default.
Competition. Other comparable multifamily/commercial properties located in
the same areas will compete with the Mortgaged Properties to attract residents,
retail sellers, tenants, customers, patients and/or guests. The leasing of real
estate is highly competitive. The principal means of competition are price,
location and the nature and condition of the facility to be leased. A mortgagor
competes with all lessors and developers of comparable types of real estate in
the area in which the related Mortgaged Property is located. Such lessors or
developers could have lower rents, lower operating costs, more favorable
locations or better facilities. While a mortgagor may renovate, refurbish or
expand the related Mortgaged Property to maintain such Mortgaged Property and
remain competitive, such renovation, refurbishment or expansion may itself
entail significant risks. Increased competition could adversely affect income
from and the market value of the Mortgaged Properties. In addition, the business
conducted at each Mortgaged Property may face competition from other industries
and industry segments.
Changes in Laws. Increases in income, service or other taxes (other than
real estate taxes) in respect of a Mortgaged Property generally are not passed
through to tenants under leases and may adversely affect the related mortgagor's
funds from operations. Similarly, changes in laws increasing the potential
liability for environmental conditions existing on a Mortgaged Property or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which could adversely affect the related
mortgagor's funds from operations. See "--Risks of Liability Arising From
Environmental Conditions" herein. In the case of properties used as a casino,
gambling could cease to be permitted.
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<PAGE>
Litigation. There may be legal proceedings pending and, from time to time,
threatened against certain mortgagors under the Mortgage Loans, managers of the
Mortgaged Properties and their respective affiliates arising out of the ordinary
business of such mortgagors, managers and affiliates. There can be no assurance
that such litigation may not have a material adverse effect on distributions to
Certificateholders of the related Trust Fund.
Limitations on Enforceability of Assignments of Leases and Rents. In
general, any Mortgage Loan that is secured by a Mortgaged Property subject to
leases, will be secured by an assignment of leases and rents pursuant to which
the borrower assigns to the lender its right, title and interest as landlord
under the leases of the related Mortgaged Property, and the income derived
therefrom, as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. If the borrower
defaults, the license terminates and the lender is entitled to collect rents.
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 borrower, the lender's ability to collect
the rents may be adversely affected. See "Certain Legal Aspects of Mortgage
Loans--Leases and Rents".
Limitations on Enforceability of Cross-Collateralization. A Mortgage Asset
Pool may include groups of Mortgage Loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective Mortgage Loans in a
cross-collateralized group, and the cash flows generated thereby, are available
to support debt service on, and ultimate repayment of, the aggregate
indebtedness evidenced by those Mortgage Loans. These arrangements thus seek to
reduce the risk that the inability of one or more of the Mortgaged Properties
securing any such group of Mortgage Loans to generate net operating income
sufficient to pay debt service will result in defaults and ultimate losses.
There may not be complete identity of ownership of the Mortgaged Properties
securing a group of cross-collateralized Mortgage Loans. In such an instance,
creditors of one or more of the related borrowers could challenge the
cross-collateralization arrangement as a fraudulent conveyance. Generally, under
federal and state fraudulent conveyance statutes, the incurring of an obligation
or the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and was
then insolvent or was rendered insolvent by such obligation or transfer.
Accordingly, a creditor seeking to realize against a Mortgaged Property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert (i) that such borrower was insolvent at the time
the cross-collateralized Mortgage Loans were made and (ii) that such borrower
did not, when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other Mortgage Loans in the group of
cross-collateralized Mortgage Loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, there can be no
assurance that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value, and no unqualified legal
opinion to that effect will be obtained.
The cross-collateralized Mortgage Loans constituting any group thereof may
be secured by mortgage liens on Mortgaged Properties located in different
states. Because of various state laws governing foreclosure or the exercise of a
power of sale, and because, in general, foreclosure actions are brought in state
court, and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon
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a default under any such Mortgage Loan to foreclose on the related Mortgaged
Properties in a particular order rather than simultaneously in order to ensure
that the lien of the related Mortgages is not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Certain of the
Mortgage Loans included in a Trust Fund may be nonamortizing or only partially
amortizing over their terms to maturity and, thus, will require substantial
payments of principal and interest (that is, balloon payments) at their stated
maturity. Mortgage Loans of this type involve a greater likelihood of default
than self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by a number of factors, including the
value of the related Mortgaged Property, the level of available mortgage rates
at the time of sale or refinancing, the borrower's equity in the related
Mortgaged Property, the financial condition and operating history of the
borrower and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain residential properties), Medicaid and Medicare reimbursement
rates (with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the Depositor
nor any of its affiliates will be required to refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or the Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans". While the Master
Servicer or the Special Servicer generally will be required to determine that
any such extension or modification is reasonably likely to produce a greater
recovery than liquidation, taking into account the time value of money, there
can be no assurance that any such extension or modification will in fact
increase the present value of receipts from or proceeds of the affected Mortgage
Loans.
Limitations on Enforceability of Due-on-Sale and Debt-Acceleration Clauses.
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the borrower sells, transfers or
conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary 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.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by the
borrower or a prior owner. A lender also risks such liability on foreclosure of
the mortgage. Unless otherwise specified in the related Prospectus Supplement,
if a Trust Fund includes Mortgage Loans, then the related Pooling Agreement will
contain provisions generally to the effect that neither the Master Servicer nor
the Special Servicer may, on behalf of the Trust Fund, acquire title to a
Mortgaged
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Property or assume control of its operation unless the Special Servicer, based
upon a report prepared by a person who regularly conducts environmental site
assessments, has made the determination that it is appropriate to do so, as
described under "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans". See "Certain Legal Aspects of Mortgage
Loans--Environmental Considerations".
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a Prospectus Supplement, the Master Servicer and Special
Servicer for the related Trust Fund will be required to cause the borrower on
each Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, each of the Master
Servicer and the Special Servicer may satisfy its obligation to cause hazard
insurance to be maintained with respect to any Mortgaged Property through
acquisition of a blanket policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements of the property by fire, lightning, explosion, smoke, windstorm and
hail, and riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies covering the
Mortgaged Properties will be underwritten by different insurers under different
state laws in accordance with different applicable state forms, and therefore
will not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic animals
and certain other kinds of risks. Unless the related Mortgage specifically
requires the mortgagor to insure against physical damage arising from such
causes, then, to the extent any consequent losses are not covered by Credit
Support, such losses may be borne, at least in part, by the holders of one or
more Classes of Offered Certificates of the related Series. See "Description of
the Pooling Agreements--Hazard Insurance Policies".
Risks of Geographic Concentration. Certain geographic regions of the United
States from time to time will experience weaker regional economic conditions and
housing markets, and, consequently, will experience higher rates of loss and
delinquency than will be experienced on mortgage loans generally. For example, a
region's economic condition and housing market may be directly, or indirectly,
adversely affected by natural disasters or civil disturbances such as
earthquakes, hurricanes, floods, eruptions or riots. The economic impact of any
of these types of events may also be felt in areas beyond the region immediately
affected by the disaster or disturbance. The Mortgage Loans underlying certain
Series may be concentrated in these regions, and such concentration may present
risk considerations in addition to those generally present for similar
mortgage-backed securities without such concentration.
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset
Pool
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series may include Mortgage Loans that are past due or are
nonperforming. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans 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 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 in respect of the
subject Mortgage Asset Pool and the yield on the Offered Certificates of such
Series. See "Description of the Trust Funds--Mortgage Loans--General".
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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 related REMIC, regardless of the amount or timing of their
possible receipt of cash payments, if any, from such REMIC, as described under
"Certain Federal Income Tax Consequences--REMICs". REMIC Residual Certificates
may have "phantom income" associated with them. That is, taxable income may be
reportable with respect to a REMIC Residual Certificate early in the term of the
related REMIC with a corresponding amount of tax losses reportable in later
years of that REMIC's term. Under these circumstances, the present value of the
tax detriments with respect to the related REMIC Residual Certificate may
significantly exceed the present value of the related tax benefits accruing
later. Therefore, the after-tax yield on a REMIC Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics, and certain REMIC Residual Certificates may
have a negative "value". The requirement that holders of REMIC Residual
Certificates report their pro rata share of the taxable income and net loss of
the related REMIC will continue until the Certificate Principal Balances of all
Certificates of the related Series have been reduced to zero. All or a portion
of such Certificateholder's share of the related REMIC's taxable income may be
treated as "excess inclusion" income to such holder, which (i) generally will
not be subject to offset by losses from other activities, (ii) for a tax-exempt
holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax. Moreover,
because an amount of gross income equal to the fees and non-interest expenses of
each REMIC will be allocated to the REMIC Residual Certificates, but such
expenses will be deductible by Holders of REMIC Residual Certificates who are
individuals only as miscellaneous itemized deductions, REMIC Residual
Certificates will generally not be appropriate investments for individuals,
estates or trusts or for pass-through entities (including partnerships and S
corporations) beneficially owned by, or having as partners or shareholders, one
or more individuals, estates or trusts. In addition, REMIC Residual Certificates
are subject to certain restrictions on transfer, including, but not limited to
prohibition on transfers to investors that are not U.S. persons.
Book-Entry Registration
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. Each Class of Book-Entry Certificates will be initially
represented by one or more Certificates registered in the name of a nominee for
DTC. As a result, unless and until corresponding Definitive Certificates are
issued, the Certificate Owners with respect to any Class of Book-Entry
Certificates will be able to exercise the rights of Certificateholders only
indirectly through DTC and its participating organizations ("DTC Participants").
In addition, the access of Certificate Owners to information regarding the
Book-Entry Certificates in which they hold interests may be limited. Conveyance
of notices and other communications by DTC to DTC Participants, and directly and
indirectly through such DTC Participants to Certificate Owners, will be governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time. Furthermore, as described herein,
Certificate Owners may suffer delays in the receipt of payments on the
Book-Entry Certificates, and the ability of any Certificate Owner to pledge or
otherwise take actions with respect to its interest in the Book-Entry
Certificates may be limited due to the lack of physical certificate evidencing
such interest. See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
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Potential Conflicts of Interest
If so specified in the related Prospectus Supplement, the Master Servicer
may also perform the duties of Special Servicer, and the Master Servicer, the
Special Servicer or the Trustee may also perform the duties of REMIC
Administrator and/or MBS Administrator, as applicable. If so specified in the
related Prospectus Supplement, an affiliate of the Depositor, or the Mortgage
Asset Seller or an affiliate thereof, may perform the functions of Master
Servicer, Special Servicer, REMIC Administrator and/or MBS Administrator, as
applicable. In addition, any party to a Pooling Agreement or any affiliate
thereof may own Certificates. Investors in the Offered Certificates should
consider that any resulting conflicts of interest could affect the performance
of duties under the related Pooling Agreement. For example, if the Master
Servicer or Special Servicer for any Trust Fund owns a significant portion of
any Class of Certificates of the related Series, then, notwithstanding the
applicable servicing standard imposed by the related Pooling Agreement, such
fact could influence servicing decisions in respect of the Mortgage Loans in
such Trust Fund. Also, if specified in the related Prospectus Supplement, the
holders of a specified Class or Classes of Subordinate Certificates may have the
ability to replace the Special Servicer or direct the Special Servicer's actions
in connection with liquidating or modifying defaulted Mortgage Loans. Investors
in such specified Class or Classes of Subordinate Certificates may have
interests when dealing with defaulted Mortgage Loans that are in conflict with
those of the holders of the Offered Certificates of the same Series.
Termination
If so provided in the related Prospectus Supplement, upon a specified date
or upon the reduction of the aggregate Certificate Principal Balance of a
specified Class or Classes of Certificates to a specified amount, a party
designated therein may be authorized or required to solicit bids for the
purchase of all the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such Class or Classes,
under the circumstances and in the manner set forth therein. The solicitation of
bids will be conducted in a commercially reasonable manner and, generally,
assets will be sold at their fair market value. In addition, if so specified in
the related Prospectus Supplement, upon the reduction of the aggregate principal
balance of some or all of the Mortgage Assets to a specified amount, a party or
parties designated therein may be authorized to purchase such Mortgage Assets,
generally at a price equal to, in the case of any Mortgage Asset, the unpaid
principal balance thereof plus accrued interest (or, in some cases, at fair
market value). However, circumstances may arise in which such fair market value
may be less than the unpaid balance of the related Mortgage Assets sold or
purchased, together with interest thereon, and therefore, as a result of such a
sale or purchase, the Certificateholders of one or more Classes of Certificates
may receive an amount less than the aggregate Certificate Principal Balance of,
and accrued unpaid interest on, their Certificates. See "Description of the
Certificates--Termination".
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) various types of
multifamily or commercial mortgage loans ("Mortgage Loans"), (ii) mortgage
participations, pass-through certificates, collateralized mortgage obligations
or other mortgage-backed securities ("MBS") that evidence interests in, or that
are secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans or (iii) a combination of Mortgage Loans and MBS
(collectively, "Mortgage Assets"). Each Trust Fund will be established by the
Depositor. Each Mortgage Asset will be selected by the Depositor for inclusion
in a Trust
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Fund from among those purchased, either directly or indirectly, from a prior
holder thereof (a "Mortgage Asset Seller"), which prior holder may or may not be
the originator of such Mortgage Loan or the issuer of such MBS. The Mortgage
Assets will not be guaranteed or insured by the Depositor or any of its
affiliates or, unless otherwise provided in the related Prospectus Supplement,
by any governmental agency or instrumentality or by any other person. The
discussion below under the heading "--Mortgage Loans", unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
Trust Fund.
Mortgage Loans
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of one
or more of the following types of real property: (i) residential properties
("Multifamily Properties") consisting of multiple rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures, and mobile home parks; (ii) commercial properties
("Commercial Properties") consisting of office buildings, retail shopping
facilities (such as shopping centers, malls, automotive sales centers and
individual stores, shops and businesses related to sales of products and goods),
facilities related to providing entertainment, recreation and personal services
(such as movie theaters, fitness centers, bowling alleys, salons, drycleaners
and automotive service centers), hotels or motels, casinos, health care-related
facilities (such as hospitals, skilled nursing facilities, nursing homes,
congregate care facilities and senior housing), recreational vehicle parks,
warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial facilities, parking lots and restaurants; and (iii) mixed use
properties (that is, any combination of the foregoing) and unimproved land. The
Multifamily Properties may include mixed commercial and residential structures
and apartment buildings owned by private cooperative housing corporations
("Cooperatives"). Unless otherwise specified in the related Prospectus
Supplement, each Mortgage will create a first priority mortgage lien on a fee
estate in a Mortgaged Property. If a Mortgage creates a lien on a borrower's
leasehold estate in a property, then, unless otherwise specified in the related
Prospectus Supplement, the term of any such leasehold will exceed the term of
the Mortgage Note by at least ten years. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage Loan will have been originated by a
person (the "Originator") other than the Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
Series may include Mortgage Loans secured by junior liens, and the loans secured
by the related senior liens ("Senior Liens") may not be included in the Mortgage
Asset Pool. The primary risk to holders of Mortgage Loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related Senior Liens to satisfy fully both the Senior
Liens and the Mortgage Loan. In the event that a holder of a Senior Lien
forecloses on a Mortgaged Property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. If the Master Servicer were to foreclose on any Mortgage Loan, it
would do so subject to any related Senior Liens. In order for the debt related
to such Mortgage Loan to be paid in full at such sale, a bidder at the
foreclosure sale of such Mortgage Loan would have to bid an amount sufficient to
pay off all sums due under the Mortgage Loan and any Senior Liens or purchase
the Mortgaged Property subject to such Senior Liens. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy all Senior Liens and the Mortgage Loan in the
aggregate, the Trust Fund, as the holder of the junior lien, and, accordingly,
holders of one or more Classes of the Certificates of the related Series bear
(i) the risk of delay in distributions while a deficiency judgment against the
borrower is obtained and (ii) the risk of loss if the deficiency judgment is not
obtained and satisfied. Moreover, deficiency judgments may
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not be available in certain jurisdictions, or the particular Mortgage Loan may
be a nonrecourse loan, which means that, absent special facts, recourse in the
case of default will be limited to the Mortgaged Property and such other assets,
if any, that were pledged to secure repayment of the Mortgage Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular Series may include Mortgage Loans that are delinquent or
nonperforming as of the date such Certificates are issued. In that case, the
related Prospectus Supplement will set forth, as to each such Mortgage Loan,
available information as to the period of such delinquency or nonperformance,
any forbearance arrangement then in effect, the condition of the related
Mortgaged Property and the ability of the Mortgaged Property to generate income
to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
Mortgage Loans included in a particular Trust Fund may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments of principal and/or interest on the Mortgage Loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, 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)
noncash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on the related Mortgage Loan or on any other loans that
are secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a nonowner-occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, recreational vehicle parks, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties typically leased for
longer periods, such as warehouses, retail stores, office buildings and
industrial facilities. Commercial Properties may be owner-occupied or leased to
a small number of tenants. Thus, the Net Operating Income of such a Mortgaged
Property may depend substantially on the financial condition of the borrower or
a tenant, and Mortgage Loans secured by liens on such properties may pose a
greater likelihood of default and loss than loans secured by liens on
Multifamily Properties or on multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than
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the borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (ii) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the"Value" of a
Mortgaged Property will be its fair market value as determined by an appraisal
of such property conducted by or on behalf of the Originator in connection with
the origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
Mortgage Loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
Value of a Mortgaged Property as of the date of initial issuance of the
Certificates of the related Series may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method (the cost
of replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or upon
a selection from or interpolation of the values derived from such methods. Each
of these appraisal methods can present analytical difficulties. It is often
difficult to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate capitalization rate and
discount rate. Where more than one of these appraisal methods are used and
provide significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of the likelihood of default and loss, is
even more difficult.
Although there may be multiple methods for determining the Value of a
Mortgaged Property, Value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the Value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors--Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans--General" and
"--Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--Increased Risk of Default Associated With Balloon Payments".
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Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(i) have had original terms to maturity of not more than approximately 40 years
and (ii) provide for scheduled payments of principal, interest or both, to be
made on specified dates ("Due Dates") that occur monthly, quarterly,
semi-annually or annually. A Mortgage Loan (i) may provide for no accrual of
interest or for accrual of interest thereon at a Mortgage Rate that is fixed
over its term or that adjusts from time to time, or that may be converted at the
borrower's election from an adjustable to a fixed Mortgage Rate, or from a fixed
to an adjustable Mortgage Rate, (ii) may provide for level payments to maturity
or for payments that adjust from time to time to accommodate changes in the
Mortgage Rate or to reflect the occurrence of certain events, and may permit
negative amortization, (iii) may be fully amortizing or may be partially
amortizing or nonamortizing, with a balloon payment due on its stated maturity
date, and (iv) may prohibit over its term or for a certain period prepayments
(the period of such prohibition, a "Lock-out Period" and its date of expiration,
a "Lock-out Date") and/or require payment of a premium or a yield maintenance
payment (a "Prepayment Premium") in connection with certain prepayments, in each
case as described in the related Prospectus Supplement. A Mortgage Loan may also
contain a provision that entitles the lender to a share of appreciation of the
related Mortgaged Property, or profits realized from the operation or
disposition of such Mortgaged Property or the benefit, if any, resulting from
the refinancing of the Mortgage Loan (any such provision, an "Equity
Participation"), as described in the related Prospectus Supplement.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following: (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans, (ii) the type or types of property that provide security for repayment of
the Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) the original and remaining terms to maturity of
the Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
Loan-to-Value Ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
the range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a Series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
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If and to the extent available and relevant to an investment decision in
the Offered Certificates of the related Series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may be so materially different from those of the related Mortgage
Asset Pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the Master Servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a Special Servicer, no comparable prepayment
information will be presented with respect to the Special Servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (i) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates, collateralized
mortgage obligations or other mortgage-backed securities or (ii) certificates
issued and/or insured or guaranteed by the Federal Home Loan Mortgage
Corporation ("FHLMC"; and such certificates issued and/or insured or guaranteed
thereby, "FHLMC Certificates"), the Federal National Mortgage Association
("FNMA"; and such certificates issued and/or insured or guaranteed thereby,
"FNMA Certificates"), the Governmental National Mortgage Association ("GNMA";
and such certificates issued and/or insured or guaranteed thereby, "GNMA
Certificates") or the Federal Agricultural Mortgage Corporation ("FAMC"; and
such certificates issued and/or insured or guaranteed thereby, "FAMC
Certificates"), provided that, unless otherwise specified in the related
Prospectus Supplement, each MBS will evidence an interest in, or will be secured
by a pledge of, mortgage loans that conform to the descriptions of the Mortgage
Loans contained herein.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a Mortgage Asset
Pool: (a) either will (i) have been acquired (other than from the Depositor or
an affiliate thereof) in bona fide secondary market transactions or (ii) if so
specified in the related Prospectus Supplement, be part of the Depositor's (or
an affiliate's) unsold allotments from the Depositor's (or an affiliate's)
previous offerings; and (b) unless it was issued by the Depositor or a trust
established thereby, will either (i) have been previously registered under the
Securities Act, (ii) be exempt from such registration requirements or (iii) have
been held for at least the holding period specified in Rule 144(k) under the
Securities Act.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will be parties
to the MBS Agreement, generally together with a trustee (the "MBS Trustee") or,
in the alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the Classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or
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obligation to repurchase or substitute assets underlying the MBS after a certain
date or under other circumstances specified in the related Prospectus
Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a Series that evidence interests in MBS will
specify: (i) the aggregate approximate initial and outstanding principal
amount(s) and type of the MBS to be included in the Trust Fund, (ii) the
original and remaining term(s) to stated maturity of the MBS, if applicable,
(iii) the pass-through or bond rate(s) of the MBS or the formula for determining
such rate(s), (iv) the payment characteristics of the MBS, (v) the MBS Issuer,
MBS Servicer and MBS Trustee, as applicable, of each of the MBS, (vi) a
description of the related credit support, if any, (vii) the circumstances under
which the related underlying mortgage loans, or the MBS themselves, may be
purchased prior to their maturity, (viii) the terms on which mortgage loans may
be substituted for those originally underlying the MBS, (ix) the type of
mortgage loans underlying the MBS and, to the extent appropriate under the
circumstances, such other information in respect of the underlying mortgage
loans described under "--Mortgage Loans--Mortgage Loan Information in Prospectus
Supplements", and (x) the characteristics of any cash flow agreements that
relate to the MBS.
The Depositor will provide the same information regarding the MBS in any
Trust Fund in its reports filed under the Exchange Act with respect to such
Trust Fund as was provided by the related MBS Issuer in its own such reports if
such MBS was publicly offered or the reports the related MBS Issuer provides the
related MBS Trustee if such MBS was privately issued.
Undelivered Mortgage Assets
Unless otherwise specified in the related Prospectus Supplement, the aggregate
outstanding principal balance of a Mortgage Asset Pool as of the related Cut-off
Date will equal or exceed the aggregate Certificate Principal Balance of the
related Series as of the related Closing Date. In the event that Mortgage Assets
initially delivered do not have an aggregate outstanding principal balance as of
the related Cut-off Date at least equal to the aggregate Certificate Principal
Balance of the related Series as of the related Closing Date, the Depositor may
deposit cash or Permitted Investments on an interim basis with the Trustee for
such Series on the related Closing Date in lieu of delivering Mortgage Assets
(the "Undelivered Mortgage Assets") with an aggregate outstanding principal
balance as of the related Cut-off Date equal to the shortfall amount. During the
90-day period following the related Closing Date, the Depositor will be entitled
to obtain a release of such cash or Permitted Investments to the extent that the
Depositor delivers a corresponding amount of the Undelivered Mortgage Assets. If
and to the extent all the Undelivered Mortgage Assets are not delivered during
the 90-day period following the related Closing Date, such cash or, following
liquidation, such Permitted Investments will be applied to pay a corresponding
amount of principal of the Certificates of such Series to the extent set forth,
and on the dates specified, in the related Prospectus Supplement.
Certificate Accounts
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the
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extent described herein and in the related Prospectus Supplement. See
"Description of the Pooling Agreements-Certificate Account".
Credit Support
If so provided in the Prospectus Supplement for the Offered Certificates of
any Series, partial or full protection against certain defaults and losses on
the Mortgage Assets in the related Trust Fund may be provided to one or more
Classes of Certificates of such Series in the form of subordination of one or
more other Classes of Certificates of such Series or by one or more other types
of Credit Support, which may include a letter of credit, a surety bond, an
insurance policy, a guarantee, a reserve fund or any combination thereof. The
amount and types of such Credit Support, the identity of the entity providing it
(if applicable) and related information with respect to each type of Credit
Support, if any, will be set forth in the Prospectus Supplement for the Offered
Certificate of any Series. See "Risk Factors--Credit Support Limitations" and
"Description of Credit Support".
Cash Flow Agreements
If so provided in the Prospectus Supplement for the Offered Certificates of
any Series, the related Trust Fund may include guaranteed investment contracts
pursuant to which moneys held in the funds and accounts established for such
Series will be invested at a specified rate. The Trust Fund may also include
interest rate exchange agreements, interest rate cap or floor agreements, or
other agreements designed to reduce the effects of interest rate fluctuations on
the Mortgage Assets on one or more Classes of Certificates. The principal terms
of any such Cash Flow Agreement, including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also identify the obligor
under the Cash Flow Agreement.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors--Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a Trust Fund that consists solely of Mortgage Loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a Class of Certificates as will the characteristics and behavior
of comparable Mortgage Loans, the effect may differ due to the payment
characteristics of the MBS. If a Trust Fund includes MBS, the related Prospectus
Supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
Offered Certificates of the related Series.
Pass-Through Rate
The Certificates of any Class within a Series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to the Offered Certificates of any Series will specify
the Pass-Through Rate for each Class of such Offered Certificates or, in the
case of a Class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
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if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more Classes of such Offered Certificates; and whether the distributions of
interest on any Class of such Offered Certificates will be dependent, in whole
or in part, on the performance of any obligor under a Cash Flow Agreement.
Payment Delays
With respect to any Series, a period of time will elapse between the date
upon which payments on the Mortgage Loans in the related Trust Fund are due and
the Distribution Date on which such payments are passed through to
Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on the date they were due.
Certain Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on the Offered
Certificates of any Series and distributable thereon on any Distribution Date
will generally correspond to interest accrued on the Mortgage Loans to their
respective Due Dates during the related Due Period. A "Due Period" will be a
specified time period (generally corresponding in length to the period between
Distribution Dates) and all scheduled payments on the Mortgage Loans in the
related Trust Fund that are due during a given Due Period will, to the extent
received by a specified date (the "Determination Date") or otherwise advanced by
the related Master Servicer, Special Servicer or other specified person, be
distributed to the holders of the Certificates of such Series on the next
succeeding Distribution Date. Consequently, if a prepayment on any Mortgage Loan
is distributable to Certificateholders on a particular Distribution Date, but
such prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related Series. If and
to the extent that any such shortfall is allocated to a Class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for the Offered Certificates of each Series will describe the manner
in which any such shortfalls will be allocated among the respective Classes of
Certificates of such Series. The related Prospectus Supplement will also
describe any amounts available to offset such shortfalls.
Yield and Prepayment Considerations
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the Certificate Principal Balance (or the Certificate Notional
Amount, if applicable) of such Certificate. The rate of principal payments on
the Mortgage Loans in any Trust Fund will in turn be affected by the
amortization schedules thereof (which, in the case of ARM Loans, may change
periodically to accommodate adjustments to the Mortgage Rates thereon), the
dates on which any balloon payments are due, and the rate of principal
prepayments thereon (including for this purpose, voluntary prepayments by
borrowers and also prepayments resulting from liquidations of Mortgage Loans due
to defaults, casualties or condemnations affecting the related Mortgaged
Properties, or purchases of Mortgage Loans out of the related Trust Fund).
Because the rate of principal prepayments on the Mortgage Loans in any Trust
Fund will depend on future events and a variety of factors (as described below),
no assurance can be given as to such rate.
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The extent to which the yield to maturity of a Class of Offered
Certificates of any Series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a Class of
Stripped Interest Certificates, result in the reduction of the aggregate
Certificate Notional Amount thereof). An investor should consider, in the case
of any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans in the related
Trust Fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
Offered Certificate at a discount (or premium), and principal payments are made
in reduction of the Certificate Principal Balance or Certificate Notional Amount
of such investor's Offered Certificate at a rate slower (or faster) than the
rate anticipated by the investor during any particular period, any consequent
adverse effects on such investor's yield would not be fully offset by a
subsequent like increase (or decrease) in the rate of principal payments.
In general, the aggregate Certificate Notional Amount of a Class of
Stripped Interest Certificates will either (i) be based on the principal
balances of some or all of the Mortgage Assets in the related Trust Fund or (ii)
equal the aggregate Certificate Principal Balance of one or more of the other
Classes of Certificates of the same Series. Accordingly, the yield on such
Stripped Interest Certificates will be inversely related to the rate at which
payments and other collections of principal are received on such Mortgage Assets
or distributions are made in reduction of the aggregate Certificate Principal
Balance of such Class or Classes of Certificates, as the case may be.
Consistent with the foregoing, if a Class of Certificates of any Series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a Series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any Trust
Fund may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the Mortgaged Properties are located, the quality of management of the
Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in
tax laws and other opportunities for investment. In general, those factors which
increase the attractiveness of selling a Mortgaged Property or refinancing a
Mortgage Loan or which enhance a borrower's ability to do so, as well as those
factors which increase the likelihood of default under a Mortgage Loan, would be
expected to cause the rate of prepayment in respect of any Mortgage Asset Pool
to accelerate. In contrast, those factors having an opposite effect would be
expected to cause the rate of prepayment of any Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a
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disincentive (in the case of a Prepayment Premium) to a borrower's voluntarily
prepaying its Mortgage Loan, thereby slowing the rate of prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more Classes of the Certificates of the related Series. Unless
otherwise specified in the related Prospectus Supplement, weighted average life
refers to the average amount of time that will elapse from the date of issuance
of an instrument until each dollar allocable as principal of such instrument is
repaid to the investor.
The weighted average life and maturity of a Class of Certificates of any
Series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
Class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
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Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to the Offered Certificates of any
Series will contain tables, if applicable, setting forth the projected weighted
average life of each Class of Offered Certificates of such Series with an
aggregate Certificate Principal Balance, and the percentage of the initial
aggregate Certificate Principal Balance of each such Class that would be
outstanding on specified Distribution Dates, based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
related Mortgage Loans are made at rates corresponding to various percentages of
CPR or SPA, or at such other rates specified in such Prospectus Supplement. Such
tables and assumptions will illustrate the sensitivity of the weighted average
lives of the Certificates to various assumed prepayment rates and will not be
intended to predict, or to provide information that will enable investors to
predict, the actual weighted average lives of the Certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage Loans
included in a particular Trust Fund may require that balloon payments be made at
maturity. Because the ability of a borrower to make a balloon payment typically
will depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a possibility that Mortgage Loans that require
balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or the Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a Class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
Negative Amortization. The weighted average life of a Class of Certificates
can be affected by Mortgage Loans that permit negative amortization to occur
(that is, Mortgage Loans that provide for the current payment of interest
calculated at a rate lower than the rate at which interest accrues thereon, with
the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more Mortgage Loans in any Trust Fund
may result in negative amortization on the Offered Certificates of the related
Series. The related Prospectus Supplement will describe, if applicable, the
manner in which negative amortization in respect of the Mortgage Loans in any
Trust Fund is allocated among the respective Classes of Certificates of the
related Series. The portion of any Mortgage Loan negative amortization allocated
to a Class of Certificates may result in a deferral of some or all of the
interest payable thereon, which deferred interest may be added to the aggregate
Certificate Principal Balance thereof. In addition, an ARM Loan that permits
negative amortization would be expected during a period of increasing interest
rates to amortize at a slower rate (and perhaps not at all) than if interest
rates were declining or were remaining constant. Such slower rate of Mortgage
Loan amortization would correspondingly be reflected in a slower rate of
amortization for one or more Classes of Certificates of the related Series.
Accordingly, the weighted average lives of Mortgage Loans that permit negative
amortization (and that of the Classes of Certificates to
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which any such negative amortization would be allocated or that would bear the
effects of a slower rate of amortization on such Mortgage Loans) may increase as
a result of such feature.
Negative amortization may occur in respect of an ARM Loan that (i) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (ii) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (iii) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those Classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the Certificate Notional
Amount thereof). See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related Series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
Series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any Series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any Class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective Classes of Certificates of the related Series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
aggregate Certificate Principal Balances of one or more such Classes of
Certificates and/or (ii) establishing a priority of payments among such Classes
of Certificates.
The yield to maturity on a Class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
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Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more Classes of Certificates of any Series, including
one or more Classes of Offered Certificates of such Series, may provide for
distributions of principal thereof from (i) amounts attributable to interest
accrued but not currently distributable on one or more Classes of Accrual
Certificates, (ii) Excess Funds or (iii) any other amounts described in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, "Excess Funds" will, in general, represent that portion
of the amounts distributable in respect of the Certificates of any Series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such Series, or (ii) Prepayment
Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
The amortization of any Class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any Class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on July 10, 1997 and is
a wholly-owned subsidiary of Donaldson, Lufkin & Jenrette Inc., a Delaware
corporation. The Depositor was organized, among other things, for the purposes
of issuing debt securities and establishing trusts, selling beneficial interests
therein and acquiring and selling mortgage assets to such trusts. The principal
executive offices of the Depositor are located at 277 Park Avenue, New York, New
York 10172. Its telephone number is (212) 892-3000. The Depositor does not have
and is not expected to have any significant assets.
DESCRIPTION OF THE CERTIFICATES
General
Each Series will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Pooling Agreement. As described in
the related Prospectus Supplement, the Certificates of each Series, including
the Offered Certificates of such Series, may consist of one or more Classes of
Certificates that, among other things: (i) provide for the accrual of interest
on the aggregate Certificate Principal Balance or Certificate Notional Amount
thereof at a fixed, variable or adjustable rate; (ii) constitute Senior
Certificates or Subordinate Certificates; (iii) constitute Stripped Interest
Certificates or Stripped Principal Certificates; (iv) provide for distributions
of interest thereon or principal thereof that commence only after the occurrence
of certain events, such as the retirement of one or more other Classes of
Certificates of such Series; (v) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; (vi)
provide for distributions of principal thereof to be made, subject to available
funds, based on a specified principal payment schedule or other methodology; or
(vii) provide for distributions based on
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collections on the Mortgage Assets in the related Trust Fund attributable to
Prepayment Premiums and Equity Participations.
If so specified in the related Prospectus Supplement, a Class of Offered
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct Classes. For example, a Class of Offered Certificates may have an
aggregate Certificate Principal Balance on which it accrues interest at a fixed,
variable or adjustable rate. Such Class of Offered Certificates may also have
certain characteristics attributable to Stripped Interest Certificates insofar
as it may also entitle the holders thereof to distributions of interest accrued
on an aggregate Certificate Notional Amount at a different fixed, variable or
adjustable rate. In addition, a Class of Certificates may accrue interest on one
portion of its aggregate Certificate Principal Balance or Certificate Notional
Amount at one fixed, variable or adjustable rate and on another portion of its
aggregate Certificate Principal Balance or Certificate Notional Amount at a
different fixed, variable or adjustable rate.
Each Class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Principal Balances or, in case of
certain Classes of Stripped Interest Certificates or REMIC Residual
Certificates, Certificate Notional Amounts or percentage interests, specified in
the related Prospectus Supplement. As provided in the related Prospectus
Supplement, one or more Classes of Offered Certificates of any Series may be
issued in fully registered, definitive form (such Certificates, "Definitive
Certificates") or may be offered in book-entry format (such Certificates,
"Book-Entry Certificates") through the facilities of DTC. The Offered
Certificates of each Series (if issued as Definitive Certificates) may be
transferred or exchanged, subject to any restrictions on transfer described in
the related Prospectus Supplement, at the location specified in the related
Prospectus Supplement, without the payment of any service charges, other than
any tax or other governmental charge payable in connection therewith. Interests
in a Class of Book-Entry Certificates will be transferred on the book-entry
records of DTC and its participating organizations. If so specified in the
related Prospectus Supplement, arrangements may be made for clearance and
settlement through CEDEL, S.A. or the Euroclear System, if they are participants
in DTC.
Distributions
Distributions on the Certificates of each Series will be made on each
Distribution Date from the Available Distribution Amount for such Series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any Series and any
Distribution Date will refer to the total of all payments or other collections
(or advances in lieu thereof) on, under or in respect of the Mortgage Assets and
any other assets included in the related Trust Fund that are available for
distribution to the holders of Certificates of such Series on such date. The
particular components of the Available Distribution Amount for any Series and
Distribution Date will be more specifically described in the related Prospectus
Supplement. In general, the Distribution Date for a Series will be the 25th day
of each month (or, if any such 25th day is not a business day, the next
succeeding business day), commencing in the month immediately following the
month in which such Series is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each Series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each Class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
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Class in proportion to the respective Percentage Interests evidenced thereby
unless otherwise specified in the related Prospectus Supplement. Payments will
be made either by wire transfer in immediately available funds to the account of
a Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the person required to make
such payments with wiring instructions no later than the related Record Date or
such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein), or by
check mailed to the address of such Certificateholder as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of any Class of Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
such Certificates at the location specified in the notice to Certificateholders
of such final distribution. The undivided percentage interest (the "Percentage
Interest") in any particular Class of Offered Certificates represented by any
Certificate of such Class will be equal to the percentage obtained by dividing
the initial Certificate Principal Balance or Certificate Notional Amount, as
applicable, of such Certificate by the initial aggregate Certificate Principal
Balance or Certificate Notional Amount, as the case may be, of such Class.
Distributions of Interest on the Certificates
Each Class of Certificates of each Series (other than certain Classes of
Stripped Principal Certificates and certain Classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each Class of Offered Certificates. Unless otherwise
specified in the related Prospectus Supplement, interest on the Certificates of
each Series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any Class of Certificates (other
than a Class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
any Class of Stripped Principal Certificates or REMIC Residual Certificates that
is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such Class and
such Distribution Date, subject to the sufficiency of that portion, if any, 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 aggregate Certificate Principal Balance
thereof on each Distribution Date or otherwise deferred as described in the
related Prospectus Supplement. With respect to each Class of Certificates (other
than certain Classes of Stripped Interest Certificates and certain Classes of
REMIC Residual Certificates), the "Accrued Certificate Interest" for each
Distribution Date will be equal to interest at the applicable Pass-Through Rate
accrued for a specified period (generally the most recently ended calendar
month) on the aggregate Certificate Principal Balance of such Class of
Certificates outstanding immediately prior to such Distribution Date. Unless
otherwise provided in the related Prospectus Supplement, the Accrued Certificate
Interest for each Distribution Date with respect to a Class of Stripped Interest
Certificates will be similarly calculated except that it will accrue on an
aggregate Certificate Notional Amount that, in general, will either be (i) based
on the principal balances of some or all of the Mortgage Assets in the related
Trust Fund or (ii) equal to the aggregate Certificate Principal Balances of one
or more other Classes of Certificates of the same Series. Reference to a
Certificate Notional Amount with respect to a Stripped Interest Certificate is
solely for convenience in making certain calculations and does not represent the
right to receive any distributions of principal. If so specified in the related
Prospectus Supplement, the amount of Accrued Certificate Interest that
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is otherwise distributable on (or, in the case of Accrual Certificates, that
that may otherwise be added to the aggregate Certificate Principal Balance of)
one or more Classes of the Certificates of a Series may be reduced to the extent
that any Prepayment Interest Shortfalls, as described under "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the Classes of Certificates of that Series will be specified 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 aggregate Certificate Principal Balance of) a Class of Offered
Certificates may be reduced as a result of any other contingencies, including
delinquencies, losses and deferred interest on or in respect of the Mortgage
Assets in the related Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a Class of Certificates by reason of the
allocation to such Class of a portion of any deferred interest on or in respect
of the Mortgage Assets in the related Trust Fund will result in a corresponding
increase in the aggregate Certificate Principal Balance of such Class. See "Risk
Factors--Effect of Prepayments on Average Life of Certificates" and "--Effect of
Prepayments on Yield of Certificates" and "Yield and Maturity
Considerations-Certain Shortfalls in Collections of Interest".
Distributions of Principal of the Certificates
Each Class of Certificates of each Series (other than certain Classes of
Stripped Interest Certificates and certain Classes of REMIC Residual
Certificates) will have an aggregate Certificate Principal Balance, which, at
any time, will equal the then maximum amount that the holders of Certificates of
such Class will be entitled to receive as principal out of the future cash flow
on the Mortgage Assets and other assets included in the related Trust Fund. The
aggregate outstanding Certificate Principal Balance of a Class of Certificates
will be reduced by distributions of principal made thereon from time to time
and, if and to the extent so provided in the related Prospectus Supplement,
further by any losses incurred in respect of the related Mortgage Assets
allocated thereto from time to time. In turn, the outstanding aggregate
Certificate Principal Balance of a Class of Certificates may be increased as a
result of any deferred interest on or in respect of the related Mortgage Assets
being allocated thereto from time to time, and will be increased, in the case of
a Class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of any
Accrued Certificate Interest in respect thereof (reduced as described above).
Unless otherwise specified in the related Prospectus Supplement, the initial
aggregate Certificate Principal Balance of all Classes of a Series will not be
greater than the aggregate outstanding principal balance of the related Mortgage
Assets as of the related Cut-off Date. The initial aggregate Certificate
Principal Balance of each Class of Offered Certificates will be specified in the
related Prospectus Supplement. As and to the extent described in the related
Prospectus Supplement, distributions of principal with respect to a Series will
be made on each Distribution Date to the holders of the Class or Classes of
Certificates of such Series entitled thereto until the Certificate Principal
Balances of such Certificates have been reduced to zero. Distributions of
principal with respect to one or more Classes of Certificates may be made at a
rate that is faster (and, in some cases, substantially faster) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund. Distributions of principal with respect to one
or more Classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other Classes of Certificates of
the same Series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more Classes of Certificates
(each such Class, a "Controlled Amortization Class") may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with
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respect to one or more other Classes of Certificates (each such Class, a
"Companion Class") may be contingent on the specified principal payment schedule
for a Controlled Amortization Class of the same Series and the rate at which
payments and other collections of principal on the Mortgage Assets in the
related Trust Fund are received. Unless otherwise specified in the related
Prospectus Supplement, distributions of principal of any Class of Offered
Certificates will be made on a pro rata basis among all of the Certificates of
such Class.
Distributions on the Certificates in Respect 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 received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the Class of Certificates of the related Series entitled
thereto in accordance with the provisions described in such Prospectus
Supplement. Alternatively, such items may be retained by the Depositor or any of
its affiliates or by any other specified person and/or may be excluded as Trust
Assets.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective Classes of Certificates of the related Series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (i) a reduction in the entitlements to interest and/or the
aggregate Certificate Principal Balances of one or more such Classes of
Certificates and/or (ii) establishing a priority of payments among such Classes
of Certificates. See "Description of Credit Support".
Advances in Respect of Delinquencies
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related Series for such Distribution Date, an amount up to the
aggregate of any payments of principal (other than the principal portion of any
balloon payments) and interest that were due on or in respect of such Mortgage
Loans during the related Due Period and were delinquent on the related
Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the Class or Classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) with respect to which such advances
were made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a Series that includes one or more Classes of Subordinate
Certificates, if so identified, collections on other Mortgage Assets in the
related Trust Fund that would otherwise be distributable to the holders of one
or more Classes of such Subordinate Certificates. No advance will be required to
be made by a Master Servicer, Special Servicer or Trustee if, in the judgment of
the Master Servicer, Special Servicer or Trustee, as the case
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may be, such advance would not be recoverable from Related Proceeds or another
specifically identified source (any such advance, a "Nonrecoverable Advance");
and, if previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
Series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
Series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
Series of Certificateholders or as otherwise provided in the related Pooling
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for the Offered Certificates of any Series
evidencing an interest in a Trust Fund that includes MBS will describe any
comparable advancing obligation of a party to the related Pooling Agreement or
of a party to the related MBS Agreement.
Reports to Certificateholders
On each Distribution Date, together with the distribution to the holders of
each Class of the Offered Certificates of a Series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") substantially in
the form, or specifying the information, set forth in the related Prospectus
Supplement. In general, the Distribution Date Statement for each Distribution
Date will detail the distributions on the Certificates of the related Series on
such Distribution Date and the performance of the Mortgage Assets in the related
Trust Fund.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee, as the case may be, for a Series will be
required to furnish to each person who at any time during the calendar year was
a holder of an Offered Certificate of such Series a statement containing
information regarding the principal, interest and other distributions on the
applicable Class of Offered Certificates, aggregated for such calendar year or
the applicable portion thereof during which such person was a Certificateholder.
Such obligation will be deemed to have been satisfied to the extent that
substantially comparable information is provided pursuant to any requirements of
the Code as are from time to time in force. See, however, "--Book-Entry
Registration and Definitive Certificates" below.
If the Trust Fund for a Series includes MBS, the ability of the related
Master Servicer, Manager or Trustee, as the case may be, to include in any
Distribution Date Statement information regarding the mortgage loans underlying
such MBS will depend on the reports received with respect to such MBS. In such
cases, the related Prospectus Supplement will describe the loan-specific
information to be included in the Distribution
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Date Statements that will be forwarded to the holders of the Offered
Certificates of that Series in connection with distributions made to them.
Voting Rights
The voting rights evidenced by each Series (as to such Series, the "Voting
Rights") will be allocated among the respective Classes of Certificates of such
Series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to certain amendments to the related Pooling Agreement and as otherwise
specified in the related Prospectus Supplement. See "Description of the Pooling
Agreements--Amendment". The holders of specified amounts of Certificates of a
particular Series will have the right to act as a group to remove the related
Trustee and also upon the occurrence of certain events which if continuing would
constitute an Event of Default on the part of the related Master Servicer,
Special Servicer or REMIC Administrator. See "Description of the Pooling
Agreements--Events of Default", "--Rights Upon Event of Default" and
"--Resignation and Removal of the Trustee".
Termination
The obligations created by the Pooling Agreement for each Series will
terminate following (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 Mortgage Loan subject thereto and (ii) the payment (or
provision for payment) to the Certificateholders of that Series of all amounts
required to be paid to them pursuant to such Pooling Agreement. Written notice
of termination of a Pooling Agreement will be given to each Certificateholder of
the related Series, and the final distribution will be made only upon
presentation and surrender of the Certificates of such Series at the location to
be specified in the notice of termination.
If so specified in the related Prospectus Supplement, the Certificates of
any Series may be subject to optional early retirement through the repurchase of
the Mortgage Assets in the related Trust Fund by the party or parties specified
therein, under the circumstances and in the manner set forth therein.
In addition, if so provided in the related Prospectus Supplement, upon the
reduction of the aggregate Certificate Principal Balance of a specified Class or
Classes of Certificates by a specified percentage or amount or upon a specified
date, a party designated therein may be authorized or required to solicit bids
for the purchase of all the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such Class or Classes of
Certificates, under the circumstances and in the manner set forth therein. The
solicitation of bids will be conducted in a commercially reasonable manner and,
generally, assets will be sold at their fair market value. Circumstances may
arise in which such fair market value may be less than the unpaid balance of the
Mortgage Loans sold and therefore, as a result of such a sale, the
Certificateholders of one or more Classes of Certificates may receive an amount
less than the aggregate Certificate Principal Balance of, and accrued unpaid
interest on, their Certificates.
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Book-Entry Registration and Definitive Certificates
If so provided in the Prospectus Supplement for the Offered Certificates of
any Series, one or more Classes of such Offered Certificates will be offered in
book-entry format through the facilities of DTC, and each such Class will be
represented by one or more global Certificates registered in the name of The
Depository Trust Company ("DTC") or its nominee. If so provided in the
Prospectus Supplement, arrangements may be made for clearance and settlement
through the Euroclear System or CEDEL, S.A., if they are participants in DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for DTC Participants and facilitate the clearance
and settlement of securities transactions between DTC Participants through
electronic computerized book-entry changes in their accounts, thereby
eliminating the need for physical movement of securities certificates. DTC
Participants that maintain accounts with DTC include securities brokers and
dealers, banks, trust companies and clearing corporations and may include other
organizations. DTC is owned by a number of DTC Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
directly or indirectly clear through or maintain a custodial relationship with a
DTC Participant that maintains as account with DTC. The rules applicable to DTC
and DTC Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through, and will be recorded on the records of, the brokerage firm, bank,
thrift institution or other financial intermediary (each, a "Financial
Intermediary") that maintains the beneficial owner's account for such purpose.
In turn, the Financial Intermediary's ownership of such Certificates will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the beneficial owner's Financial Intermediary is not a DTC
Participant). Therefore, the beneficial owner must rely on the foregoing
procedures to evidence its beneficial ownership of such Certificates. The
beneficial ownership interest of the owner of a Book-Entry Certificate (a
"Certificate Owner") may only be transferred by compliance with the rules,
regulations and procedures of such Financial Intermediaries and DTC
Participants.
DTC has no knowledge of the actual Certificate Owners; DTC's records
reflect only the identity of the DTC Participants to whose accounts such
Certificates are credited, which may or may not be the Certificate Owners. The
DTC Participants will remain responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants
and by DTC Participants to Financial Intermediaries and Certificate Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by DTC Participants to Financial
Intermediaries and Certificate Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
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customers in bearer form or registered in "street name", and will be the
responsibility of each such DTC Participant (and not of DTC, the Depositor or
any Trustee, Master Servicer, Special Servicer or Manager), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Accordingly, under a book-entry system, Certificate Owners may receive payments
after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling Agreement) of
Book-Entry Certificates will be the nominee of DTC, and the Certificate Owners
will not be recognized as Certificateholders under the Pooling Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Pooling Agreement only indirectly through
the DTC Participants who in turn will exercise their rights through DTC. The
Depositor has been informed that DTC will take action permitted to be taken by a
Certificateholder under a Pooling Agreement only at the direction of one or more
DTC Participants to whose account with DTC interests in the Book-Entry
Certificates are credited. DTC may take conflicting actions with respect to the
Book-Entry Certificates to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Certificates.
Because DTC can act only on behalf of DTC Participants, who in turn act on
behalf of Financial Intermediaries and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in Book-Entry Certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all DTC Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a Class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related Series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
"Certificateholders" under and within the meaning of the related Pooling
Agreement.
DESCRIPTION OF THE POOLING AGREEMENTS
General
The Certificates of each Series will be issued pursuant to a Pooling
Agreement. In general, the parties to a Pooling Agreement will include the
Depositor, the Trustee, the Master Servicer, the Special Servicer and, if one or
more REMIC elections have been made with respect to the Trust Fund, the REMIC
Administrator. However, a Pooling Agreement that relates to a Trust Fund that
includes MBS may include a Manager as a party, but may not include a Master
Servicer, Special Servicer or other servicer as a party. All parties to each
Pooling Agreement under which Certificates of a Series are issued will be
identified in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Mortgage Asset Seller or an affiliate thereof may
perform the functions of Master Servicer, Special Servicer, Manager or REMIC
Administrator. If so specified in the related Prospectus Supplement, the Master
Servicer may also perform the duties of
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Special Servicer, and the Master Servicer, the Special Servicer or the Trustee
may also perform the duties of REMIC Administrator. Any party to a Pooling
Agreement or any affiliate thereof may own Certificates issued thereunder;
however, except in limited circumstances (including with respect to required
consents to certain amendments to a Pooling Agreement), Certificates issued
thereunder that are held by the Master Servicer or Special Servicer for the
related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions that may appear in a Pooling
Agreement. The Prospectus Supplement for the Offered Certificates of any Series
will describe any provision of the related Pooling Agreement that materially
differs from the description thereof contained in this Prospectus. The summaries
herein do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Pooling Agreement
for each Series and the description of such provisions in the related Prospectus
Supplement. The Depositor will provide a copy of the Pooling Agreement (without
exhibits) that relates to any Series without charge upon written request of a
holder of a Certificate of such Series addressed to it at its principal
executive offices specified herein under "The Depositor".
Assignment of Mortgage Assets
General. At the time of initial issuance of any Series, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Assets
to be included in the related Trust Fund, together with, unless otherwise
specified in the related Prospectus Supplement, all principal and interest to be
received on or with respect to such Mortgage Assets after the related Cut-off
Date, other than principal and interest due on or before the related Cut-off
Date. The Trustee will, concurrently with such assignment, deliver the
Certificates of such Series to or at the direction of the Depositor in exchange
for the Mortgage Assets and the other assets to be included in the related Trust
Fund. Each Mortgage Asset will be identified in a schedule appearing as an
exhibit to the related Pooling Agreement. Such schedule generally will include
detailed information that pertains to each Mortgage Asset included in the
related Trust Fund, which information will typically include: (i) in the case of
a Mortgage Loan, the address of the related Mortgaged Property and type of such
property, the Mortgage Rate (and, if applicable, the applicable index, gross
margin, adjustment date and any rate cap information), the original and
remaining term to maturity, the amortization term, and the original and
outstanding principal balance; and (ii) in the case of an MBS, the outstanding
principal balance and the pass-through rate or coupon rate.
Delivery of Mortgage Loans. In addition, unless otherwise specified in the
related Prospectus Supplement, the Depositor will, as to each Mortgage Loan to
be included in a Trust Fund, deliver, or cause to be delivered, to the related
Trustee (or to a custodian appointed by the Trustee as described below) the
Mortgage Note endorsed, without recourse, either in blank or to the order of
such Trustee (or its nominee), the Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording office),
an assignment of the Mortgage in blank or to the Trustee (or its nominee) in
recordable form, together with any intervening assignments of the Mortgage with
evidence of recording thereon (except for any such assignment not returned from
the public recording office), and, if applicable, any riders or modifications to
such Mortgage Note and Mortgage, together with certain other documents at such
times as set forth in the related Pooling Agreement. Such assignments may be
blanket assignments covering Mortgages on Mortgaged Properties located in the
same county, if permitted by law. Notwithstanding the foregoing, a Trust Fund
may include Mortgage Loans where the original Mortgage Note is not delivered to
the Trustee if the Depositor delivers, or causes to be delivered, to the related
Trustee (or such custodian) a
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copy or a duplicate original of the Mortgage Note, together with an affidavit of
the Depositor or a prior holder of such Mortgage Note certifying that the
original thereof has been lost or destroyed. In addition, if the Depositor
cannot deliver, with respect to any Mortgage Loan, the Mortgage or any
intervening assignment with evidence of recording thereon concurrently with the
execution and delivery of the related Pooling Agreement because of a delay
caused by the public recording office, the Depositor will deliver, or cause to
be delivered, to the related Trustee (or such custodian) a true and correct
photocopy of such Mortgage or assignment as submitted for recording. The
Depositor will deliver, or cause to be delivered, to the related Trustee (or
such custodian) such Mortgage or assignment with evidence of recording indicated
thereon after receipt thereof from the public recording office. If the Depositor
cannot deliver, with respect to any Mortgage Loan, the Mortgage or any
intervening assignment with evidence of recording thereon concurrently with the
execution and delivery of the related Pooling Agreement because such Mortgage or
assignment has been lost, the Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) a true and correct photocopy of such
Mortgage or assignment with evidence of recording thereon. Unless otherwise
specified in the related Prospectus Supplement, assignments of Mortgage to the
Trustee (or its nominee) will be recorded in the appropriate public recording
office, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interests in
the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the originator of such Mortgage
Loan.
The Trustee (or a custodian appointed by the Trustee) for a Series will be
required to review the Mortgage Loan documents delivered to it within a
specified period of days after receipt thereof, and the Trustee (or such
custodian) will hold such documents in trust for the benefit of the
Certificateholders of such Series.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee.
Delivery of MBS. Unless otherwise specified in the related Prospectus
Supplement, the related Pooling Agreement will provide that such steps will be
taken as will be necessary to cause the Trustee to become the registered owner
of each MBS which is included in a Trust Fund and to provide for all
distributions on each such MBS to be made either directly to the Trustee or to
an MBS Administrator other than the Trustee, if any.
Representations and Warranties with respect to Mortgage Assets; Repurchases and
Other Remedies
Unless otherwise provided in the Prospectus Supplement for the Offered
Certificates of any Series, the Depositor will, with respect to each Mortgage
Asset in the related Trust Fund, make or assign, or cause to be made or
assigned, certain representations and warranties (the person making such
representations and warranties, the "Warranting Party") covering, by way of
example: (i) the accuracy of the information set forth for such Mortgage Asset
on the schedule of Mortgage Loans appearing as an exhibit to the related Pooling
Agreement; (ii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iii) in the
case of a Mortgage Loan, the enforceability of the related Mortgage Note and
Mortgage, the existence of title insurance insuring the lien priority of the
related Mortgage, the payment status of the Mortgage Loan and the delivery of
all documents required to be delivered with respect to the Mortgage Loan as
contemplated under "--Assignment of Mortgage Assets--Delivery of Mortgage Loans"
above. It is expected that in most cases the Warranting Party will be the
Mortgage Asset Seller; however, the Warranting Party may also be the Depositor,
an affiliate of the Mortgage Asset Seller or the Depositor, the Master Servicer,
the Special Servicer or another person acceptable to the Depositor. The
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Warranting Party, if other than the Mortgage Asset Seller, will be identified in
the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer and/or Trustee will be
required to notify promptly any Warranting Party of any breach of any
representation or warranty made by it in respect of a Mortgage Asset that
materially and adversely affects the interests of the Certificateholders of the
related Series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Asset from the Trustee at a price not less
than the unpaid principal balance of such Mortgage Asset as of the date of
purchase, together with interest thereon at the related Mortgage Rate (or, in
the case of an MBS, at the related pass-through rate or coupon rate) to a date
on or about the date of purchase (in any event, the "Purchase Price"). If so
provided in the Prospectus Supplement for the Offered Certificates of any
Series, in lieu of repurchasing a Mortgage Asset as to which a breach has
occurred, a Warranting Party will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
Series, to replace such Mortgage Asset with one or more other mortgage loans or
mortgage-backed securities that conform to the description of "Mortgage Asset"
herein, in accordance with standards that will be described in the Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation will constitute the sole remedy
available to holders of the Certificates of any Series or to the related Trustee
on their behalf for a breach of representation and warranty by a Warranting
Party, and no other person or entity will be obligated to purchase or replace a
Mortgage Asset if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Asset as of a date prior to the date upon which the
related Series is initially issued, and thus may not address events that may
occur following the date as of which they were made. The date as of which the
representations and warranties regarding the Mortgage Assets in any Trust Fund
were made will be specified in the related Prospectus Supplement.
Collection and Other Servicing Procedures with respect to Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer for any Mortgage Asset Pool, directly or
through Sub-Servicers, will each be obligated under the related Pooling
Agreement to service and administer the Mortgage Loans in such Mortgage Asset
Pool for the benefit of the related Certificateholders, in accordance with
applicable law and further in accordance with the terms of such Pooling
Agreement, such Mortgage Loans and any instrument of Credit Support included in
the related Trust Fund. Subject to the foregoing, the Master Servicer and the
Special Servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such Mortgage Loans
and held for its own account, provided (i) such procedures are consistent with
the terms of the related Pooling Agreement and (ii) do not impair recovery under
any instrument of Credit Support included in the related Trust Fund. Consistent
with the foregoing, the Master Servicer and the Special Servicer will each be
permitted, in its discretion, unless otherwise specified
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in the related Prospectus Supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund, either
separately or jointly, directly or through Sub-Servicers, will also be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling Agreement, for payment
of taxes, insurance premiums, ground rents and similar items, or otherwise
monitoring the timely payment of those items; attempting to collect delinquent
payments; supervising foreclosures; negotiating modifications; conducting
property inspections on a periodic or other basis; managing (or overseeing the
management of) Mortgaged Properties acquired on behalf of such Trust Fund
through foreclosure, deed-in-lieu of foreclosure or otherwise (each, an "REO
Property"); and maintaining servicing records relating to such Mortgage Loans.
The related Prospectus Supplement will specify when and the extent to which
servicing of a Mortgage Loan is to be transferred from the Master Servicer to
the Special Servicer. In general, and subject to the discussion in the related
Prospectus Supplement, a Special Servicer will be responsible for the servicing
and administration of: (i) Mortgage Loans that are delinquent in respect of a
specified number of scheduled payments; (ii) Mortgage Loans as to which the
related borrower has entered into or consented to bankruptcy, appointment of a
receiver or conservator or similar insolvency proceeding, or the related
borrower has become the subject of a decree or order for such a proceeding which
shall have remained in force undischarged or unstayed for a specified number of
days; and (iii) REO Properties. If so specified in the related Prospectus
Supplement, a Pooling Agreement also may provide that if a default on a Mortgage
Loan has occurred or, in the judgment of the related Master Servicer, a payment
default is reasonably foreseeable, the related Master Servicer may elect to
transfer the servicing thereof, in whole or in part, to the related Special
Servicer. Unless otherwise provided in the related Prospectus Supplement, when
the circumstances no longer warrant a Special Servicer's continuing to service a
particular Mortgage Loan (e.g., the related borrower is paying in accordance
with the forbearance arrangement entered into between the Special Servicer and
such borrower), the Master Servicer will resume the servicing duties with
respect thereto. If and to the extent provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Special Servicer may
perform certain limited duties in respect of Mortgage Loans for which the Master
Servicer is primarily responsible (including, if so specified, performing
property inspections and evaluating financial statements); and a Master Servicer
may perform certain limited duties in respect of any Mortgage Loan for which the
Special Servicer is primarily responsible (including, if so specified,
continuing to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), making certain calculations with respect to
such Mortgage Loan and making remittances and preparing certain reports to the
Trustee and/or Certificateholders with respect to such Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be responsible for filing and settling claims in respect of particular
Mortgage Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which
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the Special Servicer can make the initial determination of appropriate action,
evaluate the success of corrective action, develop additional initiatives,
institute foreclosure proceedings and actually foreclose (or accept a deed to a
Mortgaged Property in lieu of foreclosure) on behalf of the Certificateholders
of the related Series may vary considerably depending on the particular Mortgage
Loan, the Mortgaged Property, the mortgagor, the presence of an acceptable party
to assume the Mortgage Loan and the laws of the jurisdiction in which the
Mortgaged Property is located. If a mortgagor files a bankruptcy petition, the
Special Servicer may not be permitted to accelerate the maturity of the Mortgage
Loan or to foreclose on the related Mortgaged Property for a considerable period
of time. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws".
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectability of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Certificateholders and/or to preserve the security of
the related Mortgage Loan, subject to the application of the REMIC Provisions
(as defined herein). Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or Special Servicer, as applicable, will be
required to advance the necessary funds to cure the default or reinstate the
Senior Lien, if such advance is in the best interests of the related
Certificateholders and the Master Servicer or Special Servicer, as applicable,
determines such advances are recoverable out of payments on or proceeds of the
related Mortgage Loan.
Sub-Servicers
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling Agreement. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between a Master Servicer or Special Servicer, as applicable, and a
Sub-Servicer (a "Sub-Servicing Agreement") must provide for servicing of the
applicable Mortgage Loans consistent with the related Pooling Agreement. The
Master Servicer and Special Servicer in respect of any Mortgage Asset Pool will
each be required to monitor the performance of Sub-Servicers retained by it and
will
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have the right to remove a Sub-Servicer retained by it at any time it considers
such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Pooling Agreement is sufficient
to pay such fees. Each Sub-Servicer will be reimbursed by the Master Servicer or
Special Servicer, as the case may be, that retained it for certain expenditures
which it makes, generally to the same extent such Master Servicer or Special
Servicer would be reimbursed under a Pooling Agreement. See "--Certificate
Account" and "--Servicing Compensation and Payment of Expenses".
Collection of Payments on MBS
Unless otherwise specified in the related Prospectus Supplement, the MBS,
if any, included in the Trust Fund for any Series will be registered in the name
of the Trustee. All distributions thereon will be made either directly to the
Trustee or to an MBS Administrator other than the Trustee, if any. Unless
otherwise specified in the related Prospectus Supplement, the related Pooling
Agreement will provide that, if the Trustee or such other MBS Administrator, as
applicable, has not received a distribution with respect to any MBS by a
specified day after the date on which such distribution was due and payable
pursuant to the terms of such MBS, the Trustee or such other MBS Administrator,
as applicable, is to request the issuer or guarantor, if any, of such MBS to
make such payment as promptly as possible and legally permitted and is to take
such legal action against such issuer or guarantor as the Trustee or such other
MBS Administrator, as applicable, deems appropriate under the circumstances,
including the prosecution of any claims in connection therewith. The reasonable
legal fees and expenses incurred by the Trustee or such other MBS Administrator,
as applicable, in connection with the prosecution of any such legal action will
be reimbursable thereto (with interest) out of the proceeds of any such action
and will be retained by the Trustee or such other MBS Administrator, as
applicable, prior to the deposit of any remaining proceeds in the Certificate
Account pending distribution thereof to Certificateholders of the affected
Series. In the event that the Trustee or such other MBS Administrator, as
applicable, has reason to believe that the proceeds of any such legal action may
be insufficient to reimburse it (with interest) for its projected legal fees and
expenses, the Trustee or such other MBS Administrator, as applicable, will
notify the Certificateholders of the affected Series that it is not obligated to
pursue any such available remedies unless adequate indemnity for its legal fees
and expenses is provided by such Certificateholders.
Certificate Account
General. The related Trustee and any related Master Servicer, the Special
Servicer and/or Manager, as applicable, will establish and maintain, or cause to
be established and maintained, in respect of each Trust Fund, one or more
accounts (collectively, the "Certificate Account"), which will be established so
as to comply with the standards of each Rating Agency that has rated any one or
more Classes of Certificates of the related Series. A Certificate Account may be
maintained as an interest-bearing or a noninterest-bearing account and the funds
held therein may be invested pending each succeeding Distribution Date in United
States government securities and other obligations that are acceptable to each
Rating Agency that has rated any one or more Classes of Certificates of the
related Series ("Permitted Investments"). Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in a
Certificate Account will be paid to the related Trustee, Master Servicer,
Special Servicer and/or Manager, as applicable, as additional compensation. A
Certificate Account may be maintained with the related Trustee, Master Servicer,
Special Servicer, Manager or Mortgage Asset Seller or with a depository
institution that is an affiliate of any
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of the foregoing or of the Depositor, provided that it complies with applicable
Rating Agency standards. If permitted by the applicable Rating Agency or
Agencies, a Certificate Account may contain funds relating to more than one
series of mortgage pass-through certificates and may contain other funds
representing payments on mortgage assets owned by the related Master Servicer or
Special Servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the following payments and
collections in respect of the Trust Assets included in any Trust Fund, that are
received or made by the Trustee, the Master Servicer, the Special Servicer, the
MBS Administrator or the Manager, as applicable, subsequent to the Cut-off Date
(other than payments due on or before the Cut-off Date), are to be deposited in
the Certificate Account for such Trust Fund within a certain period following
receipt (in the case of collections on or in respect of the Trust Assets) or
otherwise as provided in the related Pooling Agreement:
(i) if such Trust Fund includes Mortgage Loans, all payments on account of
principal, including principal prepayments, on such Mortgage Loans;
(ii) if such Trust Fund includes Mortgage Loans, all payments on account of
interest on such Mortgage Loans, including any default interest collected, in
each case net of any portion thereof retained by the Master Servicer or the
Special Servicer as its servicing compensation or as compensation to the
Trustee;
(iii) if such Trust Fund includes Mortgage Loans, all proceeds received
under any hazard, title or other insurance policy that provides coverage with
respect to a Mortgaged Property or the related Mortgage Loan or in connection
with the full or partial condemnation of a Mortgaged Property (other than
proceeds applied to the restoration of the property or released to the related
borrower) ("Insurance Proceeds" and "Condemnation Proceeds", respectively) and
all other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans or property acquired in respect thereof, by foreclosure
or otherwise (such amounts, together with those amounts listed in clause (vii)
below, "Liquidation Proceeds"), together with the net operating income (less
reasonable reserves for future expenses) derived from the operation of any
Mortgaged Properties acquired by the Trust Fund through foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series;
(v) if such Trust Fund includes Mortgage Loans, any advances made with
respect to delinquent scheduled payments of principal and interest on such
Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement for the related Series;
(vii) if such Trust Fund includes Mortgage Loans, all proceeds of the
purchase of any Mortgage Loan, or property acquired in respect thereof, by the
Depositor, any Mortgage Asset Seller or any other specified person as described
under "--Representations and Warranties with respect to Mortgage Assets;
Repurchases and Other Remedies", all proceeds of the purchase of any defaulted
Mortgage Loan as described under "--Realization Upon Defaulted Mortgage Loans",
and all proceeds of any Mortgage Loan purchased as described under "Description
of the Certificates--Termination";
(viii) if such Trust Fund includes Mortgage Loans, and to the extent that
any such item does not constitute additional servicing compensation to the
Master Servicer or the Special Servicer and is not otherwise
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retained by the Depositor or another specified person, any payments on account
of modification or assumption fees, late payment charges, Prepayment Premiums or
Equity Participations with respect to the Mortgage Loans;
(ix) if such Trust Fund includes Mortgage Loans, all payments required to
be deposited in the Certificate Account with respect to any deductible clause in
any blanket insurance policy as described under "--Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer, the Special
Servicer, the Manager or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer, the Special Servicer, the
Manager or the Trustee, as the case may be, of funds held in the Certificate
Account;
(xi) if such Trust Fund includes MBS, all payments on such MBS;
(xii) if such Trust Fund includes MBS, all proceeds of the purchase of any
MBS by the Depositor or any other specified person as described under
"--Representations and Warranties with respect to Mortgage Assets; Repurchases
and Other Remedies" and all proceeds of any MBS purchased as described under
"Description of the Certificates--Termination";
(xiii) any other amounts received on or in respect of the Mortgage Assets
required to be deposited in the Certificate Account as provided in the related
Pooling Agreement and described in the related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, a Trustee, Master Servicer,
Special Servicer or Manager, as applicable, in respect of any Trust Fund may
make withdrawals from the Certificate Account for such Trust Fund for any of the
following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) if such Trust Fund includes Mortgage Loans, then as and to the extent,
and from the sources, described in the related Prospectus Supplement, to pay the
related Master Servicer or Special Servicer any servicing fees to which it is
entitled in respect of such Mortgage Loans and that were not previously retained
thereby;
(iii) if such Trust Fund includes Mortgage Loans, to reimburse the related
Master Servicer, the related Special Servicer or any other specified person for
unreimbursed advances of delinquent scheduled payments of principal and interest
made by it, and certain unreimbursed servicing expenses incurred by it, with
respect to such Mortgage Loans and any properties acquired in respect thereof,
such reimbursement to be made out of amounts that represent late payments
collected on the particular Mortgage Loans, Liquidation Proceeds, Insurance
Proceeds and Condemnation Proceeds collected on the particular Mortgage Loans
and properties, and net operating income collected on the particular properties,
with respect to which such advances were made or such expenses were incurred or
out of amounts drawn under any form of Credit Support with respect to such
Mortgage Loans and properties, or if in the judgment of the Master Servicer, the
Special Servicer or such other person, as applicable, such advances and/or
expenses will not be recoverable from such amounts, such reimbursement to be
made from amounts collected on other Mortgage Assets in the same Trust Fund or,
if and to the extent so provided by the related Pooling Agreement and described
in the
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related Prospectus Supplement, only from that portion of amounts collected on
such other Mortgage Assets that is otherwise distributable on one or more
Classes of Subordinate Certificates of the related Series;
(iv) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to pay the related Master Servicer, the related Special
Servicer or any other specified person interest accrued on the advances and
servicing expenses, if any, described in clause (iii) above made or incurred by
it while such advances and servicing expenses remain outstanding and
unreimbursed;
(v) if such Trust Fund includes Mortgage Loans, to pay any servicing
expenses not otherwise required to be advanced by the related Master Servicer,
the related Special Servicer or any other specified person, including, if
applicable, costs and expenses incurred by the Trust Fund for environmental site
assessments performed with respect to Mortgaged Properties that constitute
security for defaulted Mortgage Loans, and for any containment, clean-up or
remediation of hazardous wastes and materials present on such Mortgaged
Properties, as described under "--Realization Upon Defaulted Mortgage Loans";
(vi) to reimburse the Depositor, the related Trustee, any related Master
Servicer, Special Servicer, REMIC Administrator or Manager and/or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the extent
described under "--Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator, the Manager and the Depositor" and "--Certain
Matters Regarding the Trustee";
(vii) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to pay the fees of the related Trustee and of any related
REMIC Administrator, Manager, provider of Credit Support and obligor on a Cash
Flow Agreement;
(viii) if and to the extent, and from the sources, described in the related
Prospectus Supplement, to reimburse prior draws on any form of Credit Support in
respect of the related Series;
(ix) to pay the related Master Servicer, the related Special Servicer, the
related Manager and/or the related Trustee, as appropriate, interest and
investment income earned in respect of amounts held in the Certificate Account
as additional compensation;
(x) if one or more elections have been made to treat such Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Certain Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes";
(xi) to pay for the cost of various opinions of counsel obtained pursuant
to the related Pooling Agreement for the benefit of Certificateholders or
otherwise in connection with the servicing or administration of the related
Trust Assets;
(xii) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement; and
(xiii) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
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Modifications, Waivers and Amendments of Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer may each agree to modify, waive or amend any
term of any Mortgage Loan serviced by it in a manner consistent with the
applicable servicing standard to be described in the related Prospectus
Supplement; provided that the modification, waiver or amendment (i) will not
affect the amount or timing of any scheduled payments of principal or interest
on the Mortgage Loan, and (ii) will not, in the judgment of the Master Servicer
or the Special Servicer, as the case may be, materially impair the security for
the Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. Unless otherwise provided in the related Prospectus Supplement, the
Special Servicer also may agree to any other modification, waiver or amendment
if, in its judgment (i) a material default on the Mortgage Loan has occurred or
a payment default is imminent, (ii) such modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to the Mortgage
Loan, taking into account the time value of money, than would liquidation and
(iii) such modification, waiver or amendment will not adversely affect the
coverage under any applicable instrument of Credit Support.
Realization Upon Defaulted Mortgage Loans
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of the
Trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure,
or otherwise acquire title to the related Mortgaged Property, by operation of
law or otherwise. Unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may not, however, acquire title to any
Mortgaged Property, have a receiver of rents appointed with respect to any
Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related Series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Considerations".
A Pooling Agreement may grant to the Master Servicer, the Special Servicer,
a provider of Credit Support and/or the holder or holders of certain Classes of
Certificates of the related Series a right of first refusal to purchase from the
Trust Fund, at a predetermined price (which, if less than the Purchase Price
specified herein, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a
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specified number of scheduled payments are delinquent. In addition, unless
otherwise specified in the related Prospectus Supplement, the Special Servicer
may offer to sell any defaulted Mortgage Loan if and when the Special Servicer
determines, consistent with its normal servicing procedures, that such a sale
would produce a greater recovery, taking into account the time value of money,
than would liquidation of the related Mortgaged Property. In the absence of any
such sale, the Special Servicer will generally be required to proceed against
the related Mortgaged Property, subject to the discussion above.
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 prior to the close of the third taxable
year following the taxable year in which the Trust Fund acquires such Mortgaged
Property, unless (i) the Internal Revenue Service (the "IRS") grants an
extension of time to sell such property or (ii) the Trustee receives an opinion
of independent counsel to the effect that the holding of the property by the
Trust Fund thereafter will not result in the imposition of a tax on the Trust
Fund or cause the Trust Fund (or any designated portion thereof) to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding. Subject to the foregoing and any other tax-related limitations, the
Special Servicer will generally be required to attempt to sell any Mortgaged
Property so acquired on the same terms and conditions it would if it were the
owner. Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer will also be required to ensure
that the Mortgaged Property is administered so that it constitutes "foreclosure
property" within the meaning of Code Section 860G(a)(8) at all times. 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 its obligation to manage such Mortgaged
Property as required under the related Pooling Agreement. The Special Servicer
may be authorized to allow the Trust Fund to incur a federal income or other tax
if doing so would, in the reasonable discretion of the Special Servicer,
maximize the net after-tax proceeds to Certificateholders.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Special Servicer and/or the Master Servicer in connection with
such Mortgage Loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting Credit Support, the Trust Fund will realize
a loss in the amount of such shortfall. The Special Servicer and/or the Master
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted Mortgage Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the Mortgage Loan, unreimbursed
servicing expenses incurred with respect to the Mortgage Loan and any
unreimbursed advances of delinquent payments made with respect to the Mortgage
Loan. In addition, if and to the extent set forth in the related Prospectus
Supplement, amounts otherwise distributable on the Certificates may be further
reduced by interest payable to the Master Servicer and/or Special Servicer on
such servicing expenses and advances.
If any Mortgaged Property suffers damage such that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, neither the Special Servicer nor the Master Servicer will be
required to expend its own funds to effect such restoration unless (and to the
extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or the Master Servicer, as the case may be, for its
expenses and (ii) that such expenses will
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be recoverable by it from related Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds and/or amounts drawn on any instrument or fund constituting
Credit Support.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, if a Trust
Fund includes Mortgage Loans, the related Pooling Agreement will require the
Master Servicer (or the Special Servicer with respect to Mortgage Loans serviced
thereby) to use reasonable efforts to cause each Mortgage Loan borrower to
maintain a hazard insurance policy that provides for such coverage as is
required under the related Mortgage or, if the Mortgage permits the holder
thereof to dictate to the borrower the insurance coverage to be maintained on
the related Mortgaged Property, such coverage as is consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, such coverage generally will be
in an amount equal to the lesser of the principal balance owing on such Mortgage
Loan and the replacement cost of the related Mortgaged Property. The ability of
a Master Servicer (or Special Servicer) to assure that hazard insurance proceeds
are appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information concerning covered
losses is furnished by borrowers. All amounts collected by a Master Servicer (or
Special Servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower in
accordance with the Master Servicer's (or Special Servicer's) normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Certificate Account. The Master
Servicer (or Special Servicer) may satisfy its obligation to cause each borrower
to maintain such a hazard insurance policy by maintaining a blanket policy
insuring against hazard losses on the Mortgage Loans in a Trust Fund. If such
blanket policy contains a deductible clause, the Master Servicer (or Special
Servicer) will be required, in the event of a casualty covered by such blanket
policy, to deposit in the related Certificate Account all additional sums that
would have been deposited therein under an individual policy but were not
because of such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
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Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans-Due-on-Sale and
Due-on-Encumbrance Provisions".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a Series will come
from the periodic payment to it of a specified portion of the interest payments
on each Mortgage Loan in the related Trust Fund, including Mortgage Loans
serviced by the related Special Servicer. If and to the extent described in the
related Prospectus Supplement, a Special Servicer's primary compensation with
respect to a Series may consist of any or all of the following components: (i) a
specified portion of the interest payments on each Mortgage Loan in the related
Trust Fund, whether or not serviced by it; (ii) an additional specified portion
of the interest payments on each Mortgage Loan then currently serviced by it;
and (iii) subject to any specified limitations, a fixed percentage of some or
all of the collections and proceeds received with respect to each Mortgage Loan
which was at any time serviced by it, including Mortgage Loans for which
servicing was returned to the Master Servicer. Insofar as any portion of the
Master Servicer's or Special Servicer's compensation consists of a specified
portion of the interest payments on a Mortgage Loan, such compensation will
generally be based on a percentage of the principal balance of such Mortgage
Loan outstanding from time to time and, accordingly, will decrease with the
amortization of the Mortgage Loan. As additional compensation, a Master Servicer
or Special Servicer may be entitled to retain all or a portion of late payment
charges, Prepayment Premiums, modification fees and other fees collected from
borrowers and any interest or other income that may be earned on funds held in
the related Certificate Account. A more detailed description of each Master
Servicer's and Special Servicer's compensation will be provided in the related
Prospectus Supplement. Any Sub-Servicer will receive as its sub-servicing
compensation a portion of the servicing compensation to be paid to the Master
Servicer or Special Servicer that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
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Evidence as to Compliance
Unless otherwise specified in the related Prospectus Supplement, if a Trust
Fund includes Mortgage Loans, the related Pooling Agreement will provide that on
or before a specified date in each year, beginning the first such date that is
at least a specified number of months after the Cut-off Date, there will be
furnished to the related Trustee a report of a firm of independent certified
public accountants stating that (i) it has obtained a letter of representation
regarding certain matters from the management of the Master Servicer which
includes an assertion that the Master Servicer has complied with certain minimum
mortgage loan servicing standards (to the extent applicable to commercial and
multifamily mortgage loans), identified in the Uniform Single Attestation
Program for Mortgage Bankers established by the Mortgage Bankers Association of
America, with respect to the Master Servicer's servicing of commercial and
multifamily mortgage loans during the most recently completed calendar year and
(ii) on the basis of an examination conducted by such firm in accordance with
standards established by the American Institute of Certified Public Accountants,
such representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
standards require it to report. In rendering its report such firm may rely, as
to the matters relating to the direct servicing of commercial and multifamily
mortgage loans by Sub-Servicers, upon comparable reports of firms of independent
public accountants rendered on the basis of examinations conducted in accordance
the same standards (rendered within one year of such report) with respect to
those Sub-Servicers. The Prospectus Supplement may provide that additional
reports of independent certified public accountants relating to the servicing of
mortgage loans may be required to be delivered to the Trustee.
If a Trust Fund includes Mortgage Loans, the related Pooling Agreement will
also provide that, on or before a specified date in each year, beginning the
first such date that is at least a specified number of months after the Cut-off
Date, the Master Servicer and Special Servicer shall each deliver to the related
Trustee an annual statement signed by one or more officers of the Master
Servicer or the Special Servicer, as the case may be, to the effect that, to the
best knowledge of each such officer, the Master Servicer or the Special
Servicer, as the case may be, has fulfilled in all material respects its
obligations under the Pooling Agreement throughout the preceding year or, if
there has been a material default in the fulfillment of any such obligation,
such statement shall specify each such known default and the nature and status
thereof. Such statement may be provided as a single form making the required
statements as to more than one Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Certificateholders upon
written request to the Trustee.
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator, the Manager and the Depositor
Unless otherwise specified in the Prospectus Supplement for a Series, the
related Pooling Agreement will permit any related Master Servicer, Special
Servicer, REMIC Administrator or Manager to resign from its obligations in such
capacity thereunder only upon (a) the appointment of, and the acceptance of such
appointment by, a successor thereto and receipt by the Trustee of written
confirmation from each applicable Rating Agency that such resignation and
appointment will not have an adverse effect on the rating assigned by such
Rating Agency to any Class of Certificates of such Series or (b) a determination
that such obligations are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. No such resignation will become effective until the Trustee or other
successor
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has assumed the obligations and duties of the resigning Master Servicer, Special
Servicer, REMIC Administrator or Manager, as the case may be, under the related
Pooling Agreement. Each Master Servicer, Special Servicer and, if it receives
distributions on MBS, Manager for a Trust Fund will be required to maintain a
fidelity bond and errors and omissions policy or their equivalent that provides
coverage against losses that may be sustained as a result of an officer's or
employee's misappropriation of funds or errors and omissions, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions permitted by the related Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Depositor, any related
Master Servicer, Special Servicer, REMIC Administrator or Manager, or any
director, officer, employee or agent of any of them will be under any liability
to the related Trust Fund or Certificateholders for any action taken, or not
taken, in good faith pursuant to such Pooling Agreement or for errors in
judgment; provided, however, that no such person or entity will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of such obligations and
duties. Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that the Depositor, any related Master
Servicer, Special Servicer, REMIC Administrator and Manager, and any director,
officer, employee or agent of any of them will be entitled to indemnification by
the related Trust Fund against any loss, liability or expense incurred in
connection with any legal action that relates to such Pooling Agreement or the
related Series; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence in the performance of obligations or duties under such
Pooling Agreement, or by reason of reckless disregard of such obligations or
duties. In addition, each Pooling Agreement will provide that neither the
Depositor nor any related Master Servicer, Special Servicer, REMIC Administrator
or Manager will be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its respective responsibilities under the
Pooling Agreement and that in its opinion may involve it in any expense or
liability. However, any such party may be permitted, in the exercise of its
discretion, to undertake any such action that it may deem necessary or desirable
with respect to the enforcement and/or protection of the rights and duties of
the parties to the Pooling Agreement and the interests of the related Series of
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 related Series of Certificateholders, and the Depositor, the
Master Servicer, the Special Servicer, the REMIC Administrator or the Manager,
as the case may be, will be entitled to charge the related Certificate Account
therefor.
Any person into which a Master Servicer, a Special Servicer, a REMIC
Administrator, a Manager or the Depositor may be merged or consolidated, or any
person resulting from any merger or consolidation to which a Master Servicer, a
Special Servicer, a REMIC Administrator, a Manager or the Depositor is a party,
or any person succeeding to the business of a Master Servicer, a Special
Servicer, a REMIC Administrator, a Manager or the Depositor, will be the
successor of the Master Servicer, the Special Servicer, the REMIC Administrator,
the Manager or the Depositor, as the case may be, under the related Pooling
Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling Agreement either directly or by or through agents or attorneys, and the
REMIC Administrator will not be responsible for any willful misconduct or gross
negligence on the part of any such agent or attorney appointed by it with due
care.
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Events of Default
Unless otherwise provided in the Prospectus Supplement for the Offered
Certificates of any Series, "Events of Default" under the related Pooling
Agreement will include, without limitation, (i) any failure by a Master Servicer
or a Manager to distribute or cause to be distributed to the Certificateholders
of such Series, or to remit to the related Trustee for distribution to such
Certificateholders, any amount required to be so distributed or remitted, which
failure continues unremedied for five days after written notice thereof has been
given to the Master Servicer or the Manager, as the case may be, by any other
party to the related Pooling Agreement, or to the Master Servicer or the
Manager, as the case may be, with a copy to each other party to the related
Pooling Agreement, by Certificateholders entitled to not less than 25% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such Series; (ii) any failure by a Special Servicer to remit to the
related Master Servicer or Trustee, as applicable, any amount required to be so
remitted, which failure continues unremedied for five days after written notice
thereof has been given to the Special Servicer by any other party to the related
Pooling Agreement, or to the Special Servicer, with a copy to each other party
to the related Pooling Agreement, by the Certificateholders entitled to not less
than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights of such Series; (iii) any failure by a Master
Servicer, a Special Servicer or a Manager duly to observe or perform in any
material respect any of its other covenants or obligations under the related
Pooling Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer, the Special
Servicer or the Manager, as the case may be, by any other party to the related
Pooling Agreement, or to the Master Servicer, the Special Servicer or the
Manager, as the case may be, with a copy to each other party to the related
Pooling Agreement, by Certificateholders entitled to not less than 25% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such Series; (iv) any failure by a REMIC Administrator duly to
observe or perform in any material respect any of its covenants or obligations
under the related Pooling Agreement, which failure continues unremedied for
sixty days after written notice thereof has been given to the REMIC
Administrator by any other party to the related Pooling Agreement, or to the
REMIC Administrator, with a copy to each other party to the related Pooling
Agreement, by Certificateholders entitled to not less than 25% (or such other
percentage specified in the related Prospectus Supplement) of the Voting Rights
for such Series; and (v) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings in respect of or
relating to a Master Servicer, a Special Servicer, a Manager or a REMIC
Administrator, and certain actions by or on behalf of any such party indicating
its insolvency or inability to pay its obligations. Material variations to the
foregoing Events of Default (other than to add thereto or shorten cure periods
or eliminate notice requirements) will be specified in the related Prospectus
Supplement.
Rights Upon Event of Default
If an Event of Default occurs with respect to a Master Servicer, a Special
Servicer, a Manager or a REMIC Administrator (other than the Trustee) under a
Pooling Agreement, then, in each and every such case, so long as the Event of
Default remains unremedied, and unless otherwise specified in the related
Prospectus Supplement, the Depositor or the Trustee will be authorized, and at
the direction of Certificateholders of the related Series entitled to not less
than 51% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such Series, the Trustee will be required,
to terminate all of the rights and obligations of the defaulting party as Master
Servicer, Special Servicer, MBS Administrator or REMIC Administrator, as
applicable, under the Pooling Agreement, whereupon the Trustee (except under the
circumstances contemplated in the next paragraph) will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer, Manager or REMIC Administrator, as
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applicable, under the Pooling Agreement (except that if the defaulting party is
required to make advances thereunder regarding delinquent Mortgage Loans, but
the Trustee is prohibited by law from obligating itself to make such advances,
or if the related Prospectus Supplement so specifies, 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,
if the Trustee is unwilling or unable so to act, it may (or, at the written
request of Certificateholders of the related Series entitled to not less than
51% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for such Series, it will be required to) appoint, or petition
a court of competent jurisdiction to appoint, a loan servicing institution or
other appropriate entity that (unless otherwise provided in the related
Prospectus Supplement) is acceptable to each applicable Rating Agency to act as
successor to the Master Servicer, Special Servicer, Manager or REMIC
Administrator, as the case may be, under the Pooling Agreement. Pending such
appointment, the Trustee will be obligated to act in such capacity.
Notwithstanding the foregoing, if the same entity is acting as both Trustee
and REMIC Administrator, it may be removed in both such capacities as described
under "-Resignation and Removal of the Trustee" below.
No Certificateholder will have any right under a Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of any Class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such Class have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity and the Trustee for sixty days after receipt of such
request and indemnity has neglected or refused to institute any such proceeding.
However, the Trustee will be under no obligation to exercise any of the trusts
or powers vested in it by the Pooling Agreement or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the holders of Certificates covered by such Pooling
Agreement, unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
Amendment
Except as otherwise specified in the related Prospectus Supplement, each
Pooling Agreement may be amended by the parties thereto, without the consent of
any of the holders of Certificates covered by such Pooling Agreement: (i) to
cure any ambiguity; (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein or to correct any
error; (iii) to add any other provisions with respect to matters or questions
arising thereunder which shall not be inconsistent with the provisions thereof;
(iv) if a REMIC election has been made with respect to any portion of the
related Trust Fund, to relax or eliminate any requirement thereunder imposed by
the provisions of the Code relating to REMICs if such provisions are amended or
clarified such that any such requirement may be relaxed or eliminated; (v) to
relax or eliminate any requirement thereunder imposed by the Securities Act or
the rules thereunder if the Securities Act or such rules are amended or
clarified such that any requirement may be relaxed or eliminated; (vi) if a
REMIC election has been made with respect to any portion of the related Trust
Fund, and if such amendment, as evidenced by an opinion of counsel delivered to
the related Trustee and REMIC Administrator, is reasonably necessary to comply
with any requirements imposed by the Code or any successor or amendatory statute
or any temporary or final regulation, revenue ruling, revenue procedure or other
written official announcement or interpretation relating to federal income tax
laws or any such proposed action which, if made effective, would apply
retroactively to any REMIC created under such Pooling Agreement at least from
the effective date of such amendment, or would be necessary to avoid the
occurrence
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of a prohibited transaction or to reduce the incidence of any tax that would
arise from any actions taken with respect to the operation of any REMIC created
under such Pooling Agreement; (vii) if a REMIC election has been made with
respect to any portion of the related Trust Fund, to modify, add to or eliminate
certain transfer restrictions relating to REMIC Residual Certificates; or (viii)
for any other purpose; provided that such amendment of a Pooling Agreement
(other than any amendment for any of the specific purposes described in clause
(vi) above) may not, as evidenced by an opinion of counsel obtained by or
delivered to the Trustee, adversely affect in any material respect the interests
of any holder of Certificates of the related Series without such holder's
consent; and provided further that any amendment covered solely by clause (viii)
above may not adversely affect the then current rating assigned to any Class of
Certificates of the related Series by any Rating Agency, as evidenced by written
confirmation to such effect from each applicable Rating Agency obtained by or
delivered to the Trustee.
Except as otherwise specified in the related Prospectus Supplement, each
Pooling Agreement may also be amended by the parties thereto, with the consent
of the holders of Certificates of the respective Classes affected thereby
evidencing, in the aggregate, not less than 66-2/3% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights allocated
to such Classes, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Pooling Agreement or of
modifying in any manner the rights of the holders of Certificates covered by
such Pooling Agreement, except that no such amendment of a Pooling Agreement may
(i) reduce in any manner the amount of, or delay the timing of, payments
received on the related Mortgage Assets which are required to be distributed on
a Certificate of the related Series 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 of the related Series in a manner other
than as described in the immediately preceding clause (i) without the consent of
the holders of all Certificates of such Class or (iii) modify the provisions of
such Pooling Agreement relating to amendments thereof without the consent of the
holders of all Certificates of the related Series then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to any party to such Pooling Agreement or any other specified person in
accordance with such amendment will not result in the imposition of a tax on the
related Trust Fund or cause such Trust Fund (or any designated portion thereof)
to fail to qualify as a REMIC.
List of Certificateholders
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same Series with
respect to their rights under the related Pooling Agreement, the Trustee or
other specified person will afford such Certificateholders access during normal
business hours to the most recent list of Certificateholders of that Series held
by such person. If such list is as of a date more than 90 days prior to the date
of receipt of such Certificateholders' request, then such person, if not the
registrar for the Certificates of such Series, will be required to request from
such registrar a current list and to afford such requesting Certificateholders
access thereto promptly upon receipt.
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The Trustee
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Depositor and its affiliates and with any Master
Servicer, Special Servicer or REMIC Administrator and its affiliates.
Duties of the Trustee
The Trustee for each Series will make no representation as to the validity
or sufficiency of the related Pooling Agreement, such Certificates or any
underlying Mortgage Asset or related document and will not be accountable for
the use or application by or on behalf of any other party to the related Pooling
Agreement of any funds paid to such party in respect of the Certificates or the
Mortgage Assets. If no Event of Default has occurred and is continuing, the
Trustee for each Series will be required to perform only those duties
specifically required under the related Pooling Agreement. However, upon receipt
of any of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling Agreement, a Trustee will be
required to examine such documents and to determine whether they conform to the
requirements of such agreement.
Certain Matters Regarding the Trustee
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each Series will be entitled to indemnification, from amounts held
in the Certificate Account for such Series, for any loss, liability or expense
incurred by the Trustee in connection with the Trustee's acceptance or
administration of its trusts under the related Pooling Agreement; provided,
however, that such indemnification will not extend to any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
on the part of the Trustee in the performance of its obligations and duties
thereunder, or by reason of its reckless disregard of such obligations or
duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each Series will be entitled to execute any of its trusts or powers
under the related Pooling Agreement or perform any of this duties thereunder
either directly or by or through agents or attorneys, and the Trustee will not
be responsible for any willful misconduct or gross negligence on the part of any
such agent or attorney appointed by it with due care.
Resignation and Removal of the Trustee
The Trustee for any Series may resign at any time, in which event the
Depositor will be obligated to appoint a successor Trustee. The Depositor may
also remove the Trustee for any Series if such Trustee ceases to be eligible to
continue as such under the related Pooling Agreement or if such Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Depositor will be
obligated to appoint a successor Trustee. Unless otherwise specified in the
related Prospectus Supplement, a Trustee may also be removed at any time by the
holders of Certificates of the applicable Series evidencing not less than 51%
(or such other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such Series; provided that if such
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removal was without cause, the Certificateholders effecting such removal may be
responsible for any costs and expenses incurred by the terminated Trustee in
connection with its removal. Any resignation or removal of a Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee. Notwithstanding anything herein to the
contrary, if any entity is acting as both Trustee and REMIC Administrator for
any Series, then any resignation or removal of such entity as Trustee will also
constitute the resignation or removal of such entity as REMIC Administrator, and
the successor Trustee will also serve as the successor REMIC Administrator as
well.
DESCRIPTION OF CREDIT SUPPORT
General
Credit Support may be provided with respect to one or more Classes of the
Certificates of any Series or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more other Classes of Certificates, the use of a surety bond, an
insurance policy or a guarantee, the establishment of one or more reserve funds,
or any combination of the foregoing. If and to the extent so provided in the
related Prospectus Supplement, any of the foregoing forms of Credit Support may
provide credit enhancement for more than one Series.
The Credit Support may not provide protection against all risks of loss and
will not guarantee payment to Certificateholders of all amounts to which they
are entitled under the related Pooling Agreement. If losses or shortfalls occur
that exceed the amount covered by the related Credit Support or that are of a
type not covered by such Credit Support, Certificateholders will bear their
allocable share of deficiencies. Moreover, if a form of Credit Support covers
the Offered Certificates of more than one Series and losses on the related
Mortgage Assets exceed the amount of such Credit Support, it is possible that
the holders of Offered Certificates of one (or more) such Series will be
disproportionately benefited by such Credit Support to the detriment of the
holders of Offered Certificates of one (or more) other such Series.
If Credit Support is provided with respect to one or more Classes of
Certificates of a Series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors--Credit Support
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 from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a Class of Certificates may apply only in the
event of certain types of losses or shortfalls. The related Prospectus
Supplement will set forth information concerning the method and amount of
subordination provided by a Class or Classes of Subordinate Certificates in a
Series and the circumstances under which such subordination will be available.
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If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate Class or Classes of Certificates of the related
Series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to Mortgage Loans
If so provided in the related Prospectus Supplement, Mortgage Loans
included in any Trust Fund will be covered for certain default risks by
insurance policies or guarantees. The related Prospectus Supplement will
describe the nature of such default risks and the extent of such coverage.
Letter of Credit
If so provided in the Prospectus Supplement for a Series, deficiencies in
amounts otherwise payable on such Certificates or certain Classes thereof will
be covered by one or more letters of credit, issued by a bank or other financial
institution specified in such Prospectus Supplement (the "Letter of Credit
Bank"). Under a letter of credit, the Letter of Credit Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of some or all of the
related Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Principal Balance of one or more Classes of Certificates. If so
specified in the related Prospectus Supplement, the letter of credit may permit
draws only in the event of certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder and may otherwise be reduced as
described in the related Prospectus Supplement. The obligations of the Letter of
Credit Bank under the letter of credit for any Series will expire at the earlier
of the date specified in the related Prospectus Supplement or the termination of
the related Trust Fund.
Certificate Insurance and Surety Bonds
If so provided in the Prospectus Supplement for a Series, deficiencies in
amounts otherwise payable on such Certificates or certain Classes thereof will
be covered by insurance policies or surety bonds provided by one or more
insurance companies or sureties. Such instruments may cover, with respect to one
or more Classes of Certificates of the related Series, timely distributions of
interest or distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the related
Prospectus Supplement. The related Prospectus Supplement will describe any
limitations on the draws that may be made under any such instrument.
Reserve Funds
If so provided in the Prospectus Supplement for a Series, deficiencies in
amounts otherwise payable on such Certificates or certain Classes thereof will
be covered (to the extent of available funds) by one or more reserve funds in
which cash, a letter of credit, Permitted Investments, a demand note or a
combination thereof will be deposited, in the amounts specified in such
Prospectus Supplement. If so specified in the related Prospectus Supplement, the
reserve fund for a Series may also be funded over time by a specified amount of
certain collections received on the related Mortgage Assets.
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Amounts on deposit in any reserve fund for a Series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
Series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a Series will not be a part of the Trust Fund unless
otherwise specified in the related Prospectus Supplement.
Credit Support with Respect to MBS
If so provided in the Prospectus Supplement for a Series, any MBS included
in the related Trust Fund and/or the related underlying mortgage loans may be
covered by one or more of the types of Credit Support described herein. The
related Prospectus Supplement will specify, as to each such form of Credit
Support, the information indicated above with respect thereto, to the extent
such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the Mortgage Loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds--Mortgage Loans". If a significant percentage of
Mortgage Loans (or mortgage loans underlying MBS), by balance, are secured by
properties in a particular state, relevant state laws, to the extent they vary
materially from this discussion, will be discussed in the Prospectus Supplement.
For purposes of the following discussion, "Mortgage Loan" includes a mortgage
loan underlying an MBS.
General
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
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be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "--Bankruptcy Laws".
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Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the real property at public auction to satisfy the
indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions.
United States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These principles
are generally designed to relieve borrowers from the effects of mortgage
defaults perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose in the case of a nonmonetary default, such as a failure to
adequately maintain the mortgaged property or an impermissible further
encumbrance of the mortgaged
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property. Finally, some courts have addressed the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to pay taxes, to obtain casualty insurance and
to make such repairs as are necessary to render the property suitable for sale.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage
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loan even if the mortgaged property is sold at foreclosure, or resold after it
is acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
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Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
Cooperative Shares. Mortgage Loans may be secured by a security interest on
the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be canceled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. 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. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
Cooperative to receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction
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in the rate of interest and/or an alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or by an
extension (or shortening) of the term to maturity. Some bankruptcy courts have
approved plans, based on the particular facts of the reorganization case, that
effected the cure of a mortgage loan default by paying arrearages over a number
of years. Also, a bankruptcy court may permit a debtor, through its
rehabilitative plan, to reinstate a mortgage loan payment schedule even if the
lender has obtained a final judgment of foreclosure prior to the filing of the
debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "--Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor (except potentially to the extent of
any security deposit) with respect to its claim for damages for termination of
the lease. The Bankruptcy Code also limits a lessor's damages for lease
rejection to (a) the rent reserved by the lease (without regard to acceleration)
for the greater of one year, or 15%, not to exceed three years, of the remaining
term of the lease plus (b) unpaid rent to the earlier of the surrender of the
property or the lessee's bankruptcy filing.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
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CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest. This is the so called "secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Lender Liability Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Lender Liability Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Lender Liability Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of operational functions of the mortgaged property. The
Lender Liability Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. Such costs may jeopardize the
borrower's ability to meet its loan obligations.
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Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling Agreement will provide that neither
the Master Servicer nor the Special Servicer, acting on behalf of the Trustee,
may acquire title to a Mortgaged Property or take over its operation unless the
Special Servicer, based solely (as to environmental matters) on a report
prepared by a person who regularly conducts environmental audits, has made the
determination that certain conditions relating to environmental matters, as
described under "Description of the Pooling Agreements-Realization Upon
Defaulted Mortgage Loans", have been satisfied.
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
Junior Liens; Rights of Holders of Senior Liens
If so provided in the related Prospectus Supplement, the Mortgage Assets
for a Series may include Mortgage Loans secured by junior liens, and the loans
secured by the related Senior Liens may not be included
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in the Mortgage Asset Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgaged Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy all Senior Liens and the Mortgage Loan in the
aggregate, the Trust Fund, as the holder of the junior lien, and, accordingly,
holders of one or more Classes of the Certificates of the related Series bear
(i) the risk of delay in distributions while a deficiency judgment against the
borrower is obtained and (ii) the risk of loss if the deficiency judgment is not
realized upon. Moreover, deficiency judgments may not be available in certain
jurisdictions or the Mortgage Loan may be nonrecourse.
Subordinate Financing
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first
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mortgage loans originated by certain lenders after March 31, 1980. Title V
authorized any state to reimpose interest rate limits by adopting, before April
1, 1983, a law or constitutional provision that expressly rejects application of
the federal law. In addition, even where Title V is not so rejected, any state
is authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
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 borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the
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Relief Act applies to individuals who enter military service (including
reservists who are called to active duty) after origination of the related
mortgage loan, no information can be provided as to the number of loans with
individuals as borrowers that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of a Master Servicer or Special Servicer to collect full amounts of
interest on certain of the Mortgage Loans. Any shortfalls in interest
collections resulting from the application of the Relief Act would result in a
reduction of the amounts distributable to the holders of the related Series, 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 Master Servicer or Special Servicer to foreclose on an
affected Mortgage Loan during the borrower's period of active duty status, and,
under certain circumstances, during an additional three month period thereafter.
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
General
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates of any Series, to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of counsel to the
Depositor with respect to that Series on the material matters associated with
such consequences, subject to any qualifications set forth herein. Unless
otherwise specified in the related Prospectus Supplement, counsel to the
Depositor for each Series will be Sidley & Austin. This discussion is directed
to Certificateholders that hold the Certificates as "capital assets" within the
meaning of Section 1221 of the Code and does not purport to discuss all federal
income tax consequences that may be applicable to the individual circumstances
of particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. Taxpayers and preparers of tax returns (including those
filed by any REMIC or other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time
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the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their tax advisors
and tax return preparers regarding the treatment of any item on their tax
returns, even where the anticipated tax consequences have been discussed herein.
In addition to the federal income tax consequences described herein, potential
investors are advised to consult their tax advisors concerning the state, local
or other tax consequences to them of the purchase, ownership and disposition of
Offered Certificates. See "State and Other Tax Consequences".
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the REMIC Administrator will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
860G (the "REMIC Provisions") of the Code, and (ii) Grantor Trust Certificates
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made. The Prospectus Supplement for each Series will
indicate whether a REMIC election (or elections) will be made for the related
Trust Fund and, if such an election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC. For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements other than guaranteed
investment contracts are included in a Trust Fund, the anticipated material tax
consequences associated with such Cash Flow Agreements also will be discussed in
the related Prospectus Supplement. See "Description of the Trust Funds--Cash
Flow Agreements".
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations do not adequately address certain
issues relevant to, and in some instances provide that they are not applicable
to, securities such as the Certificates.
REMICs
Classification of REMICs. With respect to each Series of REMIC
Certificates, counsel to the Depositor will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling
Agreement and certain other documents (and subject to certain assumptions set
forth therein), the related Trust Fund (or each applicable portion thereof) will
qualify as a REMIC and the REMIC Certificates offered with respect thereto will
be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of REMIC Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Depositor for the applicable
Series as specified in the related Prospectus Supplement, subject to any
qualifications set forth herein. In addition, counsel to the Depositor have
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences--REMICs", and are of the opinion that
such statements are correct in all material
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respects. Such statements are intended as an explanatory discussion of the
possible effects of the classification of any Trust Fund (or applicable portion
thereof) as a REMIC for federal income tax purposes on investors generally and
of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in REMIC
Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity may lose its status as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation,
and the related REMIC Certificates may not be accorded the status or given the
tax treatment described below. Although the Code authorizes the Treasury
Department to issue regulations providing relief in the event of an inadvertent
termination of REMIC status, no such regulations have been issued. Any such
relief, moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the Trust Fund's income for the period in
which the requirements for such status are not satisfied. The Pooling Agreement
with respect to each REMIC will include provisions designed to maintain the
Trust Fund's status as a REMIC under the REMIC Provisions. It is not anticipated
that the status of any Trust Fund as a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code in the hands of another REMIC, and will be "permitted
assets" under Section 860L(c)(1)(G) for a "financial asset securitization
investment trust", or FASIT. The determination as to the percentage of the
REMIC's assets that constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC during such
calendar quarter. The REMIC Administrator will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale, and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections of the Code)
otherwise would receive the same treatment as the Mortgage Loans for purposes of
all of the foregoing sections of the Code. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections of the Code. If so, the related Prospectus Supplement will describe the
Mortgage Loans that may not be so treated. Treasury regulations do provide,
however, that cash received
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from payments on Mortgage Loans held pending distribution is considered part of
the Mortgage Loans for purposes of Section 856(c)(5)(A) of the Code.
Tiered REMIC Structures. For certain Series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as separate REMICs ("Tiered REMICs") for federal income tax purposes.
As to each such Series of REMIC Certificates, in the opinion of counsel to the
Depositor, assuming compliance with all provisions of the related Pooling
Agreement, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
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 the cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under the accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations that have not yet been issued. The Conference Committee
Report accompanying the Tax Reform Act of 1986 (the "Committee Report")
indicates that the regulations will provide that the prepayment assumption used
with respect to a REMIC Regular Certificate must be the same as that used in
pricing the initial offering of such REMIC Regular Certificate. The prepayment
assumption (the "Prepayment Assumption") used in reporting original issue
discount for each Series of REMIC Regular Certificates will be consistent with
this standard and will be disclosed in the related Prospectus Supplement.
However, neither the Depositor nor any other person will make any representation
that the Mortgage Loans will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate or that such Prepayment Assumption
will not be challenged by the Internal Revenue Service (the "IRS") on audit.
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The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular Class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that Class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular Class of REMIC Regular
Certificates is sold for cash on or prior to the related Closing Date, the issue
price for such Class will be the fair market value of such Class on such Closing
Date. Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest". "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or at a "qualified floating rate", an
"objective rate", a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or at a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain Classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long first accrual
period", some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to
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each payment included in the stated redemption price of such REMIC Regular
Certificate, by multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected to be made
(presumably taking into account the Prepayment Assumption) by (ii) a fraction,
the numerator of which is the amount of the payment, and the denominator of
which is the stated redemption price at maturity of such REMIC Regular
Certificate. Under the OID Regulations, original issue discount of only a de
minimis amount (other than de minimis original issue discount attributable to a
so-called "teaser" interest rate or an initial interest holiday) will be
included in income as each payment of stated principal is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a Certificateholder
to elect to accrue de minimis original issue discount into income currently
based on a constant yield method. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" below for a description of such election under
the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (i) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Loans being prepaid at a
rate equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Certificate and (iii) taking into account
events (including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is
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in excess of its "adjusted issue price", in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals the sum of (i) the adjusted issue price (or,
in the case of the first accrual period, the issue price) of such Certificate at
the beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
If the foregoing method for computing original issue discount results in a
negative amount of original issue discount as to any accrual period with respect
to a REMIC Regular Certificate, the amount of original issue discount allocable
to such accrual period will be zero. That is, no current deduction of such
negative amount will be allowed to the holder of such Certificate. The holder
will instead only be permitted to offset such negative amount against future
positive original issue discount (if any) attributable to such a Certificate.
Although not free from doubt, it is possible that a Certificateholder may be
permitted to deduct a loss to the extent his or her basis in the Certificate
exceeds the maximum amount of payments such Certificateholder could ever receive
with respect to such Certificate. However, any such loss may be a capital loss,
which is limited in its deductibility. The foregoing considerations are
particularly relevant to Stripped Interest Certificates which can have negative
yields under certain circumstances that are not default related. See "Risk
Factors -- Effect of Prepayments on Yield of Certificates" herein.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount (other than a de minimis amount), that is, in
the case of a REMIC Regular Certificate issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original issue discount, at a
purchase price less than its adjusted issue price will recognize gain upon
receipt of each distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a Certificateholder generally
will be required to allocate the portion of each such distribution representing
some of all of the stated redemption price first to accrued market discount not
previously included in income, and to recognize ordinary income to that extent.
A Certificateholder may elect to include market discount in income currently as
it accrues rather than including it on a deferred basis in accordance with the
foregoing. If made, such election will apply to all market discount bonds
acquired by such Certificateholder on or after the first day of the first
taxable year to which such election applies.
The OID Regulations also permit a Certificateholder to elect to accrue all
interest and discount (including de minimis market or original issue discount)
in income as interest, and to amortize premium, based on a constant yield
method. If such an election were made with respect to a REMIC Regular
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include currently market discount in income with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the taxable year of the election or thereafter, and possibly
previously acquired instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
See "--Taxation of Owners of REMIC Regular Certificates--Premium" below. Each of
the elections in this and the preceding paragraph to accrue interest, discount
and premium with respect to a Certificate on a constant yield method or as
interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount
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on REMIC Regular Certificates should accrue, at the Certificateholder's option:
(i) on the basis of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the stated interest paid in
the accrual period bears to the total amount of stated interest remaining to be
paid on the REMIC Regular Certificate as of the beginning of the accrual period,
or (iii) in the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the REMIC Regular Certificate at
the beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder, however, has elected to include market discount in income currently as
it accrues, the interest deferral rule described above would not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. Under those regulations, if a
holder elects to amortize bond premium, bond premium would be amortized on a
constant yield method and would be applied against qualified stated interest.
The proposed regulations generally would be effective for Certificates acquired
on or after the date 60 days after the date final regulations are published in
the Federal Register. Holders of each such Class of Certificates should consult
their tax advisors regarding the possibility of making an election to amortize
such premium. The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating the Certificateholder as having made the election to
amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in
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connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Certificates
become wholly or partially worthless as the result of one or more realized
losses on the Mortgage Loans. However, it appears that a noncorporate holder
that does not acquire a REMIC Regular Certificate in connection with a trade or
business will not be entitled to deduct a loss under Section 166 of the Code
until such holder's Certificate becomes wholly worthless (i.e., until its
Certificate Principal Balance has been reduced to zero) and that the loss will
be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the Mortgage Loans or as debt
instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder
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that purchased such REMIC Residual Certificate from a prior holder of such
Certificate at a price greater than (or less than) the adjusted basis (as
defined below) such REMIC Residual Certificate would have had in the hands of an
original holder of such Certificate. The REMIC Regulations, however, do not
provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions",
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return. Such disparity between income and
distributions may not be offset by corresponding losses or reductions of income
attributable to the REMIC Residual Certificateholder until subsequent tax years
and, then, may not be completely offset due to changes in the Code, tax rates or
character of the income or loss. REMIC Residual Certificates may in some
instances have negative "value". See "Risk Factors--Certain Federal Tax
Considerations Regarding REMIC Residual Certificates".
Taxable Income of the REMIC. The taxable income of the REMIC will equal the
income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other Class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
for amortization of any premium on the Mortgage Loans, for bad debt losses with
respect to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a Class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
Classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Mortgage Loans and
other property held by the REMIC.
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Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other Class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other Class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other Class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a Class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such Class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Certificates of such Class will be reduced by
an amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
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Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "--Taxation of Owners of REMIC
Residual Certificates-General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at
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the beginning of the calendar quarter and 120% of the "long-term Federal rate"
in effect on the Closing Date. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate, increased by the sum
of the daily accruals for all prior quarters and decreased (but not below zero)
by any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the REMIC Residual Certificates were sold. The
"long-term Federal rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published monthly
by the IRS.
Although it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered not to have "significant value". The REMIC Regulations provide
that in order to be treated as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least equal to two percent of
the aggregate issue prices of all of the related REMIC's regular and residual
interests. In addition, based on the Prepayment Assumption, the anticipated
weighted average life of the REMIC Residual Certificates must equal or exceed 20
percent of the anticipated weighted average life of the REMIC, based on the
Prepayment Assumption and on any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents. The
related Prospectus Supplement will disclose whether offered REMIC Residual
Certificates may be considered to have "significant value" under the REMIC
Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will have "significant value" will be based upon certain
assumptions, and the Depositor will make no representation that a REMIC Residual
Certificate will have "significant value" for purposes of the above-described
rules.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal
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rate" for obligations whose term ends on the close of the last quarter in which
excess inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. The IRS recently released regulations under Section
475 of the Code (the "Mark-to-Market Regulations") relating to the requirement
that a securities dealer mark to market securities held for sale to customers.
This mark-to-market requirement applies to all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment. The Mark-to-Market Regulations provide that for purposes of
this mark-to-market requirement, a REMIC Residual Certificate is not treated as
a security for purposes of Section 475 of the Code, and thus is not subject to
the mark-to-market rules. Prospective purchasers of a REMIC Residual Certificate
should consult their tax advisors regarding the Mark-to-Market Regulations.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees
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and expenses will be treated as a miscellaneous itemized deduction allowable
subject to the limitation of Section 67 of the Code, which permits such
deductions only to the extent they exceed in the aggregate 2% of a taxpayer's
adjusted gross income. In addition, Section 68 of the Code provides that the
amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over such
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
the taxable year. The amount of additional taxable income reportable by REMIC
Certificateholders that are subject to the limitations of either Section 67 or
Section 68 of the Code may be substantial. Furthermore, in determining the
alternative minimum taxable income of such a holder of a REMIC Certificate that
is an individual, estate or trust, or a "pass-through entity" beneficially owned
by one or more individuals, estates or trusts, no deduction will be allowed for
such holder's allocable portion of servicing fees and other miscellaneous
itemized deductions of the REMIC, even though an amount equal to the amount of
such fees and other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
consult with their tax advisors prior to making an investment in such
Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "--Taxation of Owners of REMIC Residual Certificates-Basis Rules, Net
Losses and Distributions". Except as described below, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code. The Code as of the date of this Prospectus provides for lower
rates as to mid-term capital gains, and still lower rates as to long-term
capital gains, than those applicable to the short-term capital gains and
ordinary income realized or received by individuals. No such rate differential
exists for corporations. In addition, the distinction between a capital gain or
loss and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
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REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax
on REMICs equal to 100% of the net income derived from "prohibited transactions"
(a "Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions as to
which it would be subject to a material Prohibited Transaction Tax.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property", determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment trust. Under
certain circumstances, the Special Servicer may be authorized to incur a tax if
doing so would, in the reasonable discretion of the Special Servicer, maximize
the net after-tax proceeds to Certificateholders.
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Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related REMIC Administrator, Master Servicer, Special Servicer, Manager or
Trustee, in any case out of its own funds, provided that such person has
sufficient assets to do so, and provided further that such tax arises out of a
breach of such person's obligations under the related Pooling Agreement. Any
such tax not borne by a REMIC Administrator, a Master Servicer, Special
Servicer, Manager or Trustee would be charged against the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate) of the total anticipated
excess inclusions with respect to such REMIC Residual Certificate for periods
after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must be determined
as of the date that the REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (i) residual interests in
such entity are not held by disqualified organizations and (ii) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Pooling Agreement, and will be discussed in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the
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Federal Home Loan Mortgage Corporation), (ii) any organization (other than a
cooperative described in Section 521 of the Code) that is exempt from federal
income tax, unless it is subject to the tax imposed by Section 511 of the Code
or (iii) any organization described in Section 1381(a)(2)(C) of the Code. For
these purposes, a "pass-through entity" means any regulated investment company,
real estate investment trust, trust, partnership or certain other entities
described in Section 860E(e)(6) of the Code. In addition, a person holding an
interest in a pass-through entity as a nominee for another person will, with
respect to such interest, be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Mortgage
Loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in such Certificate, such REMIC Residual Certificateholder should
(but may not) be treated as realizing a capital loss equal to the amount of such
difference.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator, which generally will hold at least a nominal amount of REMIC
Residual Certificates, will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC's tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported
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to the IRS. Reporting with respect to REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "United States Person" (as defined below) and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a REMIC Regular Certificate will
not, unless otherwise disclosed in the related Prospectus Supplement, be subject
to United States federal income or withholding tax in respect of a distribution
on a REMIC Regular Certificate, provided that the holder complies to the extent
necessary with certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of perjury,
certifying that such Certificateholder is not a United States Person and
providing the name and address of such Certificateholder). For these purposes,
"United States Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, an estate whose
income from sources without the United States is includible in gross income for
United States federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States or a trust as to which
(i) a court in the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more United States fiduciaries
have the right to control all substantial decisions of the trust. It is possible
that the IRS may assert that the foregoing tax exemption should not apply with
respect to a REMIC Regular Certificate held by a REMIC Residual
Certificateholder that owns directly or indirectly a 10% or greater interest in
the REMIC Residual Certificates. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such holder may be subject to a tax rate of 30%,
subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
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Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling Agreement.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each Series of
Grantor Trust Certificates, counsel to the Depositor will deliver its opinion to
the effect that, assuming compliance with all provisions of the related Pooling
Agreement, the related Grantor Trust Fund will be classified as a grantor trust
under subpart E, part I of subchapter J of the Code and not as a partnership or
an association taxable as a corporation. The following general discussion of the
anticipated federal income tax consequences of the purchase, ownership and
disposition of Grantor Trust Certificates, to the extent it relates to matters
of law or legal conclusions with respect thereto, represents the opinion of
counsel to the Depositor for the applicable Series as specified in the related
Prospectus Supplement, subject to any qualifications set forth herein. In
addition, counsel to the Depositor have prepared or reviewed the statements in
this Prospectus under the heading "Certain Federal Income Tax
Consequences--Grantor Trust Funds", and are of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code (but generally only to the
extent that the underlying Mortgage Loans have been made with respect to
property that is used for residential or certain other prescribed purposes);
(ii) "obligation[s] (including any participation or Certificate of beneficial
ownership therein) which . . .[are] principally secured by an interest in real
property" within the meaning of Section 860G(a)(3) of the Code; (iii) "permitted
assets" within the meaning of Section 860L(a)(1)(C) of the Code; and (iv) "real
estate assets" within
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the meaning of Section 856(c)(5)(A) of the Code. In addition, counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(A) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
Counsel to the Depositor will not deliver any opinion on these questions.
Prospective purchasers to which such characterization of an investment in
Grantor Trust Strip Certificates is material should consult their tax advisors
regarding whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code and, in general, "permitted assets" within the
meaning of Section 860L(a)(1)(C) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular Series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple Classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the Classes of Grantor Trust Certificates
using a method that recognizes that each such Class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among Classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such Class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any Series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust
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Fractional Interest Certificates may be subject to those rules if (i) a Class of
Grantor Trust Strip Certificates is issued as part of the same Series or (ii)
the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the Mortgage Loans will not include any payments made in respect of
any ownership interest in the Mortgage Loans retained by the Depositor, the
Master Servicer, the Special Servicer, any Sub-Servicer or their respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments.
Legislation enacted on August 5, 1997 extends the scope of that section to any
pool of debt instruments the yield on which may be affected by reason of
prepayments, effective for taxable years beginning after enactment. The precise
application of the new legislation is unclear in certain respects. For example,
it is uncertain whether a prepayment assumption will be applied collectively to
all a taxpayer's investments in pools of debt instruments or will be applied on
an investment-by-investment basis. Similarly, as to investments in Grantor Trust
Fractional Interest Certificates, it is not clear whether the assumed
prepayment rate is to be determined based on conditions at the time of the first
sale of the Grantor Trust Fractional Interest Certificate or, with respect to
any holder, at the time of purchase of the Grantor Trust Fractional Interest
Certificate by that holder. Certificateholders are advised to consult their tax
advisors concerning reporting original issue discount
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with respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
In the absence of statutory or administrative clarification, it is
currently intended that information reports or returns to the IRS and
Certificateholders will be based on a prepayment assumption (the "Prepayment
Assumption") determined when Certificates are offered and sold hereunder and
disclosed in the related Prospectus Supplement, and on a constant yield computed
using a representative initial offering price for each Class of Certificates.
However, neither the Depositor nor any other person will make any representation
that the Mortgage Loans will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate or that the Prepayment Assumption will
not be challenged by the IRS on audit. Certificateholders also should bear in
mind that the use of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each Series who bought at that price.
Under Treasury Regulation Section 1.1286-1T, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue discount and
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market discount described in "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" and "--Market
Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. In that case, the original
issue discount rules will apply, even if the stripped bond rules do not apply,
to a Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a Mortgage Loan will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan, less any "points"
paid by the borrower, and the stated redemption price of a Mortgage Loan will
equal its principal amount, unless the Mortgage Loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. Under
legislation enacted on August 5, 1997, Section 1272(a)(6) of the Code requires
that a prepayment assumption be used in computing yield with respect to
any pool of debt instruments the yield on which may be affected by prepayment,
effective for taxable years beginning after enactment. The precise application
of the new legislation is unclear in certain respects. For example, it is
uncertain whether a prepayment assumption will be applied collectively to all
a taxpayer's investments in pools of debt instruments or will be applied on
an investment-by-investment basis. Similarly, as to investments in Grantor
Trust Fractional Interest Certificates, it is not clear whether the assumed
prepayment rate is to be determined at the time of the first sale of the
Grantor Trust Fractional Interest Certificate or, with respect to any holder,
at the time of that holder's purchase of the Grantor Trust Fractional
Interest Certificate. Certificateholders should consult their own tax
advisors concerning reporting original issue discount with respect to Grantor
Trust Fractional Interest Certificates and should refer to the related
Prospectus Supplement with respect to each Series to determine whether and in
what manner the original issue discount rules will apply to Mortgage Loans in
such Series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage
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Loan at the beginning of the accrual period that includes such day and (ii) the
daily portions of original issue discount for all days during such accrual
period prior to such day. The adjusted issue price of a Mortgage Loan at the
beginning of any accrual period will equal the issue price of such Mortgage
Loan, increased by the aggregate amount of original issue discount with respect
to such Mortgage Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
In the absence of statutory or administrative clarification, it is
currently intended that information reports or returns to the IRS and
Certificateholders will be based on a prepayment assumption (the "Prepayment
Assumption") determined when Certificates are offered and sold hereunder and
disclosed in the related Prospectus Supplement, and on a constant yield computed
using a representative initial offering price for each Class of Certificates.
However, neither the Depositor nor any other person will make any representation
that the Mortgage Loans will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate or that the Prepayment Assumption will
not be challenged by the IRS on audit. Certificateholders also should bear in
mind that the use of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each Series who bought at that price.
Market Discount. If the stripped bond rules do not apply to a Grantor Trust
Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Interests-Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption used (or that would be used) in calculating the accrual of
original issue discount, if any, is also to be used in calculating the accrual
of market discount. The effect of using a prepayment assumption could be to
accelerate the reporting of such discount income. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
Mortgage Loan purchased at a discount in the secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, market discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
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Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
Further, under the rules described above in "--REMICs--Taxation of Owners
of REMIC Regular Certificates--Market Discount", any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
Under legislation enacted on August 5, 1997, it appears that a prepayment
assumption should be used in computing amortization of premium allowable
under Section 171 of the Code, effective for taxable years beginning after
enactment. If so, premium amortization would be accounted for under a method
similar to that described for taking account of premium on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Premium" above.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates-If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied.
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Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. It appears that those provisions would
apply to Grantor Trust Strip Certificates. It is uncertain whether the assumed
prepayment rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Strip Certificate or, with respect to any
subsequent holder, at the time of purchase of the Grantor Trust Strip
Certificate by that holder.
If the method for computing original issue discount under Section
1272(a)(6) results in a negative amount of original issue discount as to any
accrual period with respect to a REMIC Regular Certificate, the amount of
original issue discount allocable to such accrual period will be zero. That
is, no current deduction of such negative amount will be allowed to the holder
of such Certificate. The holder will instead only be permitted to offset
such negative amount against future positive original issue discount (if any)
attributable to such a Certificate. Although not free from doubt, it is possible
that a Certificateholder may be permitted to deduct a loss to the extent his or
her basis in the Certificate exceeds the maximum amount of payments such
Certificateholder could ever receive with respect to such Certificate. However,
any such loss may be a capital loss, which is limited in its deductibility.
The foregoing considerations are particularly relevant to Stripped Interest
Certificates, which can have negative yields under circumstances that are not
default related. See "Risk Factors--Effect of Prepayments on Yield of
Certificates" herein.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower using a prepayment assumption than if yield is computed
assuming no prepayments. In the absence of statutory or administrative
clarification, it currently is intended to base information returns or
reports to the IRS and Certificateholders on the Prepayment Assumption
disclosed in the related Prospectus Supplement and on a constant yield
computed using a representative initial offering price for each Class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate or that the Prepayment
Assumption will not be challenged by the IRS on audit. Certificateholders also
should bear in mind that the use of a representative initial offering price will
mean that such information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the initial
Certificateholders of each Series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
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Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides for lower rates
as to mid-term capital gains, and still lower rates as to long-term capital
gains, than those applicable to the short-term capital gains and ordinary income
realized or received by individuals. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published
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monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"--REMICs--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC Regular
Certificates in "--REMICs--Foreign Investors in REMIC Certificates" above
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from U.S. withholding tax, subject to the conditions
described in such discussion, only to the extent the related Mortgage Loans were
originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. The types of transactions between Plans
and Parties in Interest that are prohibited include: (a) sales, exchanges or
leases of property, (b) loans or other extensions of credit and (c) the
furnishing of goods and services. Certain Parties in Interest that participate
in a prohibited transaction may be subject to an excise tax imposed pursuant to
Section 4975 of the Code or a penalty imposed pursuant to Section 502(i) of
ERISA, unless a statutory or administrative exemption is available. In addition,
the persons involved in the prohibited transaction may have to rescind the
transaction and pay an amount to the Plan for any losses realized by the Plan or
profits realized by such persons, individual retirement accounts involved in the
transaction may be disqualified resulting in adverse tax consequences to the
owner of such account and certain other liabilities could result that would have
a significant adverse effect on such person.
Plan Asset Regulations
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section 2510.3-101 of the regulations (the "Plan Asset
Regulations") of the United States Department of Labor (the "DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions apply, including that the equity
participation in the entity by "benefit plan investors" (i.e., Plans and certain
employee benefit plans not subject to ERISA) is not "significant", both as
defined therein. For this purpose, in general, equity participation by benefit
plan investors will be "significant" on any date if 25% or more of the value of
any class of equity interests in the entity is held by benefit plan investors
(determined by not including the investments of persons with discretionary
authority or control over the assets of such entity, of any person who provides
investment advice for a fee (direct or indirect) with respect to such assets,
and "affiliates" (as defined in the DOL
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regulations relating to Plan assets) of such persons). Equity participation in a
Trust Fund will be significant on any date if immediately after the most recent
acquisition of any Certificate, 25% or more of any Class of Certificates is held
by benefit plan investors (determined by not including the investments of the
Depositor, the Trustee, the Master Servicer, the Special Servicer, any other
parties with discretionary authority over the assets of a Trust Fund and their
respective affiliates).
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as a Master Servicer, a Special Servicer,
any Sub-Servicer, a Trustee, the obligor under any related credit enhancement
mechanism, or certain affiliates thereof may be deemed to be a Plan "fiduciary"
with respect to the investing Plan and thus subject to the fiduciary
responsibility provisions of ERISA. In addition, if the underlying assets of a
Trust Fund constitute Plan assets, the Depositor, any related REMIC
Administrator, any related Manager, any mortgagor with respect to a related
Mortgage Loan or a mortgage loan underlying a related MBS, as well as each of
the parties described in the preceding sentence, may become Parties in Interest
with respect to an investing Plan (or of a Plan holding an interest in an
investing entity). Thus, if the Mortgage Assets and other assets included in a
Trust Fund constitute Plan assets, the operation of the Trust Fund, may involve
a prohibited transaction under ERISA or the Code. For example, if a person who
is a Party in Interest with respect to an investing Plan is a mortgagor with
respect to a Mortgage Loan included in a Trust Fund, the purchase of
Certificates by the Plan could constitute a prohibited loan between a Plan and a
Party in Interest.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" certain FHLMC Certificates, GNMA Certificates and
FNMA Certificates, but do not include FAMC Certificates. Accordingly, even if
such types of MBS (other than FAMC Certificates) included in a Trust Fund were
deemed to be assets of Plan investors, the mortgages underlying such MBS (other
than FAMC Certificates) would not be treated as assets of such Plans. Thus, the
prohibited transaction described in the preceding paragraph (regarding a
prohibited loan) would not occur with respect to such types of MBS (other than
FAMC Certificates) held in a Trust Fund, even if such MBS were treated as assets
of Plans. Private label mortgage participations, mortgage pass-through
certificates, FAMC Certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations.
In addition, and without regard to whether the Mortgage Assets and other
assets included in a Trust Fund constitute Plan assets, the acquisition or
holding of Offered Certificates by or on behalf of a Plan could give rise to a
prohibited transaction if the Depositor, the related Trustee or any related
Underwriter, Master Servicer, Special Servicer, Sub-Servicer, REMIC
Administrator, Manager, mortgagor or obligor under any credit enhancement
mechanism, or any of certain affiliates thereof, is or becomes a Party in
Interest with respect to an investing Plan. Accordingly, potential Plan
investors should consult their counsel and review the ERISA discussion in the
related Prospectus Supplement before purchasing any such Certificates.
Prohibited Transaction Exemptions
In considering an investment in the Offered Certificates, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain
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broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager". There can be no assurance that any of these class exemptions will
apply with respect to any particular Plan investment in the Certificates or,
even if it were deemed to apply, that any exemption would apply to all
transactions that may occur in connection with such investment. The Prospectus
Supplement with respect to the Offered Certificates of any Series may contain
additional information regarding the availability of other exemptions with
respect to such Offered Certificates.
Insurance Company General Accounts
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of Offered Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997,
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute Plan assets, unless (i) as otherwise provided
by the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold such Certificates after the
date which is 18 months after the date the 401(c) Regulations become final.
Consultation With Counsel
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
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Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions".
LEGAL INVESTMENT
If and to the extent so specified in the related Prospectus Supplement, the
Offered Certificates of any Series will constitute "mortgage related securities"
for purposes of SMMEA. "Mortgage related securities" are legal investments to
the same extent that, under applicable law, obligations issued by or guaranteed
as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, insurance companies and pension funds
created pursuant to or existing under the laws of the United States or of any
state), the authorized investments of which are subject to state regulation.
Prior to December 31, 1996, only Classes of Offered Certificates that (i)
were rated in one of the two highest rating categories by one or more Rating
Agencies and (ii) were part of a Series evidencing interests in a Trust Fund
consisting of loans directly secured by a first lien on a single parcel of real
estate upon which is located a dwelling or mixed residential and commercial
structure, and originated by the types of originators specified in SMMEA, would
be "mortgage related securities" for purposes of SMMEA. Furthermore, under SMMEA
as originally enacted, if a state enacted legislation prior to October 3, 1991
that specifically limited the legal investment authority of any the entities
referred to in the preceding paragraph with respect to "mortgage related
securities" under such definition, Offered Certificates would constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation.
Effective December 31, 1996, the definition of "mortgage related
securities" was modified to include among the types of loans to which such
securities may relate, loans secured by "one or more parcels of real estate upon
which is located one or more commercial structures". In addition, the related
legislative history states that this expanded definition includes multifamily
loans secured by more than one parcel of real estate upon which is located more
than one structure. Until September 23, 2001, any state may enact legislation
limiting the extent to which "mortgage related securities" under this expanded
definition would constitute legal investments under that state's laws.
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. In this connection, effective
December 31, 1996, the Office of the Comptroller of the Currency (the "OCC")
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards concerning
"safety and soundness" and retention of credit
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information in 12 C.F.R. Section 1.5), certain "Type IV securities", defined in
12 C.F.R. Section 1.2(1) to include certain "commercial mortgage-related
securities" and "residential mortgage-related securities". As so defined,
"commercial mortgage-related security" and "residential mortgage-related
security" mean, in relevant part, "mortgage related security" within the meaning
of SMMEA, provided that, in the case of a "commercial mortgage-related
security," it "represents ownership of a promissory note or certificate of
interest or participation that is directly secured by a first lien on one or
more parcels of real estate upon which one or more commercial structures are
located and that is fully secured by interests in a pool of loans to numerous
obligors." In the absence of any rule or administrative interpretation by the
OCC defining the term "numerous obligors," no representation is made as to
whether any Class of Offered Certificates will qualify as "commercial
mortgage-related securities", and thus as "Type IV securities", for investment
by national banks. Federal credit unions should review NCUA Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities. The NCUA has adopted rules, codified as 12 C.F.R.
Section 703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
Classes of Offered Certificates), except under limited circumstances.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS (as defined herein). The
Policy Statement generally indicates that a mortgage derivative product will be
deemed to be high risk if it exhibits greater price volatility than a standard
fixed rate thirty-year mortgage security. According to the Policy Statement,
prior to purchase, a depository institution will be required to determine
whether a mortgage derivative product that it is considering acquiring is
high-risk, and if so that the proposed acquisition would reduce the
institution's overall interest rate risk. Reliance on analysis and documentation
obtained from a securities dealer or other outside party without internal
analysis by the institution would be unacceptable. There can be no assurance as
to which Classes of Certificates, including Offered Certificates, will be
treated as high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain Classes of
Offered Certificates. In addition, the National Credit Union Administration has
issued regulations governing federal credit union investments which prohibit
investment in certain specified types of securities, which may include certain
Classes of Offered Certificates. Similar policy statements have been issued by
regulators having jurisdiction over other types of depository institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain Classes of Offered Certificates or to purchase any Class of
Offered Certificates representing more than a specified percentage of the
investor's assets. The Depositor makes no representations as to the proper
characterization of any Class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
Class of Offered Certificates under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any Class of Offered
Certificates. Accordingly, all investors whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their legal advisors in
determining
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whether and to what extent the Offered Certificates of any Class and Series
constitute legal investments or are subject to investment, capital or other
restrictions.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received from the sale of the Certificates of any Series will be
applied by the Depositor to the purchase of Trust Assets or will be used by the
Depositor to cover expenses related thereto. The Depositor expects to sell the
Certificates from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in Series through one or more of the methods described below.
The Prospectus Supplement prepared for the Offered Certificates of each Series
will describe the method of offering being utilized for such Offered
Certificates and will state the net proceeds to the Depositor from the sale of
such Offered Certificates.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular Series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public offering by one or more underwriters specified in the related
Prospectus Supplement;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a Series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such
Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. The
managing underwriter or underwriters with respect to the offer and sale of
Offered Certificates of a particular Series will be set forth on the cover of
the Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be
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underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
Offered Certificates by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any Series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act, or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such Series.
The Depositor anticipates that the 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 in connection with reoffers and sales by them of Offered Certificates.
Holders of Offered Certificates should consult with their legal advisors in this
regard prior to any such reoffer or sale.
As to any Series, only those Classes rated in an investment grade rating
category by any Rating Agency will be offered hereby. Any unrated Class may be
initially retained by the Depositor, and may be sold by the Depositor at any
time to one or more institutional investors.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates of each Series, including
certain federal income tax consequences, will be passed upon for the Depositor
by Sidley & Austin.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series, and no Trust
Fund will engage in any business activities or have any assets or obligations
prior to the issuance of the related Series. Accordingly, no financial
statements with respect to any Trust Fund will be included in this Prospectus or
in the related Prospectus Supplement. The Depositor has determined that its
financial statements will not be material to the offering of any Offered
Certificates.
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RATING
It is a condition to the issuance of any Class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of Stripped Interest Certificates might, in certain
cases fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Accrual Certificates ..................................................... 13
Accrued Certificate Interest ............................................. 44
ARM Loans ................................................................ 33
Available Distribution Amount ............................................ 43
Book-Entry Certificates .................................................. 43
Cash Flow Agreement ...................................................... 15
CERCLA ................................................................... 79
Certificate Account ...................................................... 35,56
Certificate Notional Amount .............................................. 12
Certificate Owner ........................................................ 49
Certificate Principal Balance ............................................ 12
Certificates ............................................................. 1
Class .................................................................... 1
Closing Date ............................................................. 10
Code ..................................................................... 16
Commercial Properties .................................................... 30
Commission ............................................................... 3
Committee Report ......................................................... 86
Companion Class .......................................................... 46
Condemnation Proceeds .................................................... 57
Contributions Tax ........................................................ 98
Controlled Amortization Class ............................................ 45
Controlled Amortization Classes .......................................... 12
Cooperatives ............................................................. 30
CPR ...................................................................... 39
Credit Support ........................................................... 14
Cut-off Date ............................................................. 10,45
Debt Service Coverage Ratio .............................................. 31
Definitive Certificates .................................................. 43
Depositor ................................................................ 1
Determination Date ....................................................... 37,43
Distribution Date ........................................................ 13
Distribution Date Statement .............................................. 47
DOL ...................................................................... 112
DTC ...................................................................... 4,49
DTC Participants ......................................................... 28
Due Dates ................................................................ 33
Due Period ............................................................... 37
Equity Participation ..................................................... 33
ERISA ....................................................................16,112
Excess Funds ............................................................. 42
Exchange Act ............................................................. 4
Extension Risk ........................................................... 20
FAMC ..................................................................... 34
FAMC Certificates ........................................................ 34
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FHLMC .................................................................. 34
FHLMC Certificates ..................................................... 34
Financial Intermediary ................................................. 49
FNMA ................................................................... 34
FNMA Certificates ...................................................... 34
Garn Act ............................................................... 80
GNMA ................................................................... 34
GNMA Certificates ...................................................... 34
Grantor Trust Certificates ............................................. 16
Grantor Trust Fractional Interest Certificate .......................... 102
Grantor Trust Fund ..................................................... 84
Grantor Trust Strip Certificate ........................................ 102
Insurance Proceeds ..................................................... 57
IRS .................................................................... 61
Issue Premium .......................................................... 93
Lender Liability Act ................................................... 79
Letter of Credit Bank .................................................. 71
Liquidation Proceeds ................................................... 57
Loan-to-Value Ratio .................................................... 32
Lock-out Date .......................................................... 33
Lock-out Period ........................................................ 33
Manager ................................................................ 8
Mark-to-Market Regulations ............................................. 96
Master Servicer ........................................................ 8
MBS .................................................................... 1,10,29
MBS Administrator ...................................................... 8
MBS Agreement .......................................................... 34
MBS Issuer ............................................................. 34
MBS Servicer ........................................................... 34
MBS Trustee ............................................................ 34
Mortgage Asset Pool .................................................... 1
Mortgage Asset Seller .................................................. 30
Mortgage Assets ........................................................ 1,29
Mortgage Loans ......................................................... 1,9,29
Mortgage Notes ......................................................... 30
Mortgage Rate .......................................................... 9
Mortgaged Properties ................................................... 30
Mortgages .............................................................. 30
Multifamily Properties ................................................. 30
Net Leases ............................................................. 32
Net Operating Income ................................................... 31
Nonrecoverable Advance ................................................. 47
OCC .................................................................... 115
Offered Certificates ................................................... 1
OID Regulations ........................................................ 84
Originator ............................................................. 30
OTS .................................................................... 116
Parties in Interest .................................................... 112
-121-
<PAGE>
Pass-Through Rate ..................................................... 12
Percentage Interest ................................................... 44
Permitted Investments ................................................. 56
Plan Asset Regulations ................................................ 112
Plans ................................................................. 112
Policy Statement ...................................................... 116
Pooling Agreement ..................................................... 11
Prepayment Assumption ................................................. 86,105
Prepayment Interest Shortfall ......................................... 37
Prepayment Premium .................................................... 33
Prohibited Transactions Tax ........................................... 98
Prospectus Supplement ................................................. 1
PTCE .................................................................. 113
Purchase Price ........................................................ 53
Rating Agency ......................................................... 17
Record Date ........................................................... 43
Related Proceeds ...................................................... 46
Relief Act ............................................................ 82
REMIC ................................................................. 2,84
REMIC Administrator ................................................... 3,8
REMIC Certificates .................................................... 84
REMIC Provisions ...................................................... 84
REMIC Regular Certificates ............................................ 16
REMIC Regulations ..................................................... 84
REMIC Residual Certificates ........................................... 16
REO Property .......................................................... 54
RICO .................................................................. 83
Securities Act ........................................................ 3
Senior Certificates ................................................... 11
Senior Liens .......................................................... 30
Series ................................................................ 1
SMMEA ................................................................. 16
SPA ................................................................... 39
Special Servicer ...................................................... 8
Stripped Interest Certificates ........................................ 11
Stripped Principal Certificates ....................................... 11
Sub-Servicer .......................................................... 55
Sub-Servicing Agreement ............................................... 55
Subordinate Certificates .............................................. 11
Tax Exempt Investor ................................................... 115
Tiered REMICs ......................................................... 86
Title V ............................................................... 81
Trust Assets .......................................................... 3
Trust Fund ............................................................ 1
Trustee ............................................................... 8
UBTI .................................................................. 115
UCC ................................................................... 73
Undelivered Mortgage Assets ........................................... 10
-122-
<PAGE>
United States Person ..................................................... 101
Value .................................................................... 32
Voting Rights ............................................................ 48
Warranting Party ......................................................... 52
-123-
<PAGE>
[FORM OF PROSPECTUS SUPPLEMENT]
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
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 State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
PROSPECTUS SUPPLEMENT
(To Prospectus dated _________, 199__)
$
(Approximate)
DLJ Commercial Mortgage Corp.
Mortgage Pass-Through Certificates,
Series 199__-____
The Series 199_-___ Mortgage Pass-Through Certificates (the "Certificates")
will consist of [13] classes (each, a "Class") to be designated as: [(i) the
Class S Certificates; (ii) the Class A-1A Certificates, the Class A-1B
Certificates, the Class A-2 Certificates and the Class A-3 Certificates
(collectively, the "Class A Certificates"); (iii) the Class B-1 Certificates,
the Class B-2 Certificates, the Class B-3 Certificates and the Class B-4
Certificates (collectively, the "Class B Certificates"); (iv) the Class C
Certificates (collectively with the Class S, Class A and Class B Certificates,
the "REMIC Regular Certificates"); and (v) the Class R-I Certificates, the Class
R-II Certificates and the Class R-III Certificates (collectively, the "REMIC
Residual Certificates")]. Only the Class S Certificates, the Class A
Certificates and the Class B-1 Certificates (collectively, the "Offered
Certificates") are offered hereby. The respective Classes of Offered
Certificates will be issued with the initial Class Principal Balances (or, in
the case of the Class S Certificates, the initial Class Notional Amount), and
will accrue interest at the Pass-Through Rates, set forth or otherwise described
below.
(Continued on page S-2)
<TABLE>
<CAPTION>
===================================================================================================================
Initial Class Rating
Principal Balance Pass-Through Assumed Final ([identify Rating
Class or Class Notional Amount(a) Rate Distribution Date(b) Agencies])(c)(d)
===================================================================================================================
<S> <C> <C> <C> <C>
Class S............. $ (1) %(2)
Class A-1A ......... $ %
Class A-1B.......... $ %
Class A-2........... $ %
Class A-3........... $ %
Class B-1........... $ %
===================================================================================================================
</TABLE>
(Footnotes to table on next page)
---------------------
FOR A DISCUSSION OF CERTAIN RISK FACTORS TO BE CONSIDERED IN PURCHASING
THE OFFERED CERTIFICATES, SEE "RISK FACTORS" BEGINNING ON PAGE __
HEREIN AND ON PAGE __ IN THE PROSPECTUS.
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.
-----------
The Offered Certificates will be purchased from the Depositor by
________________ (the "Underwriter") and will be offered 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 sale of the
Offered Certificates, before deducting expenses payable by the Depositor
estimated to be approximately $_____________, will be ______% of the initial
aggregate Certificate Principal Balance (as defined herein) of the Offered
Certificates[, plus accrued interest on the Offered Certificates from the
Cut-off Date]. The Offered Certificates are offered by the Underwriter subject
to prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. It is expected that the Offered
Certificates will be delivered in book-entry form through the Same-Day Funds
Settlement System of DTC on or about _____________, 199__ (the "Closing Date"),
against payment therefor in immediately available funds.
[Underwriter]
The date of this Prospectus Supplement is __________ , 199__.
<PAGE>
The footnotes to the table on the previous page are as follows:
(a) The initial Class Principal Balance or Class Notional Amount, as
applicable, of each Class of Offered Certificates is subject to a permitted
variance of plus or minus __%. See "Description of the Certificates--Class
Principal Balances and Class Notional Amounts" herein.
(b) The "Assumed Final Distribution Date" with respect to any Class of
Certificates is the Distribution Date (as defined herein) on which the
final distribution would occur for such Class of Certificates based upon
the assumption that no Mortgage Loan is prepaid prior to its stated
maturity and otherwise based on the Modeling Assumptions (as described
herein). The actual performance and experience of the Mortgage Loans will
likely differ from such assumptions. See "Yield and Maturity
Considerations" herein.
(c) It is a condition to their issuance that the respective Classes of Offered
Certificates be assigned ratings by _________________ ("_____") and/or
________________________ ("________"; and together with ________, the
"Rating Agencies") no less than those set forth above. The "Rated Final
Distribution Date" for each such Class is the Distribution Date in
____________ 20__. The Class S Certificates are not being rated by _____.
See "Ratings" herein.
(d) The ratings on the Offered Certificates do not represent any assessment of
(i) the likelihood or frequency of principal prepayments on the Mortgage
Loans, (ii) the degree to which such prepayments might differ from those
originally anticipated or (iii) whether and to what extent Prepayment
Premiums and Yield Maintenance Premiums (each as defined herein) will be
received. Also a security rating does not represent any assessment of the
yield to maturity that investors may experience or the possibility that the
Class S Certificateholders might not fully recover their investment in the
event of rapid prepayments of the Mortgage Loans (including both voluntary
and involuntary prepayments). See "Ratings" herein.
(1) The Class S Certificates will not have a Class Principal Balance. The Class
S Certificates will accrue interest on a Class Notional Amount that is
equal to the aggregate of the Class Principal Balances of the respective
Classes of Sequential Pay Certificates (as defined herein) outstanding from
time to time.
(2) Initial Pass-Through Rate. The related Pass-Through Rate is variable and
will, in general, equal the excess, if any, of the weighted average of the
Net Mortgage Rates of the Mortgage Loans (the "Weighted Average Net
Mortgage Rate") from time to time, over the weighted average of the
Pass-Through Rates for the respective Classes of Sequential Pay
Certificates from time to time.
---------------------
(Continued from cover page)
See "Index of Principal Definitions" herein for the location of meanings of
capitalized terms used and defined herein. See "Index of Principal Definitions"
in the Prospectus for the location of meanings of capitalized terms used but not
defined herein.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates, but
is not obligated to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if one does develop, that it will
continue. See "Risk Factors-Limited Liquidity" herein. The Offered Certificates
will not be listed on any securities exchange.
The Certificates will represent undivided interests in a trust fund (the
"Trust Fund") to be established by DLJ Commercial Mortgage Corp. (the
"Depositor"), pursuant to a Pooling and Servicing Agreement to be dated as of
____________ , 199__ (the "Pooling Agreement"), among the Depositor,
___________________, as master servicer (the "Master Servicer"),
_____________________________, as special servicer (the "Special Servicer"), and
____________________ as trustee (in such capacity, the "Trustee") and REMIC
administrator (in such capacity, the "REMIC Administrator"). The Trust Fund will
consist primarily of a segregated pool (the "Mortgage Pool") of approximately
___ [describe general characteristics of Mortgage Loans] mortgage loans (the
"Mortgage Loans"). As of ______________, 199_ (the "Cut-off Date"), the Mortgage
Loans had an aggregate principal balance, after taking into account all payments
of principal due on or before such date, whether or not received, of
$___________ (the "Initial Pool Balance")[, subject to a permitted variance of
plus or minus __%.]
Distributions to holders of the Certificates ("Certificateholders") will be
made, to the extent of available funds, on the __th day of each month or, if any
such day is not a business day, on the next succeeding business day, beginning
in _________, 199_ (each, a "Distribution Date"). As more fully described
herein,
S-2
<PAGE>
distributions allocable to interest accrued on each Class of the REMIC Regular
Certificates [(the REMIC Residual Certificates will not accrue interest)] will
be made on each Distribution Date based on the Pass-Through Rate then applicable
to such Class and the Class Principal Balance or, in the case of the Class S
Certificates, the Class Notional Amount of such Class outstanding immediately
prior to such Distribution Date. As more fully described herein, distributions
allocable to principal of the respective Classes of Certificates with Class
Principal Balances (collectively, the "Sequential Pay Certificates") will be
made in the amounts and in accordance with the priorities described herein.
Neither the Class S Certificates nor any Class of REMIC Residual Certificates
will have a Class Principal Balance or entitle its holders to distributions of
principal. As more fully described herein, Prepayment Premiums and Yield
Maintenance Premiums actually collected on the Mortgage Loans will be
distributed among the respective Classes of Certificates in the amounts and in
accordance with the priorities described herein. The Trust Fund is subject to
termination, and the Certificates are subject to early retirement, at the option
of the Master Servicer or the Special Servicer under the limited circumstances
described herein. See "Description of the Certificates--Distributions" and
"--Termination" herein.
As and to the extent described herein, the Class A-2, Class A-3, Class B,
Class C and REMIC Residual Certificates (collectively, the "Subordinate
Certificates") are subordinate to the Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior Certificates"); the Class A-3, Class B,
Class C and REMIC Residual Certificates are subordinate to the Class A-2
Certificates; the Class B, Class C and REMIC Residual Certificates are
subordinate to the Class A-3 Certificates; and the Class B-2, Class B-3, Class
B-4, Class C and REMIC Residual Certificates are subordinate to the Class B-1
Certificates. See "Description of the Certificates--Distributions" and
"--Subordination; Allocation of Realized Losses and Certain Expenses" herein.
The yield to maturity of each Class of Offered Certificates will depend on,
among other things, the rate and timing of principal payments (including by
reason of or as affected by prepayments, loan extensions, defaults and
liquidations) and losses on the Mortgage Loans that are applied or otherwise
result in reduction of the Class Principal Balance or Class Notional Amount, as
the case may be, of such Class. The yield to maturity of the Class S
Certificates will be highly sensitive to the rate and timing of principal
payments (including by reason of prepayments, defaults and liquidations) and
losses on the Mortgage Loans that are applied or otherwise result in reduction
of the Class Notional Amount of such Class, and investors in the Class S
Certificates should fully consider the associated risks, including the risk that
an extremely rapid rate of amortization and prepayment of, or other reduction
in, the Class Notional Amount of such Class could result in the failure of such
investors to recoup fully their initial investments. See "Risk Factors" and
"Yield and Maturity Considerations" herein and in the Prospectus.
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being herein referred to
as "REMIC I", "REMIC II" and "REMIC III", respectively). The REMIC Regular
Certificates will constitute "regular interests" in REMIC III, and each Class of
REMIC Residual Certificates will constitute the sole class of "residual
interests" in the related REMIC. See "Certain Federal Income Tax Consequences"
herein.
[inside front cover]
THE OFFERED CERTIFICATES DO NOT REPRESENT OBLIGATIONS OF THE DEPOSITOR, THE
MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE REMIC ADMINISTRATOR OR
ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, TRUSTEES,
BENEFICIARIES, SHAREHOLDERS, EMPLOYEES OR AGENTS. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON. THE OFFERED
CERTIFICATES ARE PAYABLE SOLELY FROM THE TRUST FUND, AND PROSPECTIVE INVESTORS
SHOULD MAKE AN INVESTMENT DECISION BASED UPON AN ANALYSIS OF THE SUFFICIENCY OF
THE TRUST FUND.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED _____________, 199__, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
S-3
<PAGE>
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND 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.
S-4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSACTION OVERVIEW..................................................................... S-7
SUMMARY OF PROSPECTUS SUPPLEMENT......................................................... S-8
RISK FACTORS............................................................................. S-27
DESCRIPTION OF THE MORTGAGE POOL......................................................... S-30
General.......................................................................... S-30
Certain Payment Characteristics.................................................. S-30
The Index........................................................................ S-31
[Delinquent and Nonperforming Mortgage Loans].................................... S-31
Additional Mortgage Loan Information............................................. S-31
The Mortgage Loan Seller......................................................... S-39
Underwriting of the Mortgage Loans............................................... S-39
Representations and Warranties with respect to Mortgage Loans; Repurchases....... S-40
Changes in Mortgage Pool Characteristics......................................... S-40
SERVICING OF THE MORTGAGE LOANS.......................................................... S-40
General.......................................................................... S-40
The Master Servicer.............................................................. S-42
The Special Servicer............................................................. S-42
Sub-Servicers.................................................................... S-43
Servicing and Other Compensation and Payment of Expenses......................... S-43
Modifications, Waivers, Amendments and Consents.................................. S-45
Inspections; Collection of Operating Information................................. S-46
[Termination of [Special Servicer] [Master Servicer] Without Cause].............. S-47
DESCRIPTION OF THE CERTIFICATES.......................................................... S-47
General.......................................................................... S-47
Registration and Denominations................................................... S-47
Class Principal Balances and Class Notional Amounts.............................. S-48
Pass-Through Rates............................................................... S-49
Distributions.................................................................... S-50
Subordination; Allocation of Realized Losses and Certain Expenses................ S-55
P&I and Other Advances........................................................... S-56
[Appraisal Reductions]........................................................... S-57
Reports to Certificateholders; Certain Available Information..................... S-58
Voting Rights.................................................................... S-59
Termination...................................................................... S-59
The Trustee...................................................................... S-60
YIELD AND MATURITY CONSIDERATIONS........................................................ S-60
Yield Considerations............................................................. S-60
Weighted Average Life............................................................ S-62
Special Yield Considerations for the Class S Certificates........................ S-64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................. S-65
General.......................................................................... S-65
Discount and Premium; Prepayment Premiums........................................ S-65
Characterization of Investments in Offered Certificates.......................... S-66
Possible Taxes on Income from Foreclosure Property and Other Taxes .............. S-66
Reporting and other Administrative Matters....................................... S-67
S-5
<PAGE>
</TABLE>
METHOD OF DISTRIBUTION...................................................S-67
LEGAL MATTERS............................................................S-68
ERISA CONSIDERATIONS.....................................................S-68
LEGAL INVESTMENT.........................................................S-71
RATINGS .................................................................S-71
S-6
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
Prospective investors in the Offered Certificates are advised to carefully
read, and should rely solely on, the detailed information appearing elsewhere in
this Prospectus Supplement and the Prospectus in making their investment
decision. The following Transaction Overview does not include all relevant
information relating to the Offered Certificates or the Mortgage Loans,
particularly with respect to the risks and special considerations involved with
an investment in the Offered Certificates, and is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus. Prior to making any investment decision, a
prospective investor should carefully review this Prospectus Supplement and the
Prospectus.
$__________________
(Approximate)
DLJ Commercial Mortgage Corp.
Mortgage Pass-Through Certificates
Series 199_-____
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Class Rating Pass-Through Credit
Principal Balance(1) Class ___/_____ Rate Support(2)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ Class A-1A %
----------------------------------------------------------------------------------
$ Class A-1B % %
----------------------------------------------------------------------------------
$ Class A-2 % %
----------------------------------------------------------------------------------
Class S (___) $ Class A-3 % %
(Interest Strip off ----------------------------------------------------------------------------------
Classes A-1A $ Class B-1 % %
through C)(3) ----------------------------------------------------------------------------------
$ Class B-2(4) % %
----------------------------------------------------------------------------------
$ Class B-3(4) % %
----------------------------------------------------------------------------------
$ Class B-4(4) % %
----------------------------------------------------------------------------------
$ Class C(4) % %
- -----------------------------------------------------------------------------------------------------------------
N/A Class R-I(4) N/A
- -----------------------------------------------------------------------------------------------------------------
N/A Class R-II(4) N/A
- -----------------------------------------------------------------------------------------------------------------
N/A Class R-III(4) N/A
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Ratings: ___ and/or _____ (the Class S Certificates are rated only by
_____).
(1) [Subject to a variance of plus or minus _%].
(2) Reflects aggregate of Class Principal Balances (expressed as a percentage
of the Initial Pool Balance) of all Classes of Sequential Pay Certificates
that are subordinate to the specified Class of Certificates.
(3) The initial Pass-Through Rate for the Class S Certificates is ________% per
annum. The related Pass-Through Rate for the Class S Certificates is
variable and will, in general, equal the excess, if any, of the Weighted
Average Net Mortgage Rate from time to time, over the weighted average of
the Pass-Through Rates for the respective Classes of Sequential Pay
Certificates from time to time.
(4) Not offered hereby.
- --------------------------------------------------------------------------------
S-7
<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 that are used in this
Summary may be defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Principal Definitions is included at the end of both
this Prospectus Supplement and the Prospectus. Terms that are used but not
defined in this Prospectus Supplement will have the meanings specified in the
Prospectus.
Title of Certificates and
Designation of Classes.............. Mortgage Pass-Through Certificates,
Series 199_-___ (the "Certificates"), to
be issued in [13] classes (each, a
"Class") to be designated as: [(i) the
Class S Certificates; (ii) the Class
A-1A, Class A-1B, Class A-2 and Class
A-3 Certificates (collectively, the
"Class A Certificates"); (iii) the Class
B-1, Class B-2, Class B-3 and Class B-4
Certificates (collectively, the "Class B
Certificates"); (iv) the Class C
Certificates (collectively with the
Class S, Class A and Class B
Certificates, the "REMIC Regular
Certificates"); and (v) the Class R-I,
Class R-II and Class R-III Certificates
(collectively, the "REMIC Residual
Certificates")]. Only the Class S
Certificates, the Class A Certificates
and the Class B-1 Certificates
(collectively, the "Offered
Certificates") are offered hereby.
The Class B-2, Class B-3, Class B-4 and
Class C Certificates and the REMIC
Residual Certificates (collectively, the
"Private Certificates") will not be
registered under the Securities Act of
1933, as amended (the "Securities Act")
and are not offered hereby. Accordingly,
to the extent this Prospectus Supplement
contains information regarding the terms
of the Private Certificates, such
information is provided because of its
potential relevance to a prospective
purchaser of an Offered Certificate.
Depositor............................. DLJ Commercial Mortgage Corp., a
Delaware corporation. See "The
Depositor" in the Prospectus.
Master Servicer....................... ____________________. See "Servicing of
the Mortgage Loans--The Master Servicer"
herein.
Special Servicer...................... ____________________. See "Servicing of
the Mortgage Loans--The Special
Servicer" herein.
Trustee and REMIC Administrator....... ____________________. See Description of
the Certificates--The Trustee" and
"Certain Federal Income Tax
Consequences--Reporting and Other
Administrative Matters" herein.
Mortgage Loan Seller ............... ____________________ (the "Mortgage Loan
Seller"). See "Description of the
Mortgage Pool--The Mortgage Loan Seller"
herein.
Cut-off Date.......................... ___________, 199_.
Closing Date.......................... On or about ___________, 199_.
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Distribution Date..................... The __th day of each month or, if any
such __th day is not a business day,
then the next succeeding business day,
commencing in ________, 199_.
Collection Period..................... As to any Distribution Date, the period
commencing immediately following the
Determination Date in the month
immediately preceding the month in which
such Distribution Date occurs (or, in
the case of the initial Distribution
Date, commencing immediately following
the Cut-off Date) and ending on and
including the related Determination
Date.
Determination Date.................... As to any Distribution Date, the _th day
of the month in which such Distribution
Date occurs, or if such _th day is not a
business day, the immediately preceding
business day.
Record Date........................... As to any Distribution Date, the last
business day of the month immediately
preceding the month in which such
Distribution Date occurs.
Book-Entry Registration............... Each Class of Offered Certificates will
initially be issued in book-entry form
through the facilities of DTC and,
accordingly, will constitute "Book-Entry
Certificates" within the meaning of the
Prospectus. No person acquiring an
interest in a Book-Entry Certificate
(any such person, a "Certificate Owner")
will be entitled to receive a fully
registered physical certificate (a
"Definitive Certificate") evidencing
such interest, except under the limited
circumstances described in the
Prospectus. See "Risk
Factors--Book-Entry Registration" in the
Prospectus and "Description of the
Certificates--Registration and
Denominations" herein and "Description
of the Certificates--Book-Entry
Registration and Definitive
Certificates" in the Prospectus.
Denominations......................... The Class A-1A and Class A-1B
Certificates will each be issued in
minimum denominations of $________
initial principal balance and in any
whole dollar in excess thereof. The
Class S Certificates will each be issued
in minimum denominations of $________
initial notional amount and in any whole
dollar in excess thereof. The Class A-2,
Class A-3 and Class B-1 Certificates
will each be issued in minimum
denominations of $________ in initial
principal balance and in any whole
dollar in excess thereof.
The Mortgage Pool..................... The Mortgage Pool will consist of _____
[describe general characteristics of
Mortgage Loans] mortgage loans (the
"Mortgage Loans") with an aggregate
Cut-off Date Balance of $________ (the
"Initial Pool Balance") [, subject to a
permitted variance of plus or minus
___%]. The "Cut-off Date Balance" of
each Mortgage Loan is the unpaid
principal balance thereof as of the
Cut-off Date, after application of all
payments due on or before such date,
whether or not received. All numerical
information provided herein with respect
to the Mortgage Loans is provided on an
approximate basis. All weighted average
information provided herein with respect
to the Mortgage
- --------------------------------------------------------------------------------
S-9
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Loans reflects the weighting of the
Mortgage Loans by their Cut-off Date
Balances.
Each Mortgage Loan is evidenced by a
note or bond (a "Mortgage Note") and is
secured by a [first] mortgage, deed of
trust or similar security instrument (a
"Mortgage") on the fee simple (or, in
___ cases, representing ___% of the
Initial Pool Balance, the leasehold)
interest of the related mortgagor (the
"Mortgagor") in real property used for
commercial or multifamily purposes, all
buildings and improvements thereon and
certain personal property located
thereon (each, a "Mortgaged Property")
and security interests in certain funds
and accounts and other collateral
described herein.
The Mortgage Loans are non-recourse
obligations of the related Mortgagors.
No Mortgage Loan will be insured or
guaranteed by any governmental entity or
private insurer or by any other person.
Set forth below are the number of
Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that
are secured by Mortgaged Properties
located in the _____ states with the
highest concentrations:
Number of Percentage of
State Mortgage Loans Initial Pool Balance
----- -------------- --------------------
[Identify states representing 10% or
more of the Initial Pool Balance.]
The remaining Mortgaged Properties are
located throughout ___ other states.
Set forth below are the number of
Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that
are secured by Mortgaged Properties
operated for each indicated purpose:
Property Number of Percentage of
Type Mortgage Loans Initial Pool Balance
-------- -------------- --------------------
[Identify particular property types
representing 10% or more of the Initial
Pool Balance.]
________ of the Mortgage Loans, which
represent _____% of the Initial Pool
Balance, provide for scheduled payments
of principal and/or interest ("Monthly
Payments") to be due on the ___ day of
each month; the remainder of the
Mortgage Loans provide for Monthly
Payments to be due on the ____, _____,
_____ or _____ day of each month (the
date in any month on which a Monthly
Payment on a Mortgage Loan is first due,
the "Due Date"). [The
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
annualized rate at which interest
accrues (the "Mortgage Rate") on ____ of
the Mortgage Loans (the "ARM Loans"),
which represent _____% of the Initial
Pool Balance, is subject to adjustment
on specified Due Dates (each such date
of adjustment, an "Interest Rate
Adjustment Date") by adding a fixed
number of basis points (a "Gross
Margin") to the value of a base index
(an "Index"), subject, in ______ cases,
to lifetime maximum and/or minimum
Mortgage Rates, and in _____ cases, to
periodic maximum and/or minimum Mortgage
Rates, in each case as described herein;
and the remaining Mortgage Loans (the
"Fixed Rate Loans") bear interest at
fixed Mortgage Rates. ____ of the ARM
Loans, which represent ___% of the
Initial Pool Balance, provide for
Interest Rate Adjustment Dates that
occur monthly, while the remainder of
the ARM Loans provide for adjustments of
the Mortgage Rate to occur semi-annually
or annually. [Identify Mortgage Loan
Index].] See "Description of the
Mortgage Pool--Certain Payment
Characteristics" herein.
[If there are ARM Loans: The amount of
the Monthly Payment on all of the ARM
Loans is subject to adjustment on
specified Due Dates (each such date, a
"Payment Adjustment Date") to an amount
[that would amortize the outstanding
principal balance of the Mortgage Loan
over its then remaining amortization
schedule and pay interest at the then
applicable Mortgage Rate]. [Discuss
frequency of Payment Adjustment Dates
and possibility of negative amortization
of interest.]]
_____ of the Mortgage Loans (the
"Balloon Loans"), representing ___% of
the Initial Pool Balance, provide for
monthly payments of principal based on
amortization schedules significantly
longer than the remaining terms of such
Mortgage Loans, thereby leaving
substantial principal amounts due and
payable (each such payment, together
with the corresponding interest payment,
a "Balloon Payment") on their respective
maturity dates (each, a "Maturity
Date"), unless prepaid prior thereto.
The remaining Mortgage Loans are fully
amortizing.
On or prior to the Closing Date, the
Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller
pursuant to a Mortgage Loan Purchase
Agreement dated as of __________ (the
"Mortgage Loan Purchase Agreement")
between the Depositor and the Mortgage
Loan Seller. In the Mortgage Loan
Purchase Agreement, the Mortgage Loan
Seller has made certain representations
and warranties to the Depositor
regarding the characteristics and
quality of the Mortgage Loans and, as
more particularly described herein, has
agreed to cure any material breach
thereof or repurchase the affected
Mortgage Loan. In connection with the
assignment of its interests in the
Mortgage Loans to the Trustee, the
Depositor will also assign its rights
under the Mortgage Loan Purchase
Agreement insofar as they relate to or
arise out of the Mortgage Loan Seller's
representations and
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S-11
<PAGE>
- --------------------------------------------------------------------------------
warranties regarding the Mortgage Loans.
See "Description of the Mortgage
Pool--Representations and Warranties
with respect to the Mortgage Loans;
Repurchases" herein.
Prepayment............................ [All the Mortgage Loans provided at
origination for, sequentially, a period
(a "Lockout Period") during which
voluntary prepayments of principal
(each, a "Principal Prepayment") are
prohibited, then a period during which
Principal Prepayments are permitted but
are required to be accompanied by the
greater of a specified percentage of the
principal amount being prepaid (a
"Prepayment Premium") or a premium
calculated on the basis of a yield
maintenance formula (a "Yield
Maintenance Premium") and then,
commencing on a specified date prior to
maturity, a period (the related "Open
Period") during which Principal
Prepayments may be made without payment
of any Prepayment Premium or Yield
Maintenance Premium.]
Description of the
Certificates........................ The Certificates will be issued on the
Closing Date pursuant to a Pooling and
Servicing Agreement to be dated as of
the Cut-off Date (the "Pooling
Agreement") among the Depositor, the
Master Servicer, the Special Servicer,
the Trustee and the REMIC Administrator,
and will represent in the aggregate the
entire beneficial ownership interest in
a trust fund (the "Trust Fund")
consisting of the Mortgage Pool and
certain related assets. See "Description
of the Certificates--General" herein.
A. Class Principal Balances and
Class Notional Amounts......... Upon initial issuance, the respective
Classes of the Class A, Class B and
Class C Certificates (collectively, the
"Sequential Pay Certificates") will, in
each case, have the aggregate principal
balance (the "Class Principal Balance")
set forth below[, subject to a variance
of plus or minus __%]:
Approximate
Initial Class Percentage of
Class Principal Balance Initial Pool Balance
----- ----------------- --------------------
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
Class B-2
Class B-3
Class B-4
Class C
The Class S Certificates will not have a
Class Principal Balance. The Class S
Certificates will represent the right to
receive distributions of interest
accrued as described herein on (an
aggregate notional amount (a "Class
Notional Amount") equal to the aggregate
of the Class Principal Balances of the
respective Classes of Sequential Pay
Certificates outstanding from time to
time. The Class
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S-12
<PAGE>
- --------------------------------------------------------------------------------
Notional Amount of the Class S
Certificates is used solely for the
purpose of determining the amount of
interest to be distributed on such Class
of Certificates and does not represent
the right to receive any distributions
of principal. The Class Notional Amount
of the Class S Certificates will
initially equal $_______[, subject to a
variance of plus or minus ___%].
The REMIC Residual Certificates will not
have principal balances or notional
amounts. See "Description of the
Certificates--Class Principal Balances
and Class Notional Amounts" herein.
B. Pass-Through Rates................. The rate per annum at which any Class of
REMIC Regular Certificates accrue
interest from time to time [(the REMIC
Residual Certificates do not accrue
interest)] is herein referred to as its
"Pass-Through Rate".
[The Pass-Through Rate applicable to
each Class of Sequential Pay
Certificates is fixed at the per annum
rate set forth below:
Class Pass-Through Rate
----- -----------------
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
Class B-2
Class B-3
Class B-4
Class C
The Pass-Through Rate applicable to the
Class S Certificates for the initial
Distribution Date will be approximately
____% per annum. The Pass-Through Rate
applicable to the Class S Certificates
for each subsequent Distribution Date
will equal the excess, if any, of the
Weighted Average Net Mortgage Rate for
such Distribution Date, over the
weighted average of the Pass-Through
Rates for the respective Classes of
Sequential Pay Certificates for such
Distribution Date (weighted on the basis
of the respective Class Principal
Balances of such Classes of Certificates
outstanding immediately prior to such
Distribution Date).
Because the REMIC Residual Certificates
will not accrue interest, such
Certificates will not have Pass-Through
Rates.]
With respect to any Distribution Date,
the "Weighted Average Net Mortgage Rate"
will, in general, equal the weighted
average of the Net Mortgage Rates in
effect for the Mortgage Loans as of the
commencement of the related Collection
Period, weighted on the basis of the
respective Stated Principal Balances (as
defined herein) of the Mortgage Loans
immediately prior to such Distribution
- --------------------------------------------------------------------------------
S-13
<PAGE>
- --------------------------------------------------------------------------------
Date. The "Net Mortgage Rate" with
respect to any Mortgage Loan is, in
general, a per annum rate equal to the
related Mortgage Rate in effect from
time to time, minus ___ basis points[;
provided that if any Mortgage Loan does
not accrue interest on the basis of a
360-day year consisting of twelve 30-day
months (which is the basis on which
interest accrues in respect of the REMIC
Regular Certificates), then, solely for
purposes of calculating the Pass-Through
Rate for the Class S Certificates, the
Net Mortgage Rate of such Mortgage Loan
for any one-month period preceding a
related Due Date will be the annualized
rate at which interest would have to
accrue in respect of such loan on the
basis of a 360-day year consisting of
twelve 30-day months in order to produce
the aggregate amount of interest
actually accrued in respect of such loan
during such one-month period at the
related Mortgage Rate (net of ___ basis
points); and provided, further, that,
solely for purposes of calculating the
Pass-Through Rate for the Class S
Certificates from time to time, the Net
Mortgage Rate for any Mortgage Loan will
be determined without regard to any
post-Closing Date modifications to the
terms of the related Mortgage Note that
may affect the Mortgage Rate]. As of the
Cut-off Date, the Net Mortgage Rates for
the Mortgage Loans will range from ___%
per annum to ___% per annum, with a
weighted average Net Mortgage Rate of
___% per annum. See "Description of the
Certificates--Pass-Through Rates"
herein.]
C. Distributions--General............. Distributions will be made by or on
behalf of the [Trustee] on each
Distribution Date to the
Certificateholders of record at the
close of business on the immediately
preceding Record Date. All distributions
made with respect to any Class of
Certificates will be allocated pro rata
among the outstanding Certificates of
such Class based on the respective
Percentage Interests (as defined herein)
in such Class evidenced by such
Certificates.
D. Distributions of Interest
and Principal ...................... As more particularly described herein,
the total of all payments and other
collections (or advances in lieu
thereof) on or in respect of the
Mortgage Loans that are available for
distributions of interest and principal
to Certificateholders on any
Distribution Date is herein referred to
as the "Available Distribution Amount"
for such date. [Prepayment Premiums and
Yield Maintenance Premiums actually
collected on the Mortgage Loans will not
be applied to distributions of interest
on and principal of the Certificates,
but such items will instead be
distributed to Certificateholders
separately, in the amounts and in
accordance with the priorities described
herein.] See "Description of the
Certificates--Distributions--The
Available Distribution Amount" and
"--Distributions--Distributions of
Prepayment Premiums and Yield
Maintenance Premiums" herein.
[On each Distribution Date, except as
otherwise described under "Description
of the Certificates--Termination"
herein, the Available Distribution
Amount for such date
- --------------------------------------------------------------------------------
S-14
<PAGE>
- --------------------------------------------------------------------------------
will be distributed among the respective
Classes of Certificateholders for the
following purposes and in the following
order of priority:
(i) to the holders of the Class S,
Class A-1A and Class A-1B
Certificates in respect of
interest, pro rata based on
entitlement, up to an amount equal
to all Distributable Certificate
Interest (as defined below) in
respect of each such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(ii) to the holders of the Class A-1A
and Class A-1B Certificates in
respect of principal, allocable as
between such Classes of
Certificateholders as described
herein, up to an amount equal to
the lesser of (1) the aggregate of
the then outstanding Class
Principal Balances of the Class
A-1A and Class A-1B Certificates
and (2) the Principal Distribution
Amount (as defined below) for such
Distribution Date;
(iii) to the holders of the Class A-1A
and Class A-1B Certificates as
reimbursement, pro rata based on
entitlement, up to an amount equal
to all Realized Losses and
Additional Trust Fund Expenses
(each as defined below), if any,
previously allocated to each such
Class of Certificates and for
which no reimbursement has
previously been received;
(iv) to the holders of the Class A-2
Certificates in respect of
interest, up to an amount equal to
all Distributable Certificate
Interest in respect of such Class
of Certificates for such
Distribution Date and, to the
extent not previously paid, for
all prior Distribution Dates;
(v) after the Class Principal Balances
of the Class A-1A and Class A-1B
Certificates have been reduced to
zero, to the holders of the Class
A-2 Certificates in respect of
principal, up to an amount equal
to the lesser of (a) the then
outstanding Class Principal
Balance of the Class A-2
Certificates and (b) the excess,
if any, of the Principal
Distribution Amount for such
Distribution Date over the amounts
distributed on such Distribution
Date pursuant to clause (ii)
above;
(vi) to the holders of the Class A-2
Certificates as reimbursement, up
to an amount equal to all Realized
Losses and Additional Trust Fund
Expenses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(vii) to the holders of the Class A-3
Certificates in respect of
interest, up to an amount equal to
all
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S-15
<PAGE>
- --------------------------------------------------------------------------------
Distributable Certificate
Interest in respect of such Class
of Certificates for such
Distribution Date and, to the
extent not previously paid, for
all prior Distribution Dates;
(viii) after the Class Principal
Balances of the Class A-1A, Class
A-1B and Class A-2 Certificates
have been reduced to zero, to the
holders of the Class A-3
Certificates in respect of
principal, up to an amount equal
to the lesser of (a) the then
outstanding Class Principal
Balance of the Class A-3
Certificates and (b) the excess,
if any, of the Principal
Distribution Amount for such
Distribution Date over the amounts
distributed on such Distribution
Date pursuant to clauses (ii) and
(v) above;
(ix) to the holders of the Class A-3
Certificates as reimbursement, up
to an amount equal to all Realized
Losses and Additional Trust Fund
Expenses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
received;
(x) to the holders of the Class B-1
Certificates in respect of
interest, up to an amount equal to
all Distributable Certificate
Interest in respect of such Class
of Certificates for such
Distribution Date and, to the
extent not previously paid, for
all prior Distribution Dates;
(xi) after the Class Principal Balances
of the Class A Certificates have
been reduced to zero, to the
holders of the Class B-1
Certificates in respect of
principal, up to an amount equal
to the lesser of (a) the then
outstanding Class Principal
Balance of the Class B-1
Certificates and (b) the excess,
if any, of the Principal
Distribution Amount for such
Distribution Date over the amounts
distributed on such Distribution
Date pursuant to clauses (ii), (v)
and (viii) above;
(xii) to the holders of the Class B-1
Certificates as reimbursement, up
to an amount equal to all Realized
Losses and Additional Trust Fund
Expenses, if any, previously
deemed allocated to such Class of
Certificates and for which no
reimbursement has previously been
received; and
(xiii) to the holders of the Class B-2,
Class B-3, Class B- 4, Class C and
REMIC Residual Certificates,
sequentially in that order,
amounts in respect of interest,
principal and reimbursement for
unreimbursed Realized Losses and
Additional Trust Fund Expenses, if
any, for each such Class as more
fully described under "Description
of the Certificates--
Distributions--Application of the
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S-16
<PAGE>
- --------------------------------------------------------------------------------
Available Distribution Amount"
herein; provided, however, that no
distributions of principal will be
made to any holder of any such
Class of Certificates until the
respective Class Principal
Balances of the Class A and Class
B-1 Certificates have all been
reduced to zero.]
[Except under the limited circumstances
described herein, distributions of
principal on the Class A-1A and Class
A-1B Certificates as described in clause
(ii) above will be paid, first, to the
holders of the Class A-1A Certificates,
until the Class Principal Balance of
such Class of Certificates is reduced to
zero, and thereafter, to the holders of
the Class A-1B Certificates, until the
Class Principal Balance of such Class of
Certificates is reduced to zero. See
"Description of the
Certificates--Distributions--Application
of the Available Distribution Amount"
herein.]
[The "Distributable Certificate
Interest" in respect of any Class of
REMIC Regular Certificates for any
Distribution Date will equal one month's
interest at the applicable Pass-Through
Rate accrued on the Class Principal
Balance or Class Notional Amount, as the
case may be, of such Class of
Certificates outstanding immediately
prior to such Distribution Date, reduced
(to not less than zero) by such Class of
Certificates' allocable share
(calculated as described herein) of any
Net Aggregate Prepayment Interest
Shortfall (as described below) for such
Distribution Date incurred in connection
with the voluntary prepayment of
Mortgage Loans prior to their respective
Due Dates during the related Collection
Period. Distributable Certificate
Interest will be calculated on the basis
of a 360-day year consisting of twelve
30-day months.]
[The "Principal Distribution Amount" for
any Distribution Date will, in general,
equal the aggregate of the following:
(a) the principal portions of all
Scheduled Payments (other than
Balloon Payments) and any Assumed
Scheduled Payments due or deemed
due, as the case may be, in
respect of the Mortgage Loans for
their respective Due Dates
occurring during the related
Collection Period;
(b) all payments (including Principal
Prepayments and Balloon Payments)
and other collections (including
Liquidation Proceeds, Condemnation
Proceeds and Insurance Proceeds
(each as defined in the
Prospectus)) that were received on
or in respect of the Mortgage
Loans during the related
Collection Period and that were
identified and applied by the
Master Servicer as recoveries of
principal thereof, in each case
net of any portion of such payment
or other collection that
represents a recovery of the
principal portion of any Scheduled
Payment (other than a Balloon
Payment) due, or the principal
portion of any Assumed Scheduled
Payment
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S-17
<PAGE>
- --------------------------------------------------------------------------------
deemed due, in respect of the
related Mortgage Loan on a Due
Date during or prior to the
related Collection Period and not
previously recovered; and
(c) if such Distribution Date is
subsequent to the initial
Distribution Date, the excess, if
any, of (i) the Principal
Distribution Amount for the
immediately preceding Distribution
Date, over (ii) the aggregate
distributions of principal made in
respect of the Certificates on
such immediately preceding
Distribution Date.]
[The "Scheduled Payment" due in respect
of any Mortgage Loan on any related Due
Date will be the amount of the Monthly
Payment that is scheduled to be due in
respect thereof on such date in
accordance with the terms of such
Mortgage Loan in effect on the Closing
Date, without regard to any waiver,
modification or amendment of such
Mortgage Loan subsequent to the Closing
Date, and assuming that each prior
Scheduled Payment has been made in a
timely manner.]
[The "Assumed Scheduled Payment" is an
amount deemed due in respect of any
Balloon Loan that is delinquent in
respect of its Balloon Payment beyond
the first Determination Date that
follows its original stated maturity
date. The Assumed Scheduled Payment
deemed due on any such Mortgage Loan on
its original stated maturity date and on
each successive Due Date that it remains
or is deemed to remain outstanding shall
equal the Scheduled Payment that would
be due in respect thereof on such date
if the related Balloon Payment had not
come due but rather such Mortgage Loan
had continued to amortize in accordance
with such Mortgage Loan's amortization
schedule in effect as of the Closing
Date.]
[E. Distributions of Prepayment
Premiums and Yield Maintenance
Premiums.............................. Any Prepayment Premium actually
collected with respect to a Mortgage
Loan during any particular Collection
Period, net of any portion thereof that
is allocable to pay a Liquidation Fee or
a Workout Fee (each as defined herein)
to the Special Servicer, will be
distributed on the related Distribution
Date as follows:
(i) if the Class Notional Amount of
the Class S Certificates
immediately prior to such
Distribution Date is greater than
zero, to the holders of the Class
S Certificates; and
(ii) if the Class Notional Amount of
the Class S Certificates has been
reduced to zero prior to such
Distribution Date, to the holders
of the Class R-I Certificates.
Any Yield Maintenance Premium actually
collected with respect to a Mortgage
Loan during any particular
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S-18
<PAGE>
- --------------------------------------------------------------------------------
Collection Period, net of any portion
thereof that is allocable to pay a
Liquidation Fee or a Workout Fee to the
Special Servicer, will be distributed on
the related Distribution Date as
follows:
(i) if the Class Notional Amount of
the Class S Certificates
immediately prior to such
Distribution Date is greater than
zero, then (A) first, to the
holders of the Class(es) of
Sequential Pay Certificates
entitled to distributions of
principal on such Distribution
Date, pro rata based on
entitlement if there is more than
one such Class, up to the amount
of the corresponding Certificate
Yield Maintenance Amount(s) (as
defined below) for such Class(es),
and (B) thereafer, to the holders
of the Class S Certificates, in an
amount equal to the balance, if
any, of such Yield Maintenance
Premium; and
(ii) if the Class Notional Amount of
the Class S Certificates has been
reduced to zero prior to such
Distribution Date, to the holders
of the Class R-I Certificates.
The "Certificate Yield Maintenance
Amount" for any Class of Sequential Pay
Certificates in respect of any Principal
Prepayment accompanied by a Yield
Maintenance Premium will generally be
calculated in the same manner as such
Yield Maintenance Premium but based on
(i) the Pass-Through Rate for such Class
instead of the Mortgage Rate for the
related Mortgage Loan and (ii) the
portion of such Principal Prepayment
distributable on such Class rather than
the entire Principal Prepayment.
The Prepayment Premiums and Yield
Maintenance Premiums, even if collected
and distributable on any Class of
Certificates, may not be sufficient to
offset fully any loss in yield on such
Class of Certificates attributable to
the related prepayments of principal.
See "Risk Factors--Special Prepayment
and Yield Considerations" herein and
"Risk Factors--Effect of Prepayments on
Average Life of Certificates" and
"--Effect of Prepayments on Yield of
Certificates" in the Prospectus and
"Servicing of the Mortgage
Loans--Servicing and Other Compensation
and Payment of Expenses" herein. Neither
the Depositor nor the Underwriter makes
any representation or warranty as
regards the collectability of any
Prepayment Premium or Yield Maintenance
Premium or the enforceability of any
Mortgage Loan provision requiring the
payment of any such amount.]
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S-19
<PAGE>
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Subordination; Allocation of
Realized Losses and
Certain Expenses ................... [To the extent described herein, the
Class A-2, Class A-3, Class B, Class C
and REMIC Residual Certificates
(collectively, the "Subordinate
Certificates") are subordinate to the
Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior
Certificates"); the Class A-3, Class B,
Class C and REMIC Residual Certificates
are subordinate to the Class A-2
Certificates; the Class B, Class C and
REMIC Residual Certificates are
subordinate to the Class A-3
Certificates; and the Class B-2, Class
B-3, Class B-4, Class C and REMIC
Residual Certificates are subordinate to
the Class B-1 Certificates. Such
subordination will be accomplished by
the application of the Available
Distribution Amount on each Distribution
Date in the order described above in
this Summary under "Description of the
Certificates--Distributions of Principal
and Interest". No other form of credit
support will be available for the
benefit of any Class of Offered
Certificateholders.
If, following the distributions to be
made in respect of the Certificates on
any Distribution Date, the aggregate of
the Stated Principal Balance of the
Mortgage Pool that will be outstanding
immediately following such Distribution
Date is less than the then aggregate of
the Class Principal Balances of the
respective Classes of Sequential Pay
Certificates, the Class Principal
Balances of the Class C, Class B-4,
Class B-3, Class B-2, Class B-1, Class
A-3 and Class A-2 Certificates will be
reduced, sequentially in that order, in
the case of each such Class until such
deficit (or the related Class Principal
Balance) is reduced to zero (whichever
occurs first). If any portion of such
deficit remains at such time as the
Class Principal Balances of such Classes
of Certificates are reduced to zero,
then the respective Class Principal
Balances of the Class A-1A and Class
A-1B Certificates will be reduced, pro
rata in accordance with the relative
sizes of the remaining Class Principal
Balances of such Classes of
Certificates, until such deficit (or
each such Class Principal Balance) is
reduced to zero. Any such deficit will,
in general, be the result of Realized
Losses incurred in respect of the
Mortgage Loans and/or Additional Trust
Fund Expenses. Accordingly, the
foregoing reductions in the Class
Principal Balances of the Sequential Pay
Certificates will constitute an
allocation of any such Realized Losses
and Additional Trust Fund Expenses.
As more particularly described herein,
"Realized Losses" are losses arising
from the inability of the Master
Servicer and/or the Special Servicer to
collect all amounts due and owing under
any defaulted Mortgage Loan, including
by reason of the fraud or bankruptcy of
the related mortgagor or a casualty of
any nature at the related Mortgaged
Property, to the extent not covered by
insurance.
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S-20
<PAGE>
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As more particularly described herein,
"Additional Trust Fund Expenses" are any
expenses of the Trust Fund not
specifically included in the calculation
of a "Realized Loss," that would result
in the REMIC Regular Certificateholders'
receiving less than the full amount of
principal and/or interest to which they
are entitled on any Distribution Date.]
See "Description of the
Certificates--Subordination; Allocation
of Realized Losses and Certain Expenses"
herein.
Treatment of REO Properties........... Notwithstanding that a Mortgaged
Property securing any Mortgage Loan may
be acquired on behalf of the
Certificateholders through foreclosure,
deed in lieu of foreclosure or otherwise
(upon acquisition, an "REO Property"),
such Mortgage Loan will, for purposes
of, among other things, determining
Pass-Through Rates of, distributions on
and allocations of Realized Losses and
Additional Trust Fund Expenses to the
Certificates, as well as the Master
Servicing Fees, Property Servicing Fees,
Special Servicing Fees, Workout Fees and
Trustee Fees (each as defined herein)
payable under the Pooling Agreement,
generally be treated as having remained
outstanding until such REO Property is
liquidated. In connection therewith,
operating revenues and other proceeds
derived from such REO Property
(exclusive of related operating costs,
including certain reimbursements payable
to the Master Servicer and/or Special
Servicer in connection with the
operation and disposition of such REO
Property) will be "applied" or treated
by the Master Servicer as principal,
interest and other amounts "due" on such
Mortgage Loan; and, subject to a
recoverability determination as more
fully described herein (see "Description
of the Certificates--P&I and Other
Advances"), the Master Servicer will be
required to make P&I Advances, as
described below, in respect of such
Mortgage Loan as if such Mortgage Loan
had remained outstanding.
P&I Advances.......................... Subject to a recoverability
determination as described herein, and
further subject to the reduced advancing
obligations in respect of certain
modified Mortgage Loans and Mortgage
Loans as to which the related Mortgaged
Property has declined in value as
described herein, the Master Servicer
will be required to make advances (each,
a "P&I Advance") with respect to each
Distribution Date in an amount that is
generally equal to the aggregate of all
Scheduled Payments (other than Balloon
Payments) and any Assumed Scheduled
Payments, net of related Master
Servicing Fees and Workout Fees, due or
deemed due, as the case may be, on or in
respect of the Mortgage Loans during the
related Collection Period, in each case
to the extent that such amount was not
paid by or on behalf of the related
Mortgagor or otherwise collected as of
the close of business on the last day of
the related Collection Period.
If the Master Servicer fails to make a
required P&I Advance, the Trustee will
be required to make such P&I
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S-21
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Advance. The Special Servicer shall have
no obligation to make any P&I Advance.
As more fully described herein, the
Master Servicer and the Trustee will
each be entitled to interest on any P&I
Advance made by it, and the Master
Servicer, the Special Servicer and the
Trustee will each be entitled to
interest on certain reimbursable
servicing expenses incurred by it. Such
interest will accrue from the date any
such P&I Advance is made or such
servicing expense is incurred at a rate
per annum equal to [specify applicable
rate] (the "Reimbursement Rate"), and
will be paid: first, out of Default
Interest (as defined herein) and late
payment charges collected in respect of
the related Mortgage Loan; and, second,
if such P&I Advance or servicing expense
has been reimbursed, out of general
collections on the Mortgage Pool. See
"Description of the Certificates--P&I
and Other Advances" herein.
[Compensating Interest
Payments............................ To the extent of the aggregate of all
Master Servicing Fees and Prepayment
Interest Excesses paid to the Master
Servicer as servicing compensation for
the related Collection Period, the
Master Servicer is required to make a
non-reimbursable payment (a
"Compensating Interest Payment") with
respect to each Distribution Date to
cover the aggregate of any Prepayment
Interest Shortfalls incurred during such
Collection Period. A "Prepayment
Interest Shortfall" is a shortfall in
the collection of a full month's
interest (net of related Master
Servicing Fees and Property Servicing
Fees (as defined herein)) on any
Mortgage Loan by reason of a full or
partial voluntary principal prepayment
being made and applied to such Mortgage
Loan prior to the related Due Date in
any Collection Period. A "Prepayment
Interest Excess" is a payment of
interest (net of related Master
Servicing Fees and Property Servicing
Fees) made in connection with any full
or partial prepayment of a Mortgage Loan
being made and applied to such Mortgage
Loan after the related Due Date in any
Collection Period, which payment of
interest is intended to cover the period
from such Due Date to the date of
prepayment. The "Net Aggregate
Prepayment Interest Shortfall" for any
Distribution Date will be the amount, if
any, by which (a) the aggregate of all
Prepayment Interest Shortfalls incurred
during the related Collection Period
exceeds (b) any Compensating Interest
Payment made by the Master Servicer with
respect to such Distribution Date. See
"Servicing of the Mortgage
Loans--Servicing and Other Compensation
and Payment of Expenses" herein.]
Optional Termination.................. The Special Servicer or the Master
Servicer, in that order, will have an
option to purchase all of the Mortgage
Loans and any REO Properties, 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 of the Mortgage
Pool is
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S-22
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less than __% of the Initial Pool
Balance. See "Description of the
Certificates--Termination" herein.
Certain Investment
Considerations ..................... The yield to maturity on any Offered
Certificate will be affected by the rate
and timing of prepayments and other
collections of principal on or in
respect of the Mortgage Loans and the
allocation thereof to reduce the
principal balance (the "Certificate
Principal Balance") or notional amount
(the "Certificate Notional Amount") of
such Certificate. An investor should
consider, in the case of any Offered
Certificate purchased at a discount, the
risk that a slower than anticipated rate
of prepayments could result in a lower
than anticipated yield and, in the case
of any Class S Certificate or any other
Offered Certificate purchased at a
premium, the risk that a faster than
anticipated rate of prepayments could
result in a lower than anticipated
yield. In addition, the yield to
maturity on the Class S Certificates
will be highly sensitive to the rate and
timing of principal payments on and
other liquidations of the Mortgage
Loans, and investors in the Class S
Certificates should fully consider the
associated risks, including the risk
that an extremely rapid rate of
prepayments and/or liquidations in
respect of the Mortgage Loans could
result in the failure of such investors
to recoup fully their initial
investments. See "Yield and Maturity
Considerations" herein and in the
Prospectus. The full or partial, as
applicable, allocation of Prepayment
Premiums and Yield Maintenance Premiums
actually collected on the Mortgage Loans
to the holders of the Class S
Certificates as described herein, for so
long as such Certificates are
outstanding, is intended to reduce those
risks; however, such allocation may be
insufficient to offset fully the adverse
effects on the yield of such Class of
Certificates that the related
prepayments may otherwise have.
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
with the resulting REMICs being herein
referred to as "REMIC I", "REMIC II" and
"REMIC III", respectively. The assets of
REMIC I will include the Mortgage Loans,
any REO Properties acquired on behalf of
the Certificateholders and the
Certificate Account (as defined in the
Prospectus). For federal income tax
purposes (i) the separate
non-certificated regular interests in
REMIC I will be the "regular interests"
in REMIC I and will constitute the
assets of REMIC II, (ii) the Class R-I
Certificates will evidence the sole
class of "residual interests" in REMIC
I, (iii) the separate non-certificated
regular interests in REMIC II will be
the "regular interests" in REMIC II and
will constitute the assets of REMIC III,
(iv) the Class R-II Certificates will
evidence the sole class of "residual
interests" in REMIC II, (v) the REMIC
Regular Certificates will evidence the
"regular interests" in, and generally
will be treated as debt
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S-23
<PAGE>
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obligations of, REMIC III, and (vi) the
Class R-III Certificates will evidence
the sole class of "residual interests"
in REMIC III.
[The [identify Classes, if any]
Certificates will not, and the [identify
Classes, if any] Certificates will, be
treated as having been issued with
original issue discount for federal
income tax reporting purposes. The
prepayment assumption to be used for
purposes of computing the accrual of
original issue discount, market discount
and premium, if any, for federal income
tax purposes will be that the Mortgage
Loans are not voluntarily prepaid prior
to their respective Maturity Dates.
However, no representation is made that
the Mortgage Loans will not prepay or,
if they do, that they will prepay at any
particular rate.]
[Generally, except to the extent noted
below, the Certificates will be treated
as "real estate assets" within the
meaning of Section 856(c)(5)(A) of the
Internal Revenue Code of 1986 (the
"Code"). In addition, except to the
extent noted below, interest (including
original issue discount) on the
Certificates will be interest described
in Section 856(c)(3)(B) of the Code.
However, the Certificates will generally
only be considered assets described in
Section 7701(a)(19)(C) of the Code to
the extent that the Mortgage Loans are
secured by residential property and,
accordingly, an investment in the
Certificates may not be suitable for
some thrift institutions. See
"Description of the Mortgage Pool"
herein.]
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
(a "Plan") should review carefully with
its legal counsel whether the purchase
or holding of Offered Certificates could
give rise to a transaction that is
prohibited or is not otherwise permitted
either under ERISA or Section 4975 of
the Code or whether there exists any
statutory or administrative exemption
applicable to an investment therein.
[The U.S. Department of Labor has issued
to the Underwriter an individual
exemption, Prohibited Transaction
Exemption _____, which 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, transactions relating to
the purchase, sale and holding of
pass-through certificates underwritten
or placed by the Underwriter and the
servicing and operation of related asset
pools, provided that certain conditions
are satisfied.]
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S-24
<PAGE>
- --------------------------------------------------------------------------------
[To the extent described herein, the
Depositor expects that Prohibited
Transaction Exemption _____ will
generally apply to the Senior
Certificates, but it will not apply to
the other Offered Certificates.
Accordingly, the Class A-2, Class A-3
and Class B-1 Certificates should not be
acquired by, on behalf of, or with
assets of a Plan, unless the purchase
and holding of any such Certificates or
interest therein, is exempt from the
prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of
the Code under Sections I and III of
Prohibited Transaction Class Exemption
95-60, which provides an exemption from
the prohibited transaction rules for
certain transactions involving an
insurance company general account. ] See
"ERISA Considerations" herein and in the
Prospectus.
Ratings............................... It is a condition to their issuance that
the respective Classes of Offered
Certificates receive the following
credit ratings from ("________")
and/or____________________ ("_____";
together with _____, the "Rating
Agencies"):
[Rating [Rating
Class Agency] Agency]
----- ------- -------
Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
The foregoing ratings of the Offered
Certificates address the timely payment
thereon of interest and, to the extent
applicable, the ultimate payment thereon
of principal on or before the Rated
Final Distribution Date. The foregoing
ratings of the Offered Certificates do
not address the tax attributes of the
Offered Certificates or the Trust Fund.
The rating of the Class S Certificates
by _____ does not address the
possibility that holders of the Class S
Certificates might suffer a lower than
anticipated yield due to prepayments on
and/or other liquidations of the
Mortgage Loans or that, as a consequence
of a rapid rate of prepayments and/or
liquidations of Mortgage Loans, the
holders of the Class S Certificates may
not fully recover their initial
investments. The ratings of the Offered
Certificates do not address certain
other matters as described under
"Ratings" herein. There is no assurance
that any such rating will not be
lowered, qualified or withdrawn by a
Rating Agency, if, in its judgment,
circumstances so warrant. There can be
no assurance whether any other rating
agency will rate any of the Offered
Certificates, or if one does, what
rating such agency would assign. A
security rating is not a recommendation
to buy, sell or hold securities and may
be
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S-25
<PAGE>
- --------------------------------------------------------------------------------
subject to revision or withdrawal at any
time by the assigning rating agency.
Legal Investment ..................... [The Offered Certificates will not
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"). In addition, institutions
whose investment activities are subject
to review by certain regulatory
authorities may be or may become subject
to restrictions on the investment by
such institutions in certain forms of
mortgage derivative securities. Any such
restrictions enacted or adopted after
the date hereof could alter the extent
to which such an institution may
continue to hold a particular
investment. Accordingly, investors
should consult their own legal advisors
to determine whether and to what extent
the Offered Certificates may be
purchased by such investors. See "Legal
Investment" herein and in the
Prospectus.]
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S-26
<PAGE>
RISK FACTORS
Prospective purchasers of 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 therein. [The
following risks are subject to modification to reflect the actual circumstances
relating to any series of Certificates.]
Limited Liquidity. There is currently no secondary market for the Offered
Certificates. The Underwriter has indicated its intention to make a secondary
market in the Offered Certificates, but it is not obligated to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if one does develop, that it will provide holders of Offered
Certificates with liquidity of investment or that it will continue for the life
of the Offered Certificates. The Offered Certificates will not be listed on any
securities exchange. See "Risk Factors--Limited Liquidity of Offered
Certificates" in the Prospectus.
Potential Liability to the Trust Fund Relating to a Materially Adverse
Environmental Condition. [An environmental site assessment was performed at
[each][all but ___] of the Mortgaged Properties during the _____ month period
prior to the Cut-off Date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment revealed any material adverse
environmental condition or circumstance at any Mortgaged Property[, except for
(i) those cases in which the condition or circumstance was remediated or an
escrow for such remediation has been established and (ii) those cases in which
an operations and maintenance plan or periodic monitoring of nearby properties
was recommended, which recommendations are consistent with industrywide
practices].
The Pooling Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property securing a defaulted
Mortgage Loan prior to acquiring title thereto or assuming its operation. Such
prohibition effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling Agreement will effectively
insulate the Trust Fund from potential liability for a materially adverse
environmental condition at any Mortgaged Property. See "Description of the
Pooling Agreements-Realization Upon Defaulted Mortgage Loans", "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--Risk of Liability Arising from Environmental Conditions" and
"Certain Legal Aspects of Mortgage Loans--Environmental Considerations" in the
Prospectus.
Exposure of the Mortgage Pool to Adverse Economic or other Developments
Based on Geographic Concentration. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
Increased Risk of Loss Associated With Concentration of Mortgage Loans and
Borrowers. Several of the Mortgage Loans have Cut-off Date Balances (as defined
herein) that are substantially higher than the average Cut-off Date Balance. In
general, concentrations in a mortgage pool of loans with larger-than-average
balances can result in losses that are 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. In addition, in several cases, multiple Mortgage Loans have
been made to the same Mortgagor or to a group of affiliated Mortgagors that are
under common control. Concentration of borrowers also poses increased risks. For
instance, if a borrower that owns several Mortgaged Properties experiences
financial difficulty at one Mortgaged Property, or at another income-producing
property that it owns, it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting Monthly Payments
for an indefinite period on all of the related Mortgage Loans.
Increased Risk of Default Associated with Adjustable Rate Mortgage Loans.
________ of the Mortgage Loans, which represent ____% of the Initial Pool
Balance, are ARM Loans. Increases in the required Monthly
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<PAGE>
Payments on ARM Loans in excess of those assumed in the original underwriting of
such loans may result in a default rate higher than that on mortgage loans with
fixed mortgage rates.
Increased Risk of Default Associated with Balloon Payments. [None] [Only
___] of the Mortgage Loans [is][are] fully amortizing over [its term] [their
respective terms] to maturity. Thus, [each] [most] of the Mortgage Loans will
have a substantial payment (that is, a Balloon Payment) due at its stated
maturity unless prepaid prior thereto. Mortgage Loans with Balloon Payments
involve a greater likelihood of default than self-amortizing loans because the
ability of a borrower to make a Balloon Payment typically will depend upon its
ability either to refinance the loan or to sell the related mortgaged property.
See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss
of the Mortgage Loans--Increased Risk of Default Associated With Balloon
Payments" in the Prospectus.
Limited Recourse. The Mortgage Loans are nonrecourse obligations of the
Mortgagors and, accordingly, in the case of default, recourse will be limited to
the related Mortgaged Property securing the defaulted Mortgage Loan.
Consequently, payment on each 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 under the related Mortgage Loan, upon the acceleration of
such maturity), upon the then market value of the related Mortgaged Property or
the ability of the related Mortgagor to refinance the Mortgaged Property.
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed by any governmental entity or private mortgage insurer or by any
other person. However, as more fully described under "Description of the
Mortgage Pool--Representations and Warranties with respect to Mortgage Loans;
Repurchases" herein, the Mortgage Loan Seller will be obligated to repurchase
those Mortgage Loans as to which there is a material breach of its
representations and warranties, which breach cannot be cured in a timely manner.
Extension Risk Associated With Modification of Mortgage Loans with Balloon
Payments. In order to maximize recoveries on defaulted Mortgage Loans, the
Pooling Agreement enables the Special Servicer to extend and modify Mortgage
Loans that are in material default or as to which a payment default (including
the failure to make a Balloon Payment) is reasonably foreseeable; subject,
however, to the limitations described under "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" herein. There can be no
assurance, however, that any such extension or modification will increase the
present value of recoveries in a given case. Any delay in collection of a
Balloon Payment that would otherwise be distributable in respect of a Class of
Offered Certificates, whether such delay is due to borrower default or to
modification of the related Mortgage Loan by the Special Servicer, will likely
extend the weighted average life of such Class of Offered Certificates. See
"Yield and Maturity Considerations" herein and in the Prospectus.
Risks Particular to ______________ Properties. [Add disclosure relating to
property types with respect to which there exists a material concentration in a
particular Trust Fund.]
Risks Relating to Lack of Certificateholder Control Over Trust Fund.
Certificateholders generally do not have a right to vote, except with respect to
certain amendments to the Pooling Agreement. Furthermore, Certificateholders
will generally not have the right to make decisions with respect to the
administration of the Trust Fund. Such decisions are generally made, subject to
the express terms of the Pooling Agreement, by the Master Servicer, the Trustee,
the Special Servicer or the REMIC Administrator, as applicable. Any decision
made by one of those parties in respect of the Trust Fund, even if made in the
best interests of the Certificateholders (as determined by such party in its
good faith and reasonable judgment), may be contrary to the decision that would
have been made by the holders of any particular Class of Offered Certificates
and may negatively affect the interests of such holders.
Risks Associated With Changes in Concentrations. If and as payments in
respect of principal (including voluntary prepayments and prepayments resulting
from casualty or condemnation, defaults and liquidations and repurchases due to
breaches of representations and warranties) are received with respect to the
Mortgage Loans, the remaining Mortgage Loans as a group may exhibit increased
concentration with respect to the type of properties, property characteristics,
number of Mortgagors and affiliated Mortgagors and geographic location. [Because
unscheduled collections of principal on the Mortgage Loans are payable on the
respective Classes of Sequential Pay Certificates in sequential order, such
Classes that have a lower
S-28
<PAGE>
sequential priority are relatively more likely to be exposed to any risks
associated with changes in concentrations of loan or property characteristics.]
Special Prepayment and Yield Considerations. The yield to maturity on any
Offered Certificate will depend on, among other things, the rate and timing of
principal payments (including voluntary prepayments and prepayments resulting
from casualty or condemnation, defaults and liquidations and repurchases due to
breaches of representations and warranties) on the Mortgage Loans and the
allocation thereof to reduce the Certificate Principal Balance or Certificate
Notional Amount of such Certificate. The Class S Certificates will be especially
sensitive to the rate and timing of such principal prepayments. In addition, in
the event of any repurchase of a Mortgage Loan from the Trust Fund due to a
material breach of representation or warranty, the repurchase price paid would
be passed through to the holders of the REMIC Regular Certificates with the same
effect as if such Mortgage Loan had been prepaid in full (except that no
Prepayment Premium or Yield Maintenance Premium would be payable with respect to
any such repurchase). No representation is made as to the anticipated rate of
prepayments on the Mortgage Loans or as to the anticipated yield to maturity of
any Certificate. See "Yield and Maturity Considerations" herein and in the
Prospectus.
In general, if an Offered Certificate is purchased at a premium and
distributions in reduction of the Certificate Principal Balance or Certificate
Notional Amount thereof occur at a rate faster than anticipated at the time of
purchase, then (to the extent that the required Prepayment Premiums or Yield
Maintenance Premiums are not received or are distributable to a different Class
of Certificates) the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if an Offered Certificate is
purchased at a discount and distributions in reduction of the Certificate
Principal Balance thereof 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.
Prepayment Premiums and Yield Maintenance Premiums, even if available and
distributable on any Class of Offered Certificates, may not be sufficient to
offset fully any loss in yield on such Class of Certificates attributable to the
related prepayments of the Mortgage Loans. Provisions requiring Prepayment
Premiums or Yield Maintenance Premiums may not be enforceable in some states and
under federal bankruptcy law, and may constitute interest for usury purposes.
Accordingly, no assurance can be given that the obligation to pay a Prepayment
Premium or Yield Maintenance Premium will be enforceable under applicable state
or federal law. In addition, even if such obligation is enforceable, no
assurance can be given that, in the event of a prepayment resulting from a
foreclosure of a Mortgage Loan, the Liquidation Proceeds will be sufficient to
make such payment.
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 with Certificate Principal Balances and the weighted
average life of the Offered Certificates with Certificate Principal Balances
will be affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. The yield to holders of the Class S Certificates and the Offered
Certificates that are Subordinate Certificates will be sensitive in varying
degrees to the rate, timing and magnitude of losses on the Mortgage Loans. If a
purchaser of an Offered Certificate 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 the amount of losses actually experienced, and such
additional losses are allocable in reduction of the Certificate Principal
Balance or Certificate Notional Amount, as the case may be, of such Certificate,
such purchaser's actual yield to maturity will be lower than that so calculated
and could, under certain extreme scenarios, be negative. In general, the earlier
a loss is borne by an investor, the greater is the effect on such investor's
yield to maturity.
Regardless of whether losses ultimately result, delinquencies and defaults
on the Mortgage Loans may significantly delay the receipt of payments by an
Offered Certificate 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, and interest accrued and payable to the Master Servicer
or Special Servicer in respect of Advances made thereby in connection with such
defaults and delinquencies will reduce amounts available for distribution on one
or more Classes of Certificates and may ultimately result in the reduction of
the Class Principal Balance or Class Notional Amount, as the case may be, of any
such Class. Following a default by a Mortgagor in payment of a Mortgage Loan at
maturity, the Special Servicer may, subject to certain limitations, extend the
maturity of such Mortgage Loan [up to _____ years]. The obligation of the Master
Servicer or the Trustee, as applicable, to make P&I Advances in respect of a
Mortgage Loan that is delinquent as to its Balloon
S-29
<PAGE>
Payment is limited to the extent described under "Description of the
Certificates--P&I and Other Advances" herein.
Subordination of Subordinate Certificates. As and to the extent described
herein, the rights of the holders of the respective Classes of Offered
Certificates that are Subordinate Certificates to receive distributions of
amounts collected or advanced on or in respect of the Mortgage Loans will be
subordinated to those of the holders of each other Class of Offered
Certificates, including the Senior Certificates, with a higher priority of
payment. See "Description of the Certificates--Distributions--Application of the
Available Distribution Amount" and "--Subordination; Allocation of Realized
Losses and Certain Expenses" herein.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist primarily of ___ [describe general
characteristics of the Mortgage Loans] mortgage loans (the "Mortgage Loans")
with an aggregate Cut-off Date Balance of $__________ (the "Initial Pool
Balance")[, subject to a permitted variance of plus or minus __%]. The "Cut-off
Date Balance" of each Mortgage Loan is the unpaid principal balance thereof as
of the Cut-off Date, after application of all payments due on or before such
date, whether or not received. All numerical information provided herein with
respect to the Mortgage Loans is provided on an approximate basis. All weighted
average information provided herein with respect to the Mortgage Loans reflects
the weighting of the Mortgage Loans by their Cut-off Date Balances.
Each Mortgage Loan is evidenced by a note or bond (a "Mortgage Note") and
is secured by a [first] mortgage, deed of trust or similar security instrument
(a "Mortgage") on the fee simple (or, in ___ cases, representing ___% of the
Initial Pool Balance, the leasehold) interest of the related mortgagor (the
"Mortgagor") in real property used for commercial or multifamily purposes, all
buildings and improvements thereon and certain personal property located thereon
(each, a "Mortgaged Property") and security interests in certain funds and
accounts and other collateral described herein.
The Mortgage Loans are not insured or guaranteed by the Depositor or the
Mortgage Loan Seller, by any governmental entity or private mortgage insurer or
by any other person. All of the Mortgage Loans are nonrecourse loans as to which
recourse in the case of default will be limited to the specific property and
such other assets, if any, as were pledged to secure a Mortgage Loan.
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Mortgage Loan Purchase
Agreement dated as of ______________, 199__ (the "Mortgage Loan Purchase
Agreement"), between the Depositor and the Mortgage Loan Seller, and the
Depositor will thereupon assign its interests in the Mortgage Loans, without
recourse, to the Trustee for the benefit of the Certificateholders. See "--The
Mortgage Loan Seller" herein and "Description of the Pooling
Agreements--Assignment of Mortgage Assets" in the Prospectus. For purposes of
the Prospectus, the Mortgage Loan Seller constitutes a "Mortgage Asset Seller".
[The Mortgage Loans were originated during the period from ____________ to
_____________, generally in accordance with the underwriting criteria described
below under "--Underwriting of the Mortgage Loans". The Mortgage Loan Seller
originated ____ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, and acquired the remaining Mortgage Loans from the respective
originators thereof.]
Certain Payment Characteristics
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the ___ day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
[____________ of the Mortgage Loans, which represent ____% of the Initial
Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage Rates that
are subject to adjustment on periodically occurring Interest Rate Adjustment
Dates by adding the related Gross Margin to the applicable value of the
S-30
<PAGE>
related Index, subject in ______ cases to rounding conventions and lifetime
minimum and/or maximum Mortgage Rates and, in the case of ________ Mortgage
Loans, which represent ____% of the Initial Pool Balance, to periodic minimum
and/or maximum Mortgage Rates. The remaining Mortgage Loans are Fixed Rate
Loans. None of the ARM Loans is convertible into a Fixed Rate Loan.]
[If there are ARM Loans: [Identify Mortgage Loan Index]. The adjustments to
the Mortgage Rates on the ARM Loans may in each case be based on the value of
the related Index as available a specified number of days prior to an Interest
Rate Adjustment Date, or may be based on the value of the related Index as most
recently published as of an Interest Rate Adjustment Date or as of a designated
date preceding an Interest Rate Adjustment Date. ____ of the ARM Loans, which
represent ___% of the Initial Pool Balance, provide for Interest Rate Adjustment
Dates that occur monthly; ____ of the ARM Loans, which represent ___% of the
Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
semi-annually; and the remaining ARM Loans provide for Interest Rate Adjustment
Dates that occur annually.]
[If there are ARM Loans: The Monthly Payments on each ARM Loan are subject
to adjustment on each Payment Adjustment Date to an amount [that would amortize
fully the principal balance of the Mortgage Loan over its then remaining
amortization schedule and pay interest at the then applicable Mortgage Rate].
[Discuss frequency of Payment Adjustment Dates and possibility of negative
amortization of interest.]]
_____ of the Mortgage Loans, representing ___% of the Initial Pool Balance,
are Balloon Loans that provide for monthly payments of principal based on
amortization schedules significantly longer than the remaining terms of such
Mortgage Loans. Thus, each such Mortgage Loan will have a Balloon Payment due at
its stated maturity date, unless prepaid prior thereto. The remaining Mortgage
Loans are fully amortizing.
[All the Mortgage Loans provided at origination for, sequentially, a period
(a "Lockout Period") during which voluntary prepayments of principal (each, a
"Principal Prepayment") are prohibited, then a period during which Principal
Prepayments are permitted but are required to be accompanied by the greater of a
specified percentage of the principal amount being prepaid (a "Prepayment
Premium") or a premium calculated on the basis of a yield maintenance formula (a
"Yield Maintenance Premium"), and then, commencing on a specified date prior to
maturity, a period (the related "Open Period") during which Principal
Prepayments may be made without payment of any Prepayment Premium or Yield
Maintenance Premium.]
[The Index]
[Describe Index.]
[Delinquent and Nonperforming Mortgage Loans]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
Additional Mortgage Loan Information
The following tables set forth the specified characteristics of, in each
case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
S-31
<PAGE>
Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Range of Mortgage Rates(%) Loans Date Balance Date Balance
-------------------------- ----- ------------ ------------
<S> <C> <C> <C>
Total.................... ----------- ---------------- -----------------
----------- ---------------- -----------------
</TABLE>
Weighted Average
Mortgage Rate (All Mortgage Loans):
______% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per annum
Gross Margins for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Number of Aggregate Cut-off Aggregate Cut-off
Range of Gross Margins(%) ARM Loans Date Balance Date Balance
------------------------- --------- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total.......................
----------- --------------- ----------------
</TABLE>
Weighted Average
Gross Margin: ____%
S-32
<PAGE>
Frequency of Adjustments to Mortgage Rates and Monthly Payments
for the ARM Loans
<TABLE>
<CAPTION>
Monthly
Mortgage Rate Payment Number of Percent by
Adjustment Adjustment Mortgage Aggregate Cut-off Aggregate Cut-off
Frequency Frequency Loans Date Balance Date Balance
--------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
----------- ------------ ----------------
Total..............
----------- ------------ ----------------
</TABLE>
Maximum Lifetime Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total.................................
----------- --------------- ----------------
</TABLE>
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
Minimum Lifetime Mortgage Rates for the ARM Loans
<TABLE>
<CAPTION>
Percent by
Range of Minimum Number of Aggregate Cut-off Aggregate Cut-off
Lifetime Mortgage Rates(%) ARM Loans Date Balance Date Balance
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total.................................
----------- --------------- ----------------
</TABLE>
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
S-33
<PAGE>
Cut-off Date Balances
<TABLE>
<CAPTION>
Number of Percent by
Cut-off Date Mortgage Aggregate Cut-off Aggregate Cut-off
Balance Range ($) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total......................................
----------- --------------- ----------------
</TABLE>
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate Loans): $____________
Types of Mortgaged Properties
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
Property Type Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total......................................
----------- --------------- ----------------
</TABLE>
S-34
<PAGE>
Geographic Distribution of the Mortgaged Properties
<TABLE>
<CAPTION>
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
State Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total......................................
----------- --------------- ----------------
</TABLE>
S-35
<PAGE>
Original Term to Stated Maturity (in Months)
<TABLE>
<CAPTION>
Number of Percent by
Range of Original Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total......................................
----------- --------------- ----------------
</TABLE>
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
Remaining Term to Stated Maturity (in Months)
as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range of Remaining Mortgage Aggregate Cut-off Aggregate Cut-off
Terms (in Months) Loans Date Balance Date Balance
----------------- ----- ------------ ------------
<S> <C> <C> <C>
----------- --------------- ----------------
Total......................................
----------- --------------- ----------------
</TABLE>
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
S-36
<PAGE>
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the following
table for any Mortgage Loan is [the ratio of (i) Net Operating Income produced
by the related Mortgaged Property for the period (annualized if the period was
less than one year) covered by the most recent operating statement available to
the Depositor to (ii) the amount of the Monthly Payment in effect as of the
Cut-off Date multiplied by 12. "Net Operating Income" is the revenue derived
from the use and operation of a Mortgaged Property (consisting primarily of
rental income and deposit forfeitures), less operating expenses (such as
utilities, general administrative expenses, management fees, advertising,
repairs and maintenance), and further less fixed expenses (such as insurance and
real estate taxes). Net Operating Income generally does not reflect capital
expenditures. The following table was prepared using operating statements
obtained from the respective Mortgagors or the related property managers. In
each case, the information contained in such operating statements was unaudited,
and the Depositor has made no attempt to verify its accuracy. In the case of
_____ Mortgage Loans (____ ARM Loans and ____ Fixed Rate Loans), representing
__% of the Initial Pool Balance, operating statements could not be obtained, and
accordingly, Debt Service Coverage Ratios for those Mortgage Loans were not
calculated. The last day of the period (which may not correspond to the most
recently ended calendar year) covered by each operating statement from which a
Debt Service Coverage Ratio was calculated is set forth in [Annex A] with
respect to the related Mortgage Loan.]
Debt Service Coverage Ratios(A)
Range of Number of Percent by
Debt Service Mortgage Aggregate Cut-off Aggregate Cut-off
Coverage Ratios (x) Loans Date Balance Date Balance
------------------- ----- ------------ ------------
Not Calculated(B).........
----------- ------------------- ---------------
Total ..................
----------- ------------------- ---------------
Weighted Average
Debt Service Coverage
Ratio (All Mortgage
Loans): _____x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans): _____x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): _____x(E)
- -------------------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the related
property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to which
Debt Service Coverage Ratios were not calculated.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at the Cut-off Date. The "LTV Ratio" set forth in the following table for
any Mortgage Loan is [a fraction, expressed as a percentage, the numerator of
which is the Cut-off Date Balance of such Mortgage Loan, and the denominator
S-37
<PAGE>
of which is the appraised value of the related Mortgaged Property as determined
by an appraisal thereof obtained in connection with the origination of such
Mortgage Loan. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than its LTV Ratio as reflected in the table set forth below.]
LTV Ratios at Cut-off Date
<TABLE>
<CAPTION>
Number of Percent by
Range of LTV Ratios(%) Mortgage Aggregate Cut-off Aggregate Cut-off
as of Cut-off Date Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
Total............... ----------------- --------------- ---------------
----------------- --------------- ---------------
</TABLE>
Weighted Average LTV
Ratios as of Cut-off Date
(All Mortgage Loans):
_____%
Weighted Average LTV Ratio
as of Cut-off Date (ARM
Loans): _____%
Weighted Average LTV Ratio
as of Cut-off Date (Fixed
Rate Loans): _____%
S-38
<PAGE>
Occupancy Rates
<TABLE>
<CAPTION>
Number of Percent by
Range of Mortgage Aggregate Cut-off Aggregate Cut-off
Occupancy Rates(A) Loans Date Balance Date Balance
------------------ ----- ------------ ------------
<S> <C> <C> <C>
------------- ---------------- ---------------
Total..........................
------------- ---------------- ---------------
</TABLE>
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
- ---------------------------------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
Specified in [Annex A] to this Prospectus Supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "--Underwriting of the Mortgage Loans" and
"--Representations and Warranties with respect to Mortgage Loans; Repurchases"
and in the Prospectus under "Description of the Trust Funds--Mortgage Loans" and
"Certain Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than 30
days delinquent in respect of any Monthly Payment.]
The Mortgage Loan Seller
General. [The Mortgage Loan Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. [Specify additional information regarding the Mortgage Loan
Seller's multifamily and commercial portfolio.]
The information set forth herein concerning the Mortgage Loan Seller and
the underwriting of the Mortgage Loans has been provided by the Mortgage Loan
Seller, and neither the Depositor nor the Underwriter makes any representation
or warranty as to the accuracy or completeness of such information.
Underwriting of the Mortgage Loans
[All of the Mortgage Loans were originated generally in accordance with the
underwriting criteria described herein.]
[Description of underwriting.]
S-39
<PAGE>
Representations and Warranties with respect to Mortgage Loans; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of [the Closing
Date], or as of such other date specifically provided in the representation and
warranty, among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties as described in the Prospectus
and if the Mortgage Loan Seller cannot cure such breach within a period of ___
days following its receipt of such notice, then the Mortgage Loan Seller will be
obligated pursuant to the Mortgage Loan Purchase Agreement (the relevant rights
under which will be assigned, together with its interests in the Mortgage Loans,
by the Depositor to the Trustee) to repurchase the affected Mortgage Loan within
such __-day period at a price (the "Purchase Price") equal to [the sum of (i)
the unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued interest
on such Mortgage Loan at the related Mortgage Rate from the date to which
interest was last paid to the Due Date in the Due Period in which the purchase
is to occur, and (iii) certain servicing expenses that are reimbursable to the
Master Servicer and the Special Servicer].
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer, the Special
Servicer or any of their affiliates [(other than the Mortgage Loan Seller)] will
be obligated to repurchase any affected Mortgage Loan in connection with a
breach of the Mortgage Loan Seller's representations and warranties if the
Mortgage Loan Seller defaults on its obligation to do so. See "Description of
the Pooling Agreements--Representations and Warranties with respect to Mortgage
Assets; Repurchase and Other Remedies" in the Prospectus.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such mortgage loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date and
will be filed, together with the Pooling Agreement, with the Commission within
fifteen days after the initial issuance of the Offered Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set forth
in the preceding paragraph, such removal or addition will be noted in the Form
8-K.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will be required to service and administer the Mortgage Loans,
for the benefit of the Certificateholders, in accordance with applicable law,
the terms of the Pooling Agreement and the terms of the respective Mortgage
Loans and, to the extent consistent with the foregoing, [in accordance with the
following standards (collectively, the "Servicing Standard"): (a) with the same
care, skill and diligence with which prudent institutional commercial mortgage
lenders and loan servicers service comparable mortgage loans or, if higher, with
the same care, skill and diligence with which the Master Servicer or Special
Servicer, as the case may be, generally services
S-40
<PAGE>
comparable mortgage loans owned by it; (b) with a view to the timely collection
of all scheduled payments of principal and interest under the Mortgage Loans or,
if a Mortgage Loan comes into and continues in default and no satisfactory
arrangements can be made for the collection of the delinquent payments, the
maximization of the recovery on such Mortgage Loan to Certificateholders (as a
collective whole) on a present value basis; and (c) without regard to: (i) any
relationship that it or any of its affiliates may have with the related
Mortgagor or any other party to the Pooling Agreement; (ii) its ownership (or
that of an affiliate) of any Certificate; (iii) any obligation to make Advances
(as defined below); and (iv) its right or the right of any affiliate to receive
compensation for its services or reimbursement of costs under the Pooling
Agreement or with respect to any particular transaction].
The Master Servicer initially will, except for certain limited duties, be
responsible for the master servicing and administration of the entire Mortgage
Pool. [The Special Servicer will be responsible for property level servicing and
administration of the entire Mortgage Pool, including: (i) conducting (or
retaining a third party to conduct) inspections of each Mortgaged Property at
least once every ___ years; and (ii) collecting and making certain calculations
based on annual operating statements and rent rolls with respect to each
Mortgaged Property.] The Special Servicer will also be responsible for special
servicing and administering any Mortgage Loan as to which any of the following
events (each, a "Servicing Transfer Event") occurs: [(a) the related Mortgagor
fails to make when due any Balloon Payment, which failure continues unremedied,
or the Master Servicer determines, in its reasonable good faith judgment, will
continue unremedied, for 30 days; (b) the related Mortgagor fails to make when
due any other Monthly Payment or any other payment required under the related
Mortgage Note and Mortgage, which failure continues unremedied, or the Master
Servicer determines, in its reasonable good faith judgment, will continue
unremedied, for 60 days; (c) the Master Servicer determines, in its reasonable
good faith judgment, that a default in making any Monthly Payment (including a
Balloon Payment) or any other payment required under the related Mortgage Note
and Mortgage is likely to occur within 30 days and is likely to remain
unremedied for at least 60 days or, in the case of a Balloon Payment, for at
least 30 days; (d) the Master Servicer determines, in its reasonable good faith
judgment, that a default (other than as described in clause (a) or (b) above)
has occurred that may materially impair the value of the related Mortgaged
Property as security for the Mortgage Loan and such default continues unremedied
for the applicable cure period under the terms of the Mortgage Loan (or, if no
cure period is specified, for 30 days); (e) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings occur in respect of the related Mortgagor or the related Mortgaged
Property, or the related Mortgagor takes certain actions indicating its
insolvency or its inability to pay its obligations, or (f) the Master Servicer
receives notice of the commencement of foreclosure or similar proceedings with
respect to the related Mortgaged Property].
If a Servicing Transfer Event occurs with respect to any Mortgage Loan, the
Master Servicer is required to use reasonable efforts to effect or to cooperate
in effecting the transfer of the servicing responsibilities with respect thereto
to the Special Servicer within ____ business days. Notwithstanding such
transfer, the Master Servicer will continue to receive payments on such Mortgage
Loan (including amounts collected by the Special Servicer), to make certain
calculations with respect to such Mortgage Loan, and to make remittances to
(including, if necessary, P&I Advances) and prepare certain reports for, the
Trustee with respect to such Mortgage Loan. If title to the related Mortgaged
Property is acquired on behalf of the Certificateholders (upon acquisition, an
"REO Property"), whether through foreclosure, deed in lieu of foreclosure or
otherwise, the Special Servicer will continue to be responsible for the
operation and management thereof. Mortgage Loans serviced by the Special
Servicer are referred to herein as "Specially Serviced Mortgage Loans". The
Master Servicer will have no responsibility for the Special Servicer's
performance of its duties under the Pooling Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as no circumstance identified
in clauses (a) through (f) of the second preceding paragraph exists that would
cause the Mortgage Loan to continue to be characterized as a Specially Serviced
Mortgage Loan and such of the following as are applicable occur:
S-41
<PAGE>
(w) with respect to the circumstances described in clause (a) and (b)
of the second preceding paragraph, the related Mortgagor has made three
consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related Mortgagor or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(x)with respect to the circumstances described in clauses (c) and (e)
of the second preceding paragraph, such circumstances cease to exist in the
reasonable good faith judgment of the Special Servicer;
(y)with respect to the circumstances described in clause (d) of the
second preceding paragraph, such default is cured; and
(z)with respect to the circumstances described in clause (f) of the
second preceding paragraph, such proceedings are terminated.
Set forth below is a description of certain pertinent provisions of the
Pooling Agreement relating to the servicing of the Mortgage Loans. Reference is
also made to the Prospectus, in particular to the section captioned "Description
of the Pooling Agreements", for additional important information regarding the
terms and conditions of the Pooling Agreement as such terms and conditions
relate to the rights and obligations of the Master Servicer and the Special
Servicer thereunder.
The Master Servicer
[_____________________________________________ (the "Master Servicer") will
act as Master Servicer with respect to the Mortgage Pool. The offices of the
Master Servicer that will be primarily responsible for servicing and
administering the Mortgage Pool are located at _______________. As
of_______________, 199__, the Master Servicer had a net worth of approximately
$______________ and was the servicer of a portfolio of multifamily and
commercial mortgage loans in ___ states totaling approximately $______________
in aggregate outstanding principal amount.]
The foregoing information has been provided by the Master Servicer. None of
the Depositor, the Underwriter, the Trustee, the REMIC Administrator, the
Special Servicer or any of their respective affiliates takes any responsibility
therefor or makes any representation or warranty as to the accuracy or
completeness thereof.
The Master Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency of the
security arrangements described herein with respect to the Mortgage Loans or the
collectability of amounts due under the Mortgage Loans.
The Special Servicer
[____________________________________ will act as Special Servicer with
respect to the Mortgage Pool. The principal offices of the Special Servicer are
located at ____________________________. As of _________, 199__, the Special
Servicer was responsible for the servicing of approximately _________ commercial
and multifamily loans with an aggregate principal balance of approximately
$_______, the collateral for which is located in ___ states.]
The foregoing information has been provided by the Special Servicer. None
of the Depositor, the Underwriter, the Trustee, the REMIC Administrator, the
Master Servicer or any of their respective affiliates takes any responsibility
therefor or makes any representation or warranty as to the accuracy or
completeness of such information.
The Special Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
management of the Mortgaged Properties, the validity or sufficiency of the
security arrangements described herein with respect to the Mortgage Loans or the
collectability of amounts due under the Mortgage Loans.
S-42
<PAGE>
Sub-Servicers
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling Agreement. Each sub-servicing agreement between the Master Servicer
or Special Servicer, as the case may be, and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the Pooling Agreement and must provide,
among other things, that, if for any reason such Master Servicer or Special
Servicer is no longer acting in such capacity, the Trustee or any successor to
such Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement. The Master Servicer and Special
Servicer will each be required to monitor the performance of Sub-Servicers
retained by it.
The Master Servicer or Special Servicer will be solely liable for all fees
owed by it to any Sub-Servicer. Each Sub-Servicer retained thereby will be
reimbursed by the Master Servicer or Special Servicer, as the case may be, for
certain expenditures which it makes, generally to the same extent the Master
Servicer or Special Servicer would be reimbursed under the Pooling Agreement.
See "Description of the Pooling Agreements--Certificate Account" in the
Prospectus and "--Servicing and Other Compensation and Payment of Expenses"
below.
Servicing and Other Compensation and Payment of Expenses
[The principal compensation to be paid to the Master Servicer in respect of
its servicing activities will be the Master Servicing Fee. The "Master Servicing
Fee" will be payable monthly on a loan-by-loan basis from amounts received in
respect of interest on each Mortgage Loan (including Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has become
an REO Property), will accrue at _______% per annum (the "Master Servicing Fee
Rate") and will be computed on the basis of the same principal amount and for
the same period respecting which any related interest payment on the Mortgage
Loan is computed. As additional servicing compensation, the Master Servicer will
be entitled to (x) Prepayment Interest Excesses (as defined below) actually
collected on the Mortgage Loans and (y) any Default Interest (that is, interest
in excess of interest at the related Mortgage Rate, accrued on any Mortgage Loan
by reason of a default thereunder) and late payment charges actually collected
on the Mortgage Loans, but only to the extent that such items (i) are allocable
to the period when the related Mortgage Loan did not constitute a Specially
Serviced Mortgage Loan or REO Property and (ii) are not allocable to pay any
portion of a Workout Fee or Liquidation Fee (each as defined below) payable to
the Special Servicer with respect to the related Mortgage Loan or to cover
interest payable to the Master Servicer, Special Servicer or Trustee with
respect to any Advances made in respect of the related Mortgage Loan. In
addition, the Master Servicer will be authorized to invest or direct the
investment of funds held in any accounts maintained by it that constitute part
of the Certificate Account (as defined in the Prospectus), in Permitted
Investments (as defined in the Prospectus), and the Master Servicer will be
entitled to retain any interest or other income earned on such funds, but will
be required to cover any losses from its own funds without any right to
reimbursement. See "Description of the Pooling Agreements--Certificate Account"
in the Prospectus.]
[If a Mortgagor prepays a Mortgage Loan in whole or in part prior to the
related Due Date in any Collection Period, the amount of interest (net of
related Master Servicing Fees and Property Servicing Fees) that accrues on the
amount of such Principal Prepayment will be less (such shortfall, a "Prepayment
Interest Shortfall") than the corresponding amount of interest accruing on the
REMIC Regular Certificates and fees payable to the Trustee. If such a Principal
Prepayment is made after the related Due Date in any Collection Period, the
amount of interest (net of related Master Servicing Fees and Property Servicing
Fees) that accrues on the amount of such Principal Prepayment will exceed (such
excess, a "Prepayment Interest Excess") the corresponding amount of interest
accruing on the REMIC Regular Certificates and fees payable to the Trustee. Any
Prepayment Interest Excesses collected will be paid to the Master Servicer as
additional servicing compensation. However, with respect to each Distribution
Date, the Master Servicer will be required to deposit into the Certificate
Account (such deposit, a "Compensating Interest Payment"), without any right of
reimbursement therefor, an amount equal to the lesser of (i) the aggregate
Master Servicing Fees for the related Collection Period, plus any Prepayment
Interest Excesses received during such Collection Period, and (ii) the aggregate
of any Prepayment Interest Shortfalls experienced during the related Collection
Period. The Master Servicer is not required to make Compensating Interest
Payments to cover comparable shortfalls in Mortgage Loan interest accruals that
result from any liquidation of a defaulted Mortgage Loan or an REO
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Property acquired in respect thereof. If the aggregate of any Prepayment
Interest Shortfalls experienced during any Collection Period exceed any
Compensating Interest Payment made in respect thereof, the difference will
constitute the "Net Aggregate Prepayment Interest Shortfall" for the related
Distribution Date.]
[The principal compensation to be paid to the Special Servicer in respect
of its property level servicing activities will be the Property Servicing Fee.
The "Property Servicing Fee" will accrue with respect to each Mortgage Loan
(including Specially Serviced Mortgage Loans and Mortgage Loans as to which the
related Mortgaged Property has become an REO Property) at a rate equal to _____%
per annum (the "Property Servicing Fee Rate") and will be computed on the basis
of the same principal amount and for the same period respecting which any
related interest payment on any such Mortgage Loan is computed. Earned but
unpaid Property Servicing Fees will be payable monthly out of general
collections on the Mortgage Loans and any REO Properties on deposit in the
Certificate Account.]
[The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. Solely as to Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has become
an REO Property, and in addition to the Property Servicing Fee for such Mortgage
Loans, the Special Servicer shall be entitled to the "Special Servicing Fee"
which will accrue at a rate equal to ____% per annum (the "Special Servicing Fee
Rate") and will be computed on the basis of the same principal amount and for
the same period respecting which any related interest payment on any such
Mortgage Loan is computed. The Special Servicing Fee with respect to any such
Mortgage Loan will cease to accrue if such loan (or the related REO Property) is
liquidated or if, in the case of a Specially Serviced Mortgage Loan, it becomes
a Corrected Mortgage Loan. Earned but unpaid Special Servicing Fees will be
payable monthly out of general collections on the Mortgage Loans and any REO
Properties on deposit in the Certificate Account. A "Workout Fee" will generally
be payable with respect to each Corrected Mortgage Loan. As to each Corrected
Mortgage Loan, the Workout Fee will be payable out of, and will be calculated by
application of a "Workout Fee Rate" of _____% to, each collection of interest
and principal (net of related unpaid or unreimbursed Master Servicing Fees,
Property Servicing Fees, Special Servicing Fees and Advances) and each
collection of a Prepayment Premium or a Yield Maintenance Premium, received on
such Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The
Workout Fee with respect to any Corrected Mortgage Loan will cease to be payable
if such loan again becomes a Specially Serviced Mortgage Loan or if the related
Mortgaged Property becomes an REO Property; provided that a new Workout Fee will
become payable if and when such Mortgage Loan again becomes a Corrected Mortgage
Loan. If the Special Servicer is terminated other than for cause, or resigns, it
shall retain the right to receive any and all Workout Fees payable in respect of
Mortgage Loans that became Corrected Mortgage Loans during the period that it
acted as Special Servicer and were still such at the time of such termination or
resignation (and the successor Special Servicer shall not be entitled to any
portion of such Workout Fees), in each case until the Workout Fee for any such
loan ceases to be payable in accordance with the preceding sentence. A
"Liquidation Fee" will be payable with respect to each Specially Serviced
Mortgage Loan or REO Property as to which the Special Servicer receives any full
or discounted payoff from the related Mortgagor or any Liquidation Proceeds,
Condemnation Proceeds or Insurance Proceeds (other than as a result of the
purchase of any such Specially Serviced Mortgage Loan or REO Property by the
Mortgage Loan Seller in connection with a material breach of representation or
warranty or any purchase thereof by the Special Servicer or the Master
Servicer). As to each such Specially Serviced Mortgage Loan or REO Property, the
Liquidation Fee shall be payable out of, and shall be calculated by application
of a "Liquidation Fee Rate" of_____% to, such full or discounted payoff,
Liquidation Proceeds, Condemnation Proceeds and/or Insurance Proceeds, in each
case net of any portion of such payment or proceeds payable or reimbursable to
the Master Servicer or the Special Servicer to cover related unpaid or
unreimbursed Master Servicing Fees, Property Servicing Fees, Special Servicing
Fees and Advances. The Liquidation Fee with respect to any such Specially
Serviced Mortgage Loan will not be payable if such Mortgage Loan becomes a
Corrected Mortgage Loan. Notwithstanding anything herein to the contrary, no
Liquidation Fee will be payable in connection with the receipt of, or out of,
Liquidation Proceeds collected as a result of the purchase of any Specially
Serviced Mortgage Loan or REO Property by the Mortgage Loan Seller in connection
with a material breach of representation or warranty or any purchase thereof by
the Special Servicer or the Master Servicer. As additional servicing
compensation, the Special Servicer will be entitled to retain all modification
fees received on or with respect to any Mortgage Loan. The Special Servicer will
also be entitled to Default Interest and late payment charges actually collected
on the Specially Serviced Mortgage Loans, but only to the extent that such items
are not allocable to pay any portion of a Workout Fee
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or Liquidation Fee payable to the Special Servicer with respect to the related
Mortgage Loan or to cover interest payable to the Master Servicer, Special
Servicer or Trustee with respect to any Advances made in respect of the related
Mortgage Loan.]
[In addition, the Special Servicer will be authorized to invest or direct
the investment of funds held in any accounts maintained by it that constitute
part of the Certificate Account, in Permitted Investments, and the Special
Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any losses from its own funds without any
right to reimbursement.]
[Assumption fees and modification fees actually collected on or with
respect to the Mortgage Loans will allocated between the Master Servicer and the
Special Servicer as provided in the Pooling Agreement and will be paid to each
as additional servicing compensation.]
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling Agreement, including the fees of any
Sub-Servicers retained by it, and will not be entitled to reimbursement therefor
except as expressly provided in the Pooling Agreement. In general, customary,
reasonable and necessary "out of pocket" costs and expenses required to be
incurred by the Master Servicer or Special Servicer in connection with the
servicing of a Mortgage Loan after a default, delinquency or other unanticipated
event, or in connection with the administration of any REO Property, will
constitute "Servicing Advances" (Servicing Advances and P&I Advances,
collectively, "Advances") and, in all cases, will be reimbursable from future
payments and other collections, including in the form of Insurance Proceeds,
Condemnation Proceeds and Liquidation Proceeds, on or in respect of the related
Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding the
foregoing, the Master Servicer and the Special Servicer will each be permitted
to pay, or to direct the payment of, certain servicing expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. [In addition, if the
Special Servicer is required under the Pooling Agreement to make any Servicing
Advance but does not desire to do so, the Special Servicer may, in its sole
discretion, with limited exception, request that the Master Servicer make such
Advance, such request to be made in writing and in a timely manner that does not
adversely affect the interests of any Certificateholder. The Master Servicer
will be required to make any such Servicing Advance that it is requested by the
Special Servicer to so make within _____ days of the Master Servicer's receipt
of such request. The Special Servicer will, with limited exception, be relieved
of any obligations with respect to any Servicing Advance that it so requests the
Master Servicer to make (regardless of whether or not the Master Servicer makes
that Advance).]
[If the Master Servicer or Special Servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within _____ days
after such Servicing Advance is required to be made, then the Trustee will, if
it has actual knowledge of such failure, be required to give the defaulting
party notice of such failure and, if such failure continues for _____ more days,
the Trustee will be required to make such Servicing Advance.]
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in its reasonable good faith judgment, ultimately recoverable from
Related Proceeds. With respect to any Servicing Advance, the Trustee is entitled
to conclusively rely on the non-recoverability determination made by the Master
Servicer or Special Servicer.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee are each entitled to receive interest on Servicing
Advances made thereby. See "Description of the Certificates--P&I and Other
Advances" herein.
Modifications, Waivers, Amendments and Consents
[The Special Servicer may, consistent with the Servicing Standard (but the
Master Servicer may not), agree to any modification, waiver or amendment of any
term of, forgive interest (including, without limitation, Default Interest and
late payment fees) on and principal of, capitalize interest on, permit the
release, addition or substitution of collateral securing, and/or permit the
release of the Mortgagor on or any guarantor of any Mortgage Loan it is required
to service and administer, without the consent of the Trustee or any
Certificateholder, subject, however, to each of the following limitations,
conditions and restrictions:
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(i) with limited exception, the Special Servicer may not agree to any
modification, waiver or amendment of any term of, or take any of the other
above referenced actions with respect to, any Mortgage Loan it is required
to service and administer that would affect the amount or timing of any
related payment of principal, interest or other amount payable thereunder
or, in the Special Servicer's reasonable good faith judgment, would
materially impair the security for such Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon, unless a material
default on such Mortgage Loan has occurred or, in the Special Servicer's
reasonable good faith judgment, a default in respect of payment on such
Mortgage Loan is reasonably foreseeable, and such modification, waiver,
amendment or other action is reasonably likely to produce a greater
recovery to Certificateholders on a present value basis than would
liquidation;
(ii) the Special Servicer may not extend the date on which any Balloon
Payment is scheduled to be due on any Balloon Loan for more than _____
years beyond its stated maturity date as set forth in the related Mortgage
Note as in effect on the Closing Date;
(iii) the Special Servicer may not make or permit any modification,
waiver or amendment of any term of, or take any of the other above
referenced actions with respect to, any Mortgage Loan that would (A) cause
any of REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC under
the Code or result in the imposition of any tax on "prohibited
transactions" or "contributions" after the startup date of any such REMIC
under the REMIC Regulations or (B) cause any Mortgage Loan to cease to be a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code;
(iv) the Special Servicer may not permit any Mortgagor to add or
substitute any collateral unless the Special Servicer shall have first
determined in accordance with the Servicing Standard, based upon an
environmental assessment prepared by an independent person who regularly
conducts environmental assessments, at the expense of the Mortgagor, that
such additional or substitute collateral is in compliance with applicable
environmental laws and regulations and that there are no circumstances or
conditions present with respect to such new collateral relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation would be required
under any then applicable environmental laws and/or regulations; and
(v) with limited exceptions, the Special Servicer may not release any
collateral securing an outstanding Mortgage Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (i) through (v) above will not apply to any modification of any term of
any Mortgage Loan that is required under the terms of such Mortgage Loan as in
effect on the Closing Date or that is solely within the control of the related
Mortgagor; and (y) notwithstanding clauses (i) through (v) above, neither the
Master Servicer nor the Special Servicer will be required to oppose the
confirmation of a plan in any bankruptcy or similar proceeding involving a
Mortgagor if in its reasonable good faith judgment such opposition would not
ultimately prevent the confirmation of such plan or one substantially similar.]
Inspections; Collection of Operating Information
[As a part of its property level servicing duties, the Special Servicer
will be required to perform a physical inspection of each Mortgaged Property at
least once per calendar year and as soon as practicable after the related
Mortgage Loan becomes a Specially Serviced Mortgage Loan. The Special Servicer
will be required to prepare a written report of each such inspection performed
by it that describes the condition of the Mortgaged Property and that specifies
(i) any sale, transfer or abandonment of the property or (ii) any change in the
property's condition, occupancy or value that the Special Servicer considers
material.
Also as part of its property level servicing duties, the Special Servicer
will be required, with respect to each Mortgage Loan, to use reasonable efforts
to collect from the related Mortgagor and review the annual operating
statements, budgets and rent rolls of the related Mortgaged Property, and the
financial statements of such Mortgagor, and the Special Servicer will be
required to cause annual operating statements, budgets and rent rolls to be
prepared for each REO Property. However, there can be no assurance that any
operating
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statements required to be delivered will in fact be delivered, nor is the
Special Servicer likely to have any practical means of compelling such
delivery.]
[Termination of [Special Servicer] [Master Servicer] Without Cause]
[Specify circumstances in which the Master Servicer or the Special Servicer
may be terminated without cause.]
DESCRIPTION OF THE CERTIFICATES
General
The Series 199_-___ Mortgage Pass-Through Certificates (the "Certificates")
will be issued on or about _________, 199_ (the "Closing Date") pursuant to a
Pooling and Servicing Agreement dated as of the Cut-off Date (the "Pooling
Agreement") among the Depositor, the Master Servicer, the Special Servicer, the
REMIC Administrator and the Trustee. The Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (the "Trust
Fund") consisting primarily of: (i) the Mortgage Loans and all payments and
other collections in respect of the Mortgage Loans received or due after the
Cut-off Date (exclusive of Principal Prepayments received prior to the Cut-off
Date and scheduled payments of principal and interest due on or before the
Cut-off Date); (ii) any REO Property acquired on behalf of the Trust Fund; (iii)
such funds or assets as from time to time are deposited in the Certificate
Account; and (iv) certain rights incidental to the representations and
warranties made by the Mortgage Loan Seller as described under "Description of
the Mortgage Pool--Representations and Warranties with respect to Mortgage
Loans; Repurchases" herein.
The Certificates will consist of [13] classes (each, a "Class") to be
designated as: [(i) the Class S Certificates; (ii) the Class A-1A Certificates,
the Class A-1B Certificates, the Class A-2 Certificates and the Class A-3
Certificates (collectively, the "Class A Certificates"); (iii) the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates and the
Class B-4 Certificates (collectively, the "Class B Certificates"); (iv) the
Class C Certificates (collectively with the Class S, Class A and Class B
Certificates, the "REMIC Regular Certificates"); and (v) the Class R-I
Certificates, the Class R-II Certificates and the Class R-III Certificates
(collectively, the "REMIC Residual Certificates")]. Only the Class S
Certificates, the Class A Certificates and the Class B-1 Certificates
(collectively, the "Offered Certificates") are offered hereby.
Registration and Denominations
The Class A-1A and Class A-1B Certificates will be issued in denominations
of not less than $_______ initial principal balance (initial "Certificate
Principal Balance") and in any whole dollar denomination in excess thereof. The
Class S Certificates will be issued in denominations of not less than $______
initial notional amount (initial "Certificate Notional Amount") and in any whole
dollar denomination in excess thereof. The Class A-2, Class A-3 and Class B-1
Certificates will be issued in denominations of not less than $________ initial
Certificate Principal Balance and in any whole dollar denomination in excess
thereof.
Each Class of Offered Certificates will initially be issued in book-entry
form through the facilities of The Depository Trust Company ("DTC") and,
accordingly, will constitute Book-Entry Certificates within the meaning of the
Prospectus. In connection therewith, each Class of Offered Certificates will
initially be represented by one or more fully registered physical certificates
registered in the name of the nominee of DTC. The Depositor has been informed by
DTC that DTC's nominee will be Cede & Co. No beneficial owner of a Book-Entry
Certificate (each, a "Certificate Owner") will be entitled to receive a fully
registered physical certificate (a "Definitive Certificate") representing its
interest in such Certificate, except under the limited circumstances described
under "Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the Prospectus. Unless and until Definitive Certificates are
issued in respect of the Offered Certificates, beneficial ownership interests in
each such Class of Certificates will be maintained and transferred on the
book-entry records of DTC and its participating organizations (the "DTC
Participants"), and all references to actions by holders of each such Class of
Certificates will refer to actions taken by DTC upon instructions received from
the related Certificate Owners through the DTC Participants in accordance with
DTC procedures, and all references herein to payments, notices, reports and
statements to the holders of each
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such Class of Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder thereof, for
distribution to the related Certificate Owners through the DTC Participants in
accordance with DTC procedures. The form of such payments and transfers may
result in certain delays in receipt of payments by an investor and may restrict
an investor's ability to pledge its securities. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" and "Risk
Factors--Book-Entry Registration" in the Prospectus.
The Trustee will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Offered Certificates and, if and to the extent
Definitive Certificates are issued in respect thereof, of transfers and
exchanges of the Offered Certificates.
Class Principal Balances and Class Notional Amounts
Only the Class A, Class B and Class C Certificates (collectively, the
"Sequential Pay Certificates") will have Certificate Principal Balances. The
Certificate Principal Balance of any Sequential Pay Certificate, as of any date
of determination, will equal the product of the Percentage Interest evidenced by
such Certificate in the related Class, multiplied by the Class Principal Balance
of such Class then outstanding.
The "Class Principal Balance" of any Class of Sequential Pay Certificates
is the aggregate principal amount thereof outstanding from time to time and
represents the maximum amount that the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. The Class Principal Balance of each
Class of Sequential Pay Certificates will be reduced on each Distribution Date
by any distributions of principal actually made on such Class of Certificates on
such Distribution Date and, further, by any Realized Losses and Additional Trust
Fund Expenses allocated to such Class of Certificates on such Distribution Date.
See "--Distributions" and "--Subordination; Allocation of Realized Losses and
Certain Expenses" herein.
Upon initial issuance, the Sequential Pay Certificates will have the
respective Class Principal Balances set forth below[, in each case, subject to a
permitted variance of plus or minus __%]:
Approximate
Initial Class Percentage of
Class Principal Balance Initial Pool Balance
- ----- ----------------- --------------------
Class A-1A....................... $____________ _____%
Class A-1B....................... $____________ _____%
Class A-2........................ $____________ _____%
Class A-3........................ $____________ _____%
Class B-1........................ $____________ _____%
Class B-2........................ $____________ _____%
Class B-3........................ $____________ _____%
Class B-4........................ $____________ _____%
Class C.......................... $____________ _____%
The Class S Certificates will not have Certificate Principal Balances or
entitle the holders thereof to distributions of principal. Instead, each such
Certificate will accrue interest as described herein on its Certificate Notional
Amount. The Certificate Notional Amount of any Class S Certificate, as of any
date of determination, will equal the product of the Percentage Interest
evidenced by such Certificate in the related Class, multiplied by the Class
Notional Amount of such Class then outstanding.
The "Class Notional Amount" of the Class S Certificates will be an
aggregate notional amount used solely for purposes of calculating the accrual of
interest in respect of such Class of Certificates.
The Class Notional Amount of the Class S Certificates will equal the
aggregate of the Class Principal Balances of the respective Classes of
Sequential Pay Certificates outstanding from time to time. Upon initial
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issuance, the Class Notional Amount of the Class S Certificates will equal
$______ [, subject to a variance of plus or minus __%].
The REMIC Residual Certificates will not have Certificate Principal
Balances or Certificate Notional Amounts. The Class R-I Certificates will
represent the right to receive on any Distribution Date that portion, if any, of
the Available Distribution Amount for such date that remains after all required
distributions to be made therefrom on the REMIC Regular Certificates have been
so made. It is not expected that the REMIC Residual Certificates will receive
any distributions.
The "Percentage Interest" in the related Class evidenced by any Offered
Certificate will be a fraction, expressed as a percentage, the numerator of
which is the initial Certificate Principal Balance or Certificate Notional
Amount, as the case may be, of such Certificate on the Closing Date as set forth
on the face thereof, and the denominator of which is the initial Class Principal
Balance or Class Notional Amount, as the case may be, of the related Class on
the Closing Date.
Pass-Through Rates
The Pass-Through Rates applicable to the Class A-1A, Class A-1B, Class A-2,
Class A-3, Class B-1, Class B-2, Class B-3, Class B-4 and Class C Certificates
will, for each Distribution Date, equal ____%, ____%, ____%, ____%, ____%,
____%, ____%, ____% and ____% per annum, respectively. The Pass-Through Rate
applicable to the Class S Certificates for the initial Distribution Date will
equal approximately ____% per annum and for each Distribution Date thereafter
will equal the excess, if any, of the Weighted Average Net Mortgage Rate for
such Distribution Date, over the weighted average of the Pass-Through Rates for
the respective Classes of Sequential Pay Certificates (weighted on the basis of
the respective Class Principal Balances of such Classes outstanding immediately
prior to such Distribution Date). The REMIC Residual Certificates will not have
Pass-Through Rates or accrue interest.
With respect to any Distribution Date, the "Weighted Average Net Mortgage
Rate" will, in general, equal the weighted average of the Net Mortgage Rates in
effect for the Mortgage Loans as of the commencement of the related Collection
Period, weighted on the basis of the respective Stated Principal Balances of the
Mortgage Loans immediately prior to such Distribution Date.
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general, a
per annum rate equal to the related Mortgage Rate in effect from time to time,
minus _____basis points [;provided that if any Mortgage Loan does not accrue
interest on the basis of a 360-day year consisting of twelve 30-day months
(which is the basis on which interest accrues in respect of the REMIC Regular
Certificates), then, solely for purposes of calculating the Pass-Through Rate
for the Class S Certificates, the Net Mortgage Rate of such Mortgage Loan for
any one-month period preceding a related Due Date will be the annualized rate at
which interest would have to accrue in respect of such loan on the basis of a
360-day year consisting of twelve 30-day months in order to produce the
aggregate amount of interest actually accrued in respect of such loan during
such one-month period at the related Mortgage Rate (net of ____basis points);
and provided, further, that, solely for purposes of calculating the Pass-Through
Rate for the Class S Certificates from time to time, the Net Mortgage Rate for
any Mortgage Loan will be determined without regard to any post-Closing Date
modifications to the terms of the related Mortgage Note that may affect the
Mortgage Rate]. As of the Cut-off Date, the Net Mortgage Rates for the Mortgage
Loans will range from ___% per annum to ___% per annum, with a weighted average
Net Mortgage Rate of ___% per annum.
The "Stated Principal Balance" of each Mortgage Loan will generally equal
the Cut-off Date Balance thereof, reduced (to not less than zero) on each
Distribution Date by (i) any payments or other collections (or advances in lieu
thereof) of principal of such Mortgage Loan that have been (or, if they had not
been applied to cover Additional Trust Fund Expenses, would have been)
distributed to Certificateholders on such date and (ii) the principal portion of
any Realized Loss incurred in respect of such Mortgage Loan during the related
Collection Period.
The "Collection Period" with respect to any Distribution Date will be the
period commencing immediately following the Determination Date in the month
immediately preceding the month in which such Distribution Date occurs (or, in
the case of the initial Collection Period, commencing immediately following
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the Cut-off Date) and ending on and including the Determination Date in the
month in which such Distribution Date occurs.
The "Determination Date" with respect to any Distribution Date will be the
__th day of the month in which such Distribution Date occurs, or if such __th
day is not a business day, the immediately preceding business day.
Distributions
General. Distributions on the Certificates will be made by or on behalf of
the [Trustee], to the extent of available funds, on the ___th day of each month
or, if any such ___th day is not a business day, then on the next succeeding
business day, commencing in ____________, 199__ (each, a "Distribution Date").
Except as described below, all such distributions will be made to the persons in
whose names the Certificates are registered (the "Certificateholders") at the
close of business on the last business day of the month preceding the month in
which the related Distribution Date occurs (each, a "Record Date"). [As to each
such person, 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 no less than ____
business days prior to the related Record Date and is the registered owner of
Certificates with an aggregate initial Certificate Principal Balance of at least
$[5,000,000] or an aggregate initial Certificate Notional Amount of at least
$[10,000,000], or otherwise by check mailed to such Certificateholder.] Until
Definitive Certificates are issued in respect thereof, Cede & Co. will be the
registered holder of the Offered Certificates. See "--Registration and
Denominations" above. The final distribution on any Certificate (determined
without regard to any possible future reimbursement of any Realized Loss or
Additional Trust Fund Expense previously deemed allocated to such Certificate)
will be made only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. [Notwithstanding anything herein to the contrary, no distributions
will be made with respect to a Certificate that has previously been surrendered
as contemplated by the preceding sentence or, with limited exception, that
should have been surrendered as contemplated by the preceding sentence.] All
distributions made with respect to a Class of Certificates will be allocated pro
rata among the outstanding Certificates of such Class based on their respective
Percentage Interests in such Class.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made from
the Available Distribution Amount for such date. [The "Available Distribution
Amount" for any Distribution Date will, in general, equal (a) all amounts on
deposit in the Certificate Account (see "Description of the Pooling
Agreements--Certificate Account" in the Prospectus) as of the close of business
on the related Determination Date, exclusive of any portion thereof that
represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums and Yield Maintenance Premiums (which are
separately distributable on the Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person other
than the Certificateholders (including amounts payable to the Master
Servicer, the Special Servicer, any Sub-Servicers or the Trustee as
compensation (including Trustee Fees, Master Servicing Fees, Property
Servicing Fees, Special Servicing Fees, Workout Fees, Liquidation Fees,
Default Interest and late payment charges (to the extent not otherwise
applied to cover interest on Advances), and assumption fees and
modification fees), amounts payable in reimbursement of outstanding
Advances, together with interest thereon, and amounts payable in respect of
other Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances and/or
Compensating Interest Payment made in respect of such Distribution Date.]
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Application of the Available Distribution Amount. [On each Distribution
Date, except as otherwise described under "--Termination" below, the Available
Distribution Amount for such date will be distributed to the Certificateholders
for the following purposes and in the following order of priority:
(i) to the holders of the Class S, Class A-1A and Class A-1B
Certificates (collectively, the "Senior Certificates") in respect of
interest, pro rata based on entitlement, up to an amount equal to all
Distributable Certificate Interest in respect of each such Class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(ii) to the holders of the Class A-1A and Class A-1B Certificates in
respect of principal, allocable as between such Classes of
Certificateholders as described below, up to an amount equal to the lesser
of (a) the aggregate of the then outstanding Class Principal Balances of
the Class A-1A and Class A-1B Certificates and (b) the Principal
Distribution Amount for such Distribution Date;
(iii) to the holders of the Class A-1A and Class A-1B Certificates as
reimbursement, pro rata based on entitlement, up to an amount equal to all
Realized Losses and Additional Trust Fund Expenses, if any, previously
allocated to each such Class of Certificates and for which no reimbursement
has previously been received;
(iv) to the holders of the Class A-2 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(v) after the Class Principal Balances of the Class A-1A and Class
A-1B Certificates have been reduced to zero, to the holders of the Class
A-2 Certificates in respect of principal, up to an amount equal to the
lesser of (a) the then outstanding Class Principal Balance of the Class A-2
Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clause (ii) above;
(vi) to the holders of the Class A-2 Certificates as reimbursement, up
to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(vii) to the holders of the Class A-3 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(viii) after the Class Principal Balances of the Class A-1A, Class
A-1B and Class A-2 Certificates have been reduced to zero, to the holders
of the Class A-3 Certificates in respect of principal, up to an amount
equal to the lesser of (a) the then outstanding Class Principal Balance of
the Class A-3 Certificates and (b) the excess, if any, of the Principal
Distribution Amount for such Distribution Date over the amounts distributed
on such Distribution Date pursuant to clauses (ii) and (v) above;
(ix) to the holders of the Class A-3 Certificates as reimbursement, up
to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(x) to the holders of the Class B-1 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xi) after the Class Principal Balances of the Class A Certificates
have been reduced to zero, to the holders of the Class B-1 Certificates in
respect of principal, up to an amount equal to the lesser of (a) the then
outstanding Class Principal Balance of the Class B-1 Certificates and (b)
the excess, if any, of the Principal Distribution Amount for such
Distribution Date over the amounts distributed on such Distribution Date
pursuant to clauses (ii), (v) and (viii) above;
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(xii) to the holders of the Class B-1 Certificates as reimbursement,
up to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(xiii) to the holders of the Class B-2 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xiv) after the Class Principal Balances of the Class A and Class B-1
Certificates have been reduced to zero, to the holders of the Class B-2
Certificates in respect of principal, up to an amount equal to the lesser
of (a) the then outstanding Class Principal Balance of the Class B-2
Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clauses (ii), (v), (viii) and (xi) above;
(xv) to the holders of the Class B-2 Certificates as reimbursement, up
to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(xvi) to the holders of the Class B-3 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xvii) after the Class Principal Balances of the Class A, Class B-1
and Class B-2 Certificates have been reduced to zero, to the holders of the
Class B-3 Certificates in respect of principal, up to an amount equal to
the lesser of (a) the then outstanding Class Principal Balance of the Class
B-3 Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clauses (ii), (v), (viii), (xi) and (xiv)
above;
(xviii)to the holders of the Class B-3 Certificates as reimbursement,
up to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(xix) to the holders of the Class B-4 Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xx) after the Class Principal Balances of the Class A, Class B-1,
Class B-2 and Class B-3 Certificates have been reduced to zero, to the
holders of the Class B-4 Certificates in respect of principal, up to an
amount equal to the lesser of (a) the then outstanding Class Principal
Balance of the Class B-4 Certificates and (b) the excess, if any, of the
Principal Distribution Amount for such Distribution Date over the amounts
distributed on such Distribution Date pursuant to clauses (ii), (v),
(viii), (xi), (xiv) and (xvii) above;
(xxi) to the holders of the Class B-4 Certificates as reimbursement,
up to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(xxii) to the holders of the Class C Certificates in respect of
interest, up to an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xxiii)after the Class Principal Balances of the Class A and Class B
Certificates have been reduced to zero, to the holders of the Class C
Certificates in respect of principal, up to an amount equal to the lesser
of (a) the then outstanding Class Principal Balance of the Class C
Certificates and (b) the excess, if any, of the Principal Distribution
Amount for such Distribution Date over the amounts distributed on such
Distribution Date pursuant to clauses (ii), (v), (viii), (xi), (xiv),
(xvii) and (xx) above;
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(xxiv) to the holders of the Class C Certificates as reimbursement, up
to an amount equal to all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received; and
(xxv) after the foregoing distributions, to the holders of the Class
R-I Certificates any amounts remaining.]
[On each Distribution Date prior to the earlier of (i) the Senior Principal
Distribution Cross-Over Date and (ii) the final Distribution Date in connection
with the termination of the Trust Fund, all distributions of principal on the
Class A-1A and Class A-1B Certificates will be paid, first, to the holders of
the Class A-1A Certificates, until the Class Principal Balance of such Class of
Certificates is reduced to zero, and thereafter, to the holders of the Class
A-1B Certificates, until the Class Principal Balance of such Class of
Certificates is reduced to zero. On each Distribution Date on and after the
Senior Principal Distribution Cross-Over Date, and in any event on the final
Distribution Date in connection with the termination of the Trust Fund,
distributions of principal on the Class A-1A and Class A-1B Certificates will be
paid to the holders of such two Classes of Certificates, pro rata, in accordance
with their respective Class Principal Balances outstanding immediately prior to
such Distribution Date, until the Class Principal Balance of each such Class of
Certificates is reduced to zero. The "Senior Principal Distribution Cross-Over
Date" will be the first Distribution Date as of which the aggregate Class
Principal Balance of the Class A-1A and Class A-1B Certificates outstanding
immediately prior thereto equals or exceeds the sum of (a) the aggregate Stated
Principal Balance of the Mortgage Pool that will be outstanding immediately
following such Distribution Date, plus (b) the lesser of (i) the Principal
Distribution Amount for such Distribution Date and (ii) the portion of the
Available Distribution Amount for such Distribution Date that will remain after
the distributions of interest to be made on the Senior Certificates on such
Distribution Date have been so made.]
Distributable Certificate Interest. [The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date represents that portion of the Accrued Certificate Interest in
respect of such Class of Certificates for such Distribution Date that is net of
such Class's allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.]
[The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to one month's interest
at the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date accrued on the related Class Principal Balance or Class
Notional Amount, as the case may be, outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.]
[Any Net Aggregate Prepayment Interest Shortfall for any Distribution Date
will generally be allocable among the various Classes of REMIC Regular
Certificates, pro rata, in accordance with the respective amounts of Accrued
Certificate Interest for each such Class for such Distribution Date.]
Principal Distribution Amount. [The "Principal Distribution Amount" for any
Distribution Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Scheduled Payments (other than
Balloon Payments) and any Assumed Scheduled Payments due or deemed due, as
the case may be, in respect of the Mortgage Loans for their respective Due
Dates occurring during the related Collection Period;
(b) all payments (including Principal Prepayments and Balloon
Payments) and other collections (including Liquidation Proceeds,
Condemnation Proceeds and Insurance Proceeds) that were received on or in
respect of the Mortgage Loans during the related Collection Period and that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such payment or other
collection that represents a recovery of the principal portion of any
Scheduled Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Scheduled Payment deemed due, in respect of the
related Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered; and
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<PAGE>
(c) if such Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of (i) the Principal Distribution
Amount for the immediately preceding Distribution Date, over (ii) the
aggregate distributions of principal made in respect of the Certificates on
such immediately preceding Distribution Date.]
[The "Scheduled Payment" due in respect of any Mortgage Loan on any related
Due Date will be the amount of the Monthly Payment that is scheduled to be due
in respect thereof on such date in accordance with the terms of such Mortgage
Loan in effect on the Closing Date, without regard to any waiver, modification
or amendment of such Mortgage Loan subsequent to the Closing Date, and assuming
that each prior Scheduled Payment has been made in a timely manner.]
[The "Assumed Scheduled Payment" is an amount deemed due in respect of any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the
first Determination Date that follows its original stated maturity date. The
Assumed Scheduled Payment deemed due on any such Mortgage Loan on its original
stated maturity date and on each successive Due Date that it remains or is
deemed to remain outstanding shall equal the Scheduled Payment that would be due
in respect thereof on such date if the related Balloon Payment had not come due
but rather such Mortgage Loan had continued to amortize in accordance with such
Mortgage Loan's amortization schedule in effect as of the Closing Date.]
[Distributions of Prepayment Premiums and Yield Maintenance Premiums. Any
Prepayment Premium collected with respect to a Mortgage Loan during any
particular Collection Period, net of any portion thereof allocable to pay a
Liquidation Fee or a Workout Fee to the Special Servicer, will be distributed on
the related Distribution Date as follows:
(i) if the Class Notional Amount of the Class S Certificates
immediately prior to such Distribution Date is greater than zero, to the
holders of the Class S Certificates; and
(ii) if the Class Notional Amount of the Class S Certificates has been
reduced to zero prior to such Distribution Date, to the holders of the
Class R-I Certificates.
Any Yield Maintenance Premium collected with respect to a Mortgage Loan
during any particular Collection Period, net of any portion thereof allocable to
pay a Liquidation Fee or a Workout Fee to the Special Servicer, will be
distributed on the related Distribution Date as follows:
(i) if the Class Notional Amount of the Class S Certificates
immediately prior to such Distribution Date is greater than zero, then (A)
first, to the holders of the Class(es) of Sequential Pay Certificates
entitled to distributions of principal on such Distribution Date, pro rata
based on entitlement if there is more than one such Class, up to the amount
of the corresponding Certificate Yield Maintenance Amount(s) for such
Class(es), and (B) thereafter, to the holders of the Class S Certificates,
in an amount equal to the balance, if any, of such Yield Maintenance
Premium; and
(ii) if the Class Notional Amount of the Class S Certificates has been
reduced to zero prior to such Distribution Date, to the holders of the
Class R-I Certificates.
The "Certificate Yield Maintenance Amount" for any Class of the Sequential
Pay Certificates in respect of any Principal Prepayment accompanied by a Yield
Maintenance Premium will be calculated in the same manner as such Yield
Maintenance Premium, except that, for purposes of such calculation, (i) the
Pass-Through Rate of such Class will be used in lieu of the Mortgage Rate, and
(ii) the portion of the Principal Prepayment distributable to such Class will be
used in lieu of the total Principal Prepayment.
Any Prepayment Premiums and Yield Maintenance Premiums, to the extent
actually collected on the Mortgage Loans during any Collection Period and
distributable on the Certificates, may not be sufficient to fully compensate the
Certificateholders of any Class for any loss in yield attributable to the
related prepayments of principal. See "Risk Factors--Special Prepayment and
Yield Considerations" herein and "Risk Factors--Effect of Prepayments on Yield
of Certificates" in the Prospectus. Neither the Depositor nor the Underwriter
makes any representation or warranty as to the collectability of any Prepayment
Premium or Yield Maintenance Premium or as to the enforceability of any Mortgage
Loan provision requiring the payment of any such amount.]
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Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will, for purposes of, among
other things, determining Pass-Through Rates of, distributions on and
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, as well as the amount of Master Servicing Fees, Property Servicing
Fees, Special Servicing Fees and Trustee Fees payable under the Pooling
Agreement, be treated as having remained outstanding until such REO Property is
liquidated. In connection therewith, operating revenues and other proceeds
derived from such REO Property (exclusive of related operating costs) will be
"applied" by the Master Servicer as principal, interest and other amounts "due"
on such Mortgage Loan; and, subject to the recoverability determination
described below (see "--P&I and Other Advances"), the Master Servicer will be
required to make P&I Advances in respect of such Mortgage Loan as if it had
remained outstanding. References to "Mortgage Loan" and "Mortgage Loans" in the
definitions of "Weighted Average Net Mortgage Rate" and "Principal Distribution
Amount" are intended to include any Mortgage Loan or Mortgage Loans as to which
the related Mortgaged Property has become an REO Property.
Subordination; Allocation of Realized Losses and Certain Expenses
[The rights of holders of the Class A-2, Class A-3, Class B, Class C and
REMIC Residual Certificates (collectively, the "Subordinate Certificates") to
receive distributions of amounts collected or advanced on the Mortgage Loans
will, in the case of each Class thereof, be subordinated, to the extent
described herein, to the rights of holders of the Senior Certificates and each
other Class of Subordinate Certificates, if any, with a higher payment priority
(as reflected under "--Distributions--Application of the Available Distribution
Amount" above). This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Senior Certificates of the full amount of
Distributable Certificate Interest payable in respect of such Classes of
Certificates on each Distribution Date, and the ultimate receipt by the holders
of the Class A-1A and Class A-1B Certificates of principal in an amount equal to
the entire respective Class Principal Balances of those Classes of Certificates.
Similarly, but to decreasing degrees, this subordination is also intended to
enhance the likelihood of timely receipt by the holders of the other Classes of
Offered Certificates of the full amount of Distributable Certificate Interest
payable in respect of such Classes of Certificates on each Distribution Date,
and the ultimate receipt by the holders of such Classes of Certificates of
principal equal to the entire respective Class Principal Balances thereof. This
subordination will be accomplished by the application of the Available
Distribution Amount on each Distribution Date in accordance with the order of
priority described under "--Distributions--Application of the Available
Distribution Amount" above. No other form of credit support will be available
for the benefit of any Class of Offered Certificateholders.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date is
less than the then aggregate of the Class Principal Balances of the respective
Classes of Sequential Pay Certificates, the Class Principal Balances of the
Class C, Class B-4, Class B-3, Class B-2, Class B-1, Class A-3 and Class A-2
Certificates will be reduced, sequentially in that order, in the case of each
such Class until such deficit (or the related Class Principal Balance) is
reduced to zero (whichever occurs first). If any portion of such deficit remains
at such time as the Class Principal Balances of such Classes of Certificates are
reduced to zero, then the respective Class Principal Balances of the Class A-1A
and Class A-1B Certificates will be reduced, pro rata in accordance with the
relative sizes of the remaining Class Principal Balances of such Classes of
Certificates, until such deficit (or each such Class Principal Balance) is
reduced to zero. Any such deficit will, in general, be the result of Realized
Losses incurred in respect of the Mortgage Loans and/or Additional Trust Fund
Expenses. The foregoing reductions in the Class Principal Balances of the
Sequential Pay Certificates will constitute an allocation of any such Realized
Losses and Additional Trust Fund Expenses.
"Realized Losses" are losses arising from the inability of the Master
Servicer and Special Servicer to collect all amounts due and owing under any
defaulted Mortgage Loan, including by reason of fraud or bankruptcy of the
related Mortgagor or a casualty of any nature at the related Mortgaged Property,
to the extent not covered by insurance. The Realized Loss, if any, in respect of
a liquidated Mortgage Loan (or related REO Property) will generally equal the
excess, if any, of (a) the outstanding principal balance of such Mortgage Loan
as of the date of liquidation, together with all accrued and unpaid interest
thereon at the related Mortgage Rate and all related unreimbursed Servicing
Advances, over (b) the aggregate amount of Liquidation Proceeds, if any,
recovered in connection with such liquidation (net of any portion of such
Liquidation Proceeds that is payable or reimbursable in respect of related
unpaid liquidation expenses). If the Mortgage
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<PAGE>
Rate on any Mortgage Loan is reduced or a portion of the debt due under any
Mortgage Loan is forgiven, whether in connection with a modification, waiver or
amendment granted or agreed to by the Special Servicer or in connection with a
bankruptcy or similar proceeding involving the related Mortgagor, the resulting
reduction in interest paid or the amount so forgiven, as the case may be, also
will be treated as a Realized Loss.
"Additional Trust Fund Expenses" are any expenses of the Trust Fund not
specifically included in the calculation of a "Realized Loss," that would result
in the REMIC Regular Certificateholders' receiving less than the full amount of
principal and/or interest to which they are entitled on any Distribution Date.
Additional Trust Fund Expenses include, among other things: (i) any interest
paid to the Master Servicer, Special Servicer and/or Trustee in respect of
unreimbursed Advances (to the extent not paid out of late payment charges and
Default Interest actually collected on the related Mortgage Loan); (ii) all
Special Servicing Fees, Workout Fees and Liquidation Fees payable to the Special
Servicer; (iii) any of certain unanticipated, non-Mortgage Loan specific
expenses of the Trust Fund, including, but not limited to, certain
reimbursements and indemnification to the Trustee and certain related persons
described under "Description of the Pooling Agreements--Certain Matters
Regarding the Trustee" in the Prospectus, certain reimbursements and
indemnification to the Depositor, the Master Servicer, the Special Servicer, the
REMIC Administrator and certain related persons described under "Description of
the Pooling Agreements--Certain Matters regarding the Master Servicer, the
Special Servicer, the REMIC Administrator, the Manager and the Depositor" in the
Prospectus, certain taxes payable from the assets of the Trust Fund and
described under "Servicing of Mortgage Loans--REO Properties" herein and under
"Certain Federal Income Tax Consequences--Possible Taxes on Income from
Foreclosure Property and Other Taxes" herein and "Certain Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and Other Taxes" in the
Prospectus, the costs and expenses of any tax audits with respect to the Trust
Fund and certain other tax-related expenses and the cost of various opinions of
counsel required to be obtained in connection with the servicing of the Mortgage
Loans and administration of the Trust Fund; and (iv) any other expense of the
Trust Fund not specifically included in the calculation of "Realized Loss" for
which there is no corresponding collection from a Mortgagor.]
P&I and Other Advances
[On or about each Distribution Date, the Master Servicer will be obligated,
subject to the recoverability determination described in the next paragraph, to
make advances (each, a "P&I Advance") out of its own funds or, subject to the
replacement thereof as provided in the Pooling Agreement, from funds held in the
Certificate Account that are not required to be distributed to
Certificateholders on such Distribution Date, in an amount that is generally
equal to the aggregate of all Scheduled Payments (other than Balloon Payments)
and any Assumed Scheduled Payments, net of related Master Servicing Fees and
Workout Fees, due or deemed due, as the case may be, in respect of the Mortgage
Loans during the related Collection Period, in each case to the extent such
amount was not paid by or on behalf of the related Mortgagor or otherwise
collected as of the close of business on the related Determination Date.
Notwithstanding the foregoing, if the Monthly Payment on any Mortgage Loan has
been reduced in connection with a bankruptcy or similar proceeding or a
modification, waiver or amendment granted or agreed to by the Special Servicer,
the Master Servicer will be required in the event of subsequent delinquencies to
advance in respect of such Mortgage Loan only the amount of the reduced Monthly
Payment (net of related Master Servicing Fees and Workout Fees). In addition, if
it is determined that an Appraisal Reduction Amount exists with respect to any
Required Appraisal Loan (as defined below), then, with respect to the
Distribution Date immediately following the date of such determination and with
respect to each subsequent Distribution Date for so long as such Appraisal
Reduction Amount exists, in the event of subsequent delinquencies thereon, the
interest portion of the P&I Advance in respect of such Mortgage Loan will be
reduced (no reduction to be made in the principal portion, however) to equal to
the product of (i) the amount of the interest portion of such P&I Advance that
would otherwise be required to be made for such Distribution Date without regard
to this sentence, multiplied by (ii) a fraction (expressed as a percentage), the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Appraisal Reduction Amount, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--Appraisal
Reductions" below.
If the full amount of all P&I Advances, if any, required to be made in
respect of any Distribution Date have not been so made, then the Trustee will be
required to make the portion of such P&I Advances that was required to be, but
not, made by the Master Servicer. In the event the Trustee does not make the
portion of such P&I Advances required to be, but not, made by the Master
Servicer, then the Pooling Agreement will
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provide for such amount to be withdrawn from a custodial fund established by the
Trustee as set forth in the Pooling Agreement. See "--The Trustee" below.]
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made out of its own funds from any Related Proceeds collected in
respect of the Mortgage Loan as to which such P&I Advance was made; provided
that neither the Master Servicer nor the Trustee will be obligated to make any
P&I Advance that it determines, in its reasonable good faith judgment, would, if
made, constitute a Nonrecoverable Advance, and the Master Servicer and the
Trustee will each be entitled to recover any P&I Advance made by it that it
later determines to be a Nonrecoverable Advance out of general funds on deposit
in the Certificate Account. With respect to any P&I Advance, the Trustee is
entitled to conclusively rely on the non-recoverability determination made by
the Master Servicer.
[The Master Servicer and the Trustee will each be entitled, with respect to
any Advance made thereby, and the Special Servicer will be entitled, with
respect to any Servicing Advance made thereby, to interest accrued on the amount
of such Advance for so long as it is outstanding at a per annum rate (the
"Reimbursement Rate") equal to [specify applicable rate]. Such interest on any
Advance will be payable to the Master Servicer, the Special Servicer or the
Trustee, as the case may be, first, out of Default Interest and late payment
charges collected in respect of the related Mortgage Loan, and second, if such
Advance has been reimbursed, out of any amounts then on deposit in the
Certificate Account. To the extent not offset by Default Interest and late
payment charges actually collected in respect of any defaulted Mortgage Loan,
interest accrued on outstanding Advances made in respect thereof will result in
a reduction in amounts payable on the Certificates.]
[In addition to the foregoing, the Trustee will be required to advance, to
the extent known to it, any amounts collected on or in respect of the Mortgage
Pool that the Master Servicer is required but fails to remit to the Trustee for
distribution to Certificateholders by a specified time on or about the related
Distribution Date. The Trustee will be entitled to interest accrued on the
amount of such advance for so long as it is outstanding at the Reimbursement
Rate.]
[Appraisal Reductions]
[Promptly (and, in any event, within 60 days) following the earliest of (i)
the date on which any Mortgage Loan becomes a Modified Mortgage Loan (as defined
below), (ii) the 60th day (or, in the case of a Modified Mortgage Loan, the 30th
day) after the occurrence of any uncured delinquency in Monthly Payments with
respect to any Mortgage Loan, (iii) the date on which a receiver is appointed
and continues in such capacity in respect of the Mortgaged Property securing any
Mortgage Loan and (iv) the date on which the Mortgaged Property securing any
Mortgage Loan becomes an REO Property (each such Mortgage Loan, a "Required
Appraisal Loan"), the Special Servicer will be required to obtain an appraisal
of the related Mortgaged Property from an independent MAI-designated appraiser,
unless such an appraisal had previously been obtained within the prior twelve
months. The cost of such appraisal will be a Servicing Advance. As a result of
any such appraisal, it may be determined that an "Appraisal Reduction Amount"
exists with respect to the related Required Appraisal Loan. The Appraisal
Reduction Amount for any Required Appraisal Loan will, in general, be an amount,
determined as of the Determination Date immediately succeeding the date on which
the related appraisal is obtained (or, if based on an earlier appraisal, as of
the Determination Date immediately succeeding the earliest of the relevant dates
described in the first sentence of this paragraph), equal to the excess, if any,
of (a) the sum of (i) the Stated Principal Balance of such Required Appraisal
Loan, (ii) to the extent not previously advanced by the Master Servicer or the
Trustee, all unpaid interest on the Required Appraisal Loan through the most
recent Due Date prior to such Determination Date at a per annum rate equal to
the sum of the related Net Mortgage Rate and the Trustee Fee Rate (as defined
below), (iii) all accrued but unpaid Master Servicing Fees, Property Servicing
Fees and Special Servicing Fees in respect of such Required Appraisal Loan, (iv)
all related unreimbursed Advances made by or on behalf of the Master Servicer,
the Special Servicer or the Trustee with respect to such Required Appraisal Loan
plus interest accrued thereon at the Reimbursement Rate and (v) all currently
due and unpaid real estate taxes and assessments, insurance premiums, and, if
applicable, ground rents in respect of the related Mortgaged Property or REO
Property (net of any escrow reserves held by the Master Servicer or the Special
Servicer with respect to any such item), over (b) 90% of the appraised value (as
is) of the related Mortgaged Property or REO Property as determined by such
appraisal (net of any mortgage liens that are prior to the lien of such Mortgage
Loan).
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With respect to each Required Appraisal Loan (unless such Mortgage Loan has
become a Corrected Mortgage Loan and has remained current for twelve consecutive
Monthly Payments, and no other Servicing Transfer Event has occurred with
respect thereto during the preceding twelve months), the Special Servicer is
required, within 30 days of each anniversary of such loan's becoming a Required
Appraisal Loan, to order an update of the prior appraisal (the cost of which
will be a Servicing Advance). Based upon such appraisal, the Special Servicer
will be required to redetermine and report to the Trustee the Appraisal
Reduction Amount, if any, with respect to such Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special Servicer
in a manner that: (A) affects the amount or timing of any payment of principal
or interest due thereon (other than, or in addition to, bringing current Monthly
Payments with respect to such Mortgage Loan); (B) except as expressly
contemplated by the related Mortgage, results in a release of the lien of the
Mortgage on any material portion of the related Mortgaged Property without a
corresponding Principal Prepayment in an amount not less than the fair market
value (as is) of the property to be released; or (C) in the reasonable good
faith judgment of the Special Servicer, otherwise materially impairs the
security for such Mortgage Loan or reduces the likelihood of timely payment of
amounts due thereon.]
Reports to Certificateholders; Certain Available Information
[Trustee Reports; Special Servicer Reports. Based on information provided
in monthly reports prepared by the Master Servicer and the Special Servicer and
delivered to the Trustee, the Trustee will prepare and forward on each
Distribution Date to each Certificateholder a statement (the "Trustee Report")
substantially in the form of Annex ___ hereto, detailing the distributions on
such Distribution Date and the performance, both in the aggregate and
individually to the extent available, of the Mortgage Loans and Mortgaged
Properties. [Investors and any other interested party may obtain Trustee Reports
via the Trustee's electronic bulletin board by dialing ___________ and selecting
the applicable statement. In addition, investors and other interested parties
who have obtained approval from the Depositor, confirmation of which approval
has been furnished to the Trustee, may obtain certain Mortgage Loan Information
via the Trustee's restricted electronic bulletin board by contacting the Trustee
at ____________.]
With respect to each Determination Date, the Special Servicer will be
required to prepare a report (the "Special Servicer Report") generally
containing the information described in Annex __ hereto with respect to
Specially Serviced Mortgage Loans. The Special Servicer Reports will be
delivered to the Trustee and the Master Servicer, and the Trustee will
distribute such reports to the Certificateholders.
Until such time as Definitive Certificates are issued in respect of the
Offered Certificates, the foregoing information will be available to the
Certificate Owners through DTC and the DTC Participants. Any Certificate Owner
of a Book-Entry Certificate who does not receive information through DTC or the
DTC Participants may request that Trustee Reports, Special Servicer Reports and
accompanying documentation be mailed directly to it (at its cost) by written
request (accompanied by verification of such Certificate Owner's ownership
interest) to the Trustee at the Trustee's corporate trust office primarily
responsible for administering the Trust Fund (the "Corporate Trust Office"). The
manner in which notices and other communications are conveyed by DTC to DTC
Participants, and by DTC Participants to the Certificate Owners of Book-Entry
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. The
Master Servicer, the Special Servicer, the Trustee, the REMIC Administrator and
the Depositor are required to recognize as Certificateholders only those persons
in whose names the Certificates are registered on the books and records of the
Certificate Registrar.
Other Information. [The Pooling Agreement requires that the [Trustee make
available at its Corporate Trust Office], during normal business hours, upon
reasonable advance written notice, for review by any holder or Certificate Owner
of an Offered Certificate or any person identified to the Trustee by any such
holder or Certificate Owner as a prospective transferee of an Offered
Certificate or any interest therein, subject to the discussion in the following
paragraph, originals or copies of, among other things, the following items: (a)
the Pooling Agreement and any amendments thereto, (b) all Trustee Reports and
Special Servicer Reports delivered to holders of the relevant Class of Offered
Certificates since the Closing Date, (c) all officer's certificates delivered to
the Trustee by the Master Servicer and/or Special Servicer since the Closing
Date as described under "Description of the Pooling Agreements--Evidence as to
Compliance" in the Prospectus, (d)
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all accountant's reports delivered to the Trustee in respect of the Master
Servicer and/or Special Servicer since the Closing Date as described under
"Description of the Pooling Agreements--Evidence as to Compliance" in the
Prospectus, and (e) [other available items to be specified]. Copies of any and
all of the foregoing items will be available from the [Trustee] upon request;
however, the [Trustee] will be permitted to require payment of a sum sufficient
to cover the reasonable costs and expenses of providing such services.]
[The Trustee will make available, upon reasonable advance written notice
and at the expense of the requesting party, originals or copies of the items
referred to in the prior paragraph that are maintained thereby, to
Certificateholders, Certificate Owners and prospective purchasers of
Certificates and interests therein; provided that the Trustee may require (a) in
the case of a Certificate Owner of an Offered Certificate, a written
confirmation executed by the requesting person or entity, in a form reasonably
acceptable to the Trustee, generally to the effect that such person or entity is
a beneficial owner of Offered Certificates, is requesting the information for
use by it or another party in evaluating an investment in the Offered
Certificates and will otherwise keep such information confidential and (b) in
the case of a prospective purchaser of an Offered Certificate, confirmation
executed by the requesting person or entity, in a form reasonably acceptable to
the Trustee, generally to the effect that such person or entity is a prospective
purchaser of Offered Certificates or an interest therein, is requesting the
information for use in evaluating a possible investment in the Offered
Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep such information confidential.]
Voting Rights
[At all times during the term of the Pooling Agreement, ___% of the voting
rights for the series offered hereby (the "Voting Rights") will be allocated
among the holders of the respective Classes of Sequential Pay Certificates in
proportion to the Class Principal Balances of their Certificates, __% of the
Voting Rights will be allocated to the holders of the Class S Certificates, and
all Voting Rights not otherwise allocated in the aforesaid manner will be
allocated equally by Class among the holders of the respective Classes of REMIC
Residual Certificates. Voting Rights allocated to a Class of Certificateholders
will be allocated among such Certificateholders in proportion to the Percentage
Interests in such Class evidenced by their respective Certificates.]
Termination
[The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or related REO Property remaining in the
Trust Fund, and (ii) the purchase of all of the Mortgage Loans and REO
Properties remaining in the Trust Fund by the Special Servicer or the Master
Servicer. Written notice of termination of the Pooling Agreement will be given
to each Certificateholder, and the final distribution with respect to each
Certificate will be made only upon surrender and cancellation of such
Certificate at the office of the Certificate Registrar or at such other location
specified in such notice of termination.
Any such purchase by the Special Servicer or the Master Servicer of all of
the Mortgage Loans and REO Properties remaining in the Trust Fund is required to
be made at a price generally equal to (a) the sum of (i) the aggregate Purchase
Price of all of the Mortgage Loans then included in the Trust Fund (other than
the Mortgage Loans as to which the related Mortgaged Property has become an REO
Property) and (ii) the fair market value of all REO Properties then included in
the Trust Fund, as determined by an appraiser mutually agreed upon by the Master
Servicer and the Trustee, minus (b) the aggregate of all amounts payable or
reimbursable to the party effecting the purchase under the Pooling Agreement.
Such purchase will effect early retirement of the then outstanding Certificates,
but the right of the Special Servicer or the Master Servicer to effect such
termination is subject to the requirement that the then aggregate Stated
Principal Balance of the Mortgage Pool be less than __% of the Initial Pool
Balance. The purchase price paid by the Special Servicer or the Master Servicer,
exclusive of any portion thereof payable or reimbursable (as if such amount
constituted Liquidation Proceeds) to the Trustee, the Special Servicer or the
Master Servicer, as applicable, or otherwise to cover Additional Trust Fund
Expenses, will constitute part of the Available Distribution Amount for the
final Distribution Date.
The Available Distribution Amount for the final Distribution Date will be
distributed by the Trustee generally as described herein under
"--Distributions--Application of the Available Distribution Amount",
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except that the distributions of principal on any Class of Sequential Pay
Certificates described thereunder will be made, subject to available funds, up
to an amount equal to the entire Class Principal Balance thereof remaining
outstanding. In addition, distributions of principal made on the Class A-1A and
A-1B Certificates on the final Distribution Date will be allocated between such
two Classes of Certificates, pro rata, in accordance with their respective Class
Principal Balances outstanding immediately prior to such Distribution Date.]
The Trustee
______________________________________________ will be the Trustee under
the Pooling Agreement. The Trustee is at all times to be, and will be required
to resign if it fails to be, [specify eligibility requirements for Trustee].
The Depositor, the Master Servicer, the Special Servicer and their
respective affiliates may from time to time enter into normal banking and
trustee relationships with the Trustee and its affiliates. The Trustee and any
of its respective affiliates may hold Certificates in their own names. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Master Servicer and the Trustee acting jointly shall have the
power to appoint a co-trustee or separate trustees of all or any part of the
Trust Fund. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
[Pursuant to the Pooling Agreement, the Trustee will be entitled to receive
a monthly fee (the "Trustee Fee") generally equal to one month's interest in
respect of each Mortgage Loan (including each Mortgage Loan as to which the
related Mortgaged Property became an REO Property) accrued at _______% per annum
(the "Trustee Fee Rate") on the unpaid principal balance of such Mortgage Loan
from time to time.] See also "Description of the Pooling Agreements--The
Trustee", "--Duties of the Trustee", "--Certain Matters Regarding the Trustee"
and "--Resignation and Removal of the Trustee" in the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (i) the Pass-Through Rate for such Certificate, (ii) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on the Mortgage Loans and the extent to which such amounts are to be
applied or otherwise result in reduction of the Certificate Principal Balance or
Certificate Notional Amount of such Certificate, (iii) the rate, timing and
severity of Realized Losses and Additional Trust Fund Expenses and the extent to
which such losses and shortfalls are allocable in reduction of the Certificate
Principal Balance or Certificate Notional Amount of such Certificate, and (iv)
the timing and severity of any Net Aggregate Prepayment Interest Shortfalls and
the extent to which such shortfalls are allocable in reduction of the
Distributable Certificate Interest payable on such Certificate.
Pass-Through Rates. [The Pass-Through Rate applicable to the Class S
Certificates will be variable and, with respect to any Distribution Date, will
be calculated based on the Weighted Average Net Mortgage Rate for such date.
Accordingly, the yield on such Certificates will be sensitive to changes in the
relative composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Mortgage Loans following default. In
addition, the Pass-Through Rate for the Class S Certificates will vary with
changes in the relative sizes of the Class Principal Balances of the respective
Classes of Sequential Pay Certificates. See "Description of the
Certificates--Pass-Through Rates" and "Description of the Mortgage Pool" herein
and "--Yield Consideration--Rate and Timing of Principal Payments" below.]
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Rate and Timing of Principal Payments. The yield to holders of the Class S
Certificates will be extremely sensitive to, and the yield to holders of any
other Offered Certificates purchased at a discount or premium will be affected
by, the rate and timing of principal payments made in reduction of the
Certificate Principal Balances or Certificate Notional Amounts of such
Certificates. As described herein, the Principal Distribution Amount for each
Distribution Date will be distributable entirely in respect of the Class A-1A
and/or Class A-1B Certificates until the Class Principal Balances thereof are
reduced to zero, and will thereafter be distributable entirely in respect of the
Class A-2 Certificates, the Class A-3 Certificates, the Class B-1 Certificates,
the Class B-2 Certificates, the Class B-3 Certificates, the Class B-4
Certificates and the Class C Certificates, in that order, in each case until the
Class Principal Balance of such Class of Certificates is reduced to zero. In
addition, except under the limited circumstances described herein, holders of
the Class A-1B Certificates will not receive any distributions of principal for
so long as the Class A-1A Certificates are outstanding. Any such distributions
of principal in respect of the Sequential Pay Certificates will cause a
corresponding reduction of the Class Notional Amount of the Class S
Certificates. Consequently, the rate and timing of principal payments that are
distributed or otherwise result in reduction of the Class Principal Balance or
Class Notional Amount, as the case may be, of each Class of REMIC Regular
Certificates will be directly related to the rate and timing of principal
payments on or in respect of the Mortgage Loans, which will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Fund). Prepayments and, assuming the respective Maturity Dates therefor
have not occurred, liquidations of the Mortgage Loans will result in
distributions on the Sequential Pay Certificates of amounts that would otherwise
be distributed over the remaining terms of the Mortgage Loans and will tend to
shorten the weighted average lives of those Certificates. Defaults on the
Mortgage Loans, particularly at or near their Maturity Dates, may result in
significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Sequential Pay Certificates) while work-outs are negotiated
or foreclosures are completed, and such delays will tend to lengthen the
weighted average lives of those Certificates. See "Servicing of the Mortgage
Loans--Modifications, Waivers and Amendments" herein.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
or otherwise result in a reduction of the Class Principal Balance or Class
Notional Amount of such Certificates. An investor should consider, in the case
of any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of any Class S Certificate or any other Offered Certificate purchased
at a premium, the risk that a faster than anticipated rate of principal payments
on the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield. In general, the earlier a payment of principal
on the Mortgage Loans is distributed or otherwise results in reduction of the
Certificate Notional Amount of a Class S Certificate or the Certificate
Principal Balance of a Sequential Pay Certificate purchased at a discount or
premium, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments on the Mortgage
Loans occurring at a rate higher (or lower) than the rate anticipated by the
investor during any particular period would not be fully offset by a subsequent
like reduction (or increase) in the rate of such principal payments. Investors
in the Class S Certificates should fully consider the risk that an extremely
rapid rate of principal payments on the Mortgage Loans could result in the
failure of such investors to fully recoup their initial investments. Because the
rate of principal payments on the Mortgage Loans will depend on future events
and a variety of factors (as described more fully below), no assurance can be
given as to such rate or the rate of principal prepayments in particular. The
Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be applied to reduce the Class
Principal Balances of the Sequential Pay Certificates in the following order:
first, to the Class C Certificates until the Class Principal Balance thereof has
been reduced
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to zero; then to the respective Classes of Class B Certificates, in descending
numerical order of the numerical portions of their respective Class
designations, until the remaining Class Principal Balance of each such Class of
Certificates has been reduced to zero; then to the Class A-3 and Class A-2
Certificates, in that order, until the remaining Class Principal Balance of each
such Class of Certificates has been reduced to zero; and finally to the Class
A-1A and Class A-1B Certificates, pro rata in accordance with their respective
remaining Class Principal Balances, until the remaining Class Principal Balance
of each such Class of Certificates is reduced to zero. Any Realized Losses or
Additional Trust Fund Expenses so allocated to the Sequential Pay Certificates
will cause a corresponding reduction of the Class Notional Amount of the Class S
Certificates. As described herein, any Net Aggregate Prepayment Interest
Shortfalls will be allocated among the respective Classes of Offered Regular
Certificates pro rata based on Accrued Certificate Interest.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, provisions requiring Lockout Periods,
provisions requiring the payment of Prepayment Premiums and/or Yield Maintenance
Premiums and amortization terms that require Balloon Payments), the demographics
and relative economic vitality of the areas in which the Mortgaged Properties
are located and the general supply and demand for rental units or comparable
commercial space, as applicable, in such areas, the quality of management of the
Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in
tax laws and other opportunities for investment. See "Risk Factors" herein and
in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a Mortgage
Rate, the related Mortgagor has an incentive to refinance its Mortgage Loan. A
requirement that a prepayment be accompanied by a Prepayment Premium or Yield
Maintenance Premium may not provide a sufficient economic disincentive to deter
a Mortgagor from refinancing at a more favorable interest rate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some Mortgagors may sell or
refinance Mortgaged Properties in order to realize their equity therein, to meet
cash flow needs or to make other investments. In addition, some Mortgagors may
be motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions-- Application of the Available Distribution
Amount" herein, if the portion of the Available Distribution Amount
distributable in respect of interest on any Class of Offered Certificates on any
Distribution Date is less than the Distributable Certificate Interest then
payable for such Class, the shortfall will be distributable to holders of such
Class of Certificates on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Certificates
for so long as it is outstanding.
Weighted Average Life
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of each dollar distributed in reduction of principal of such security
(assuming no losses). The weighted average life of any Offered Certificate will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
Balloon Payments, prepayments or liquidations and any extensions or
modifications made by the Special Servicer with respect to Specially Serviced
Mortgage Loans as described herein. The weighted average life of any Offered
Certificate may also be affected to the extent that additional distributions in
reduction of the Certificate Principal Balance of such Certificate occur as a
result of the purchase of a Mortgage Loan out of the Trust Fund or the optional
termination of the Trust Fund as described under
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"Description of the Certificates--Termination" herein. Such a purchase from the
Trust Fund will have the same effect on distributions to the holders of
Certificates as if the related Mortgage Loan(s) had prepaid in full, except that
no Yield Maintenance Premiums or Prepayment Premiums are made in respect
thereof.
[The table set forth below has been prepared on the basis of the following
assumptions (the "Modeling Assumptions") regarding the characteristics of the
Certificates and the Mortgage Loans and the performance thereof: (i) as of the
date of issuance of the Certificates, the Mortgage Loans have the terms as
identified in the tables titled [identify tables]; (ii) the monthly cash flow of
each Mortgage Loan (except for the Balloon Payment) is a monthly payment of
principal and interest calculated based upon [specify applicable information],
and no Mortgage Loan is voluntarily prepaid; (iii) no Mortgage Loan is
repurchased as a result of a material breach of a representation or warranty,
and the Master Servicer does not exercise its option to purchase the Mortgage
Loans and thereby cause a termination of the Trust Fund; (iv) there are no
delinquencies or Realized Losses on the Mortgage Loans, and there is no
extension of the Maturity Date of any Mortgage Loan; (v) all Mortgage Loans
accrue interest on the basis of a 360-day year consisting of twelve 30-day
months; (vi) payments on the Certificates will be made on the __th day of each
month, commencing in ________ 199_; (vii) payments on the Mortgage Loans earn no
reinvestment return; (viii) there are no additional ongoing Trust Fund expenses
payable out of the Trust Fund other than the Master Servicing Fee, the Property
Servicing Fee and the Trustee Fee, and there are no Additional Trust Fund
Expenses; (ix) the respective Classes of Offered Certificates will be issued
with the initial Class Principal Balances set forth in the table on the cover
page hereof; (x) the Offered Certificates will be settled on __________, 199_
(the "Assumed Settlement Date"); and (xi) there are no Prepayment Premiums or
Yield Maintenance Premiums paid to Certificateholders.]
The actual characteristics and performance of the Mortgage Loans will
differ from the Modeling Assumptions used in calculating the table set forth
below, which is hypothetical in nature and is provided only to give a general
sense of how the principal cash flows might behave under the assumed prepayment
and loss scenario. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentages of initial Class Principal Balances
outstanding over time and the weighted average lives of the respective Classes
of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each Class of the Offered Certificates
that are Sequential Pay Certificates, and sets forth the percentages of the
initial Class Principal Balance of each such Class that would be outstanding
after each of the Distribution Dates shown.
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Percent of Initial Class Principal Balances Outstanding
Class Class Class Class Class
Date A-1A A-1B A-2 A-3 B-1
---- ---- ---- --- --- ---
Closing Date............. ___% ___% ___% ___% ___%
___________, 1998........ ___% ___% ___% ___% ___%
___________, 1999........ ___% ___% ___% ___% ___%
___________, 2000........ ___% ___% ___% ___% ___%
___________, 2001........ ___% ___% ___% ___% ___%
___________, 2002........ ___% ___% ___% ___% ___%
___________, 2003........ ___% ___% ___% ___% ___%
___________, 2004........ ___% ___% ___% ___% ___%
___________, 2005........ ___% ___% ___% ___% ___%
___________, 2006........ ___% ___% ___% ___% ___%
___________, 2007........ ___% ___% ___% ___% ___%
___________, 2008........ ___% ___% ___% ___% ___%
___________, 2009........ ___% ___% ___% ___% ___%
___________, 2010........ ___% ___% ___% ___% ___%
___________, 2011........ ___% ___% ___% ___% ___%
___________, 2012........ ___% ___% ___% ___% ___%
___________, 2013........ ___% ___% ___% ___% ___%
___________, 2014........ ___% ___% ___% ___% ___%
___________, 2015........ ___% ___% ___% ___% ___%
___________, 2016........ ___% ___% ___% ___% ___%
___________, 2017........ ___% ___% ___% ___% ___%
Weighted Average Life (years ____ ____ ____ ____ ____
For purposes of the foregoing table, the weighted average life of an
Offered Certificate is determined by (i) multiplying the amount of each
principal distribution thereon by the number of years from [the Assumed
Settlement Date] to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the reductions in the
Certificate Principal Balance of such Offered Certificate.
Special Yield Considerations for the Class S Certificates
The following table indicates the approximate pre-tax yield to maturity (on
a corporate bond equivalent basis) on the Class S Certificates for the assumed
purchase prices indicated in such table. The following table is based on (i) the
Modeling Assumptions; (ii) the assumption that the initial Class Notional Amount
of the Class S Certificates is $__________; and (iii) the assumption that the
purchase price of the Class S Certificates is equal to the indicated percentage
of the initial Class Notional Amount of such Certificates[, plus accrued
interest from the Cut-off Date to but not including the Assumed Settlement
Date].
Pre-Tax Yields to Maturity for the Class S Certificates
Assumed Purchase Price Yield
---------------------- -----
____% ____%
____% ____%
____% ____%
Each pre-tax yield set forth in the preceding table was calculated by
determining the monthly discount rate which, when applied to the assumed stream
of cash flows to be paid on the Class S Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price listed in the relevant table as stated plus accrued interest. 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 their Class S
Certificates, and thus do not reflect the return on any investment in such
Certificates when any reinvestment rates other than the discount rates are
considered.
There can be no assurance that the Mortgage Loans will not be prepaid or,
if prepaid, will be prepaid at any particular rate or that the yield on the
Class S Certificates will conform to any of the yields described
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herein. Investors are urged to make their investment decisions based on their
own determinations as to anticipated rates of principal payments on the Mortgage
Loans under a variety of scenarios. The yield to maturity of the Class S
Certificates will be especially sensitive to the rate and timing of principal
payments on and/or other liquidations of the Mortgage Loans. Prospective
investors in the Class S Certificates should fully consider the associated
risks, including the risk that such investors may not recover their initial
investment due to the rate and timing of prepayments on and/or other
liquidations of the Mortgage Loans. No prediction can be made as to the actual
rate and timing of principal payments and/or liquidations of the Mortgage Loans,
or how such prepayments and/or losses may affect the Class Notional Amount of
the Class S Certificates. See "Risk Factors--Special Prepayment and Yield
Considerations" and "Description of the Mortgage Pool" herein and "Risk
Factors--Effect of Prepayments on Average Life of Certificates" and "--Effects
of Prepayments on Yield of Certificates" in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the Offered Certificates, Sidley & Austin, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling Agreement (and subject to certain
other assumptions set forth therein), for federal income tax purposes, the
portions of the Trust Fund designated in the Pooling Agreement as "REMIC I,
"REMIC II" and "REMIC III", respectively, will each qualify as a REMIC under the
Code. For federal income tax purposes, (a) the Class R-I Certificates will be
the sole class of "residual interests" in REMIC I, (b) the separate
non-certificated regular interests in REMIC I will be the "regular interests" in
REMIC I and will constitute the assets of "REMIC II", (c) the Class R-II
Certificates will be the sole class of "residual interests" in REMIC II, (d) the
separate non-certificated regular interests in REMIC II will be the "regular
interests" in REMIC II and will constitute the assets of "REMIC III", (e) the
REMIC Regular Certificates will evidence the "regular interests" in, and
generally will be treated as debt instruments of, REMIC III, and (f) the Class
R-III Certificates will be the sole class of "residual interests" in REMIC III.
See "Certain Federal Income Tax Consequences" in the Prospectus.
Discount and Premium; Prepayment Premiums
[For federal income tax reporting purposes, it is anticipated that the
Class S Certificates will, and the other Offered Certificates will not, be
treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of market
discount and premium, if any, for federal income tax purposes will be based on
the assumption that subsequent to the date of any determination the Mortgage
Loans will not prepay (that is, a CPR of 0%), and there will be no extensions of
maturity for any Mortgage Loan. However, no representation is made that the
Mortgage Loans will not prepay or that, if they do, they will prepay at any
particular rate. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates" in the Prospectus.]
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Offered Certificates should be aware that the OID Regulations and Section
1272(a)(6) of the Code do not adequately address certain issues relevant to, or
are not applicable to, prepayable securities such as the Offered Certificates.
Prospective purchasers of the Offered Certificates are advised to consult their
tax advisors concerning the tax treatment of such Certificates.
Certain Classes of 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 Classes 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--Premium"
in the Prospectus.
Prepayment Premiums and Yield Maintenance Premiums actually collected on
the Mortgage Loans will be distributed to the holders of each Class of
Certificates entitled thereto as described herein. It is not
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entirely clear under the Code when the amount of a Prepayment Premium or Yield
Maintenance Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium or Yield Maintenance Premium. For federal
income tax reporting purposes, Prepayment Premiums or Yield Maintenance Premiums
will be treated as income to the holders of a Class of Certificates entitled to
Prepayment Premiums or Yield Maintenance Premiums, as applicable, only after the
Master Servicer's actual receipt of a Prepayment Premium or Yield Maintenance
Premium as to which such Class of Certificates is entitled under the terms of
the Pooling Agreement. It appears that Prepayment Premiums and Yield Maintenance
Premiums are to be treated as ordinary income rather than capital gain. However,
the correct characterization of such income is not entirely clear and
Certificateholders should consult their own tax advisors concerning the
treatment of Prepayment Premiums and Yield Maintenance Premiums.
Characterization of Investments in Offered Certificates
[The Offered Certificates will be "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code in the same proportion that the assets of
the Trust Fund would be so treated. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates will be "qualified mortgages" under
Section 860G(a)(3) of the Code if transferred to another REMIC on its start-up
day in exchange for regular or residual interests therein.]
[The Offered Certificates will be treated as assets within the meaning of
Section 7701(a)(19)(C) of the Code generally only to the extent that the related
Mortgage Loans are secured by multifamily properties and health care facilities.
The percentage of such Mortgage Loans included in the initial principal balance
of the Mortgage Pool (which is subject to change due to changes in principal
balances and prepayments) is initially approximately ___%. See "Description of
the Mortgage Pool" herein and "Certain Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the Prospectus.]
Possible Taxes on Income from Foreclosure Property and Other Taxes
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust Fund's net after-tax proceeds
from such property. After the Special Servicer reviews the operation of such
property and consults with the REMIC Administrator to determine the Trust Fund's
federal income tax reporting position with respect to income it is anticipated
that the Trust Fund would derive from such property, the Special Servicer could
determine that it would not be commercially feasible to manage and operate such
property in a manner that would avoid the imposition of a tax on "net income
from foreclosure property" within the meaning of the REMIC Regulations or a tax
on "prohibited transactions" under Section 860F of the Code (either such tax
referred to herein as an "REO Tax"). To the extent that income the Trust Fund
receives from an REO Property is subject to a tax on (i) "net income from
foreclosure property", such income would be subject to federal tax at the
highest marginal corporate tax rate (currently 35%) and (ii) "prohibited
transactions", such income would be subject to federal tax at a 100% rate. The
determination as to whether income from an REO Property would be subject to an
REO Tax will depend on the specific facts and circumstances relating to the
management and operation of each REO Property. Generally, income from an REO
Property that is directly operated by the Special Servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
such income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions", and the
"non-service" portion of such income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to the "prohibited transactions". Any REO Tax imposed on
the Trust Fund's income from an REO Property would reduce the amount available
for distribution to Certificateholders. Certificateholders are advised to
consult their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
To the extent permitted by then applicable laws, any Prohibited
Transactions Tax, Contributions Tax (each as defined in the Prospectus) or tax
on "net income from foreclosure property" that may be imposed on REMIC I, REMIC
II or REMIC III will be borne by the REMIC Administrator, the Trustee, the
Master Servicer or the Special Servicer, in any case out of its own funds,
provided that such person has sufficient assets to do so, and provided further
that such tax arises out of a breach of such person's obligations under the
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Pooling Agreement and in respect of compliance with applicable laws and
regulations. Any such tax not borne by the REMIC Administrator, the Trustee, the
Master Servicer or the Special Servicer will be charged against the Trust Fund
resulting in a reduction in amounts available for distribution to the
Certificateholders. See "Certain Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
Reporting and other Administrative Matters
Reporting of interest income, including any original issue discount, if
any, with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Certificates and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. [Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.]
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided.
The "tax matters person" for each REMIC will be the holder of REMIC
Residual Certificates evidencing the largest percentage interest in its Class of
REMIC Residual Certificates. All holders of REMIC Residual Certificates will
irrevocably designate the REMIC Administrator as agent for such "tax matters
person" in all respects.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement
dated _____________, 199_ (the "Underwriting Agreement") between the Depositor
and the Underwriter, the Underwriter has agreed to purchase and the Depositor
has agreed to sell to the Underwriter each Class of the Offered Certificates. It
is expected that delivery of the Offered Certificates will be made only in
book-entry form through the Same Day Funds Settlement System of DTC on or about
_____________, 199__, against payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Offered Certificates is subject to, among
other things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately ____% of the aggregate Class
Certificate Balances of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
the Offered Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Offered Certificates, the Underwriter may be deemed to have received
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compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act or
contribute to payments required to be made in respect thereof.
The Depositor has also been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Certificates; however, the
Underwriter 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. See "Risk Factors--Limited Liquidity" herein
and "Risk Factors--Limited Liquidity of Offered Certificates" in the Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates with respect to which the Underwriter acts as principal.
The Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Underwriter by ________________. Certain federal income tax matters and
other legal matters will be passed upon for the Depositor by Sidley & Austin.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to ERISA, or Section 4975 of the Code (each, a "Plan")
should review with its legal advisors whether the purchase or holding of Offered
Certificates could give rise to a transaction that is prohibited or is not
otherwise permitted either under ERISA or Section 4975 of the Code or whether
there exists any statutory or administrative exemption applicable thereto.
[The DOL issued an individual administrative exemption, Prohibited
Transaction Exemption ____ (the "Exemption"), to the Underwriter, 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 Section 4975 (a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of mortgage
pools and the purchase, sale and holding of mortgage pass-through certificates
underwritten or placed by (i) the Underwriter, (ii) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the Underwriter and (iii) any member of an
underwriting syndicate or selling group of which the Underwriter or a person
described in (ii) is a manager or co-manager, provided that certain conditions
set forth in the Exemption are satisfied (each such person, an
"Exemption-Favored Party").
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Offered Certificates
to be eligible for exemptive relief thereunder. First, the acquisition of
Offered Certificates by a Plan must be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party. Second, the Exemption only applies to Offered Certificates evidencing
rights and interests not subordinated to the rights and interests evidenced by
the other Certificates of the same series. Third, the 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 ("S&P"), Duff &
Phelps Credit Rating Co. ("DCR"), Moody's Investors Service, Inc. ("Moody's") or
Fitch Investors Service, Inc. ("Fitch"). Fourth, the Trustee cannot be an
affiliate of any other member of the "Restricted Group", which (in addition to
the Trustee) consists of any Exemption-Favored Party, the Depositor, the Master
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Servicer, the Special Servicer, the Mortgage Loan Seller, any Sub-Servicer, the
provider of any credit support, 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 the Offered Certificates,
and any affiliates of the foregoing parties. Fifth, the sum of all payments made
to and retained by the Exemption-Favored Parties in connection with the sale of
Offered Certificates must represent not more than reasonable compensation for
underwriting or placing such 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 Sub-Servicer must represent not more than
reasonable compensation for such person's services under the Pooling Agreement
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 Commission under the Securities Act.
Because the Senior Certificates are not subordinated to any other Class of
Offered Certificates, the second general condition set forth above is satisfied
with respect to such Certificates. It is a condition of their issuance that the
Class A-1A and Class A-1B Certificates be rated not lower than ____ by each of
_______ and ________ and that the Class S Certificates be rated not lower than
____ by ________. As of the Closing Date, the fourth general condition set forth
above will be satisfied with respect to the Senior Certificates. A fiduciary of
a Plan contemplating purchasing a Senior Certificate in the secondary market
must make its own determination that, at the time of such purchase, such
Certificate continues to satisfy the second, third and fourth general conditions
set forth above. In addition, a fiduciary of a Plan contemplating the purchase
of a Senior Certificate, whether in the initial issuance of such Certificate or
in the secondary market, must make its own determination that the first, fifth
and sixth general conditions set forth above will be satisfied with respect to
such Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest generic
categories of S&P, Moody's, DCR or Fitch for at least one year prior to the
Plan's acquisition of Senior Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Senior Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of Senior
Certificates acquired by a Plan upon initial issuance from the Depositor or an
Exemption-Favored Party when the Depositor, Seller, Master Servicer, Special
Servicer, Trustee, Mortgage Loan Seller, Sub-Servicer, provider of credit
support, Exemption-Favored Party or mortgagor is a Party in Interest with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of Senior Certificates by a Plan and (iii)
the holding of Senior Certificates by a Plan. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Senior Certificate on behalf of an "Excluded
Plan" (as defined in the following sentence) by any person who has discretionary
authority or renders investment advice with respect to the assets of such
Excluded Plan. For purposes hereof, an Excluded Plan is a Plan sponsored by any
member of the Restricted Group.
Moreover, if the general conditions of the Exemption, as well as certain
other conditions set forth in the Exemption, are satisfied, the Exemption may
also provide an exemption from the restrictions imposed by Sections 406(b)(1)
and (b)(2) of ERISA and the taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Section 4975(c)(1)(E) of the Code in connection with (i) the
direct or indirect sale, exchange or transfer of Senior Certificates in the
initial issuance of Senior Certificates between the Depositor or an
Exemption-Favored Party and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Mortgage Loans or (b) an affiliate of such a person,
(ii) the direct or indirect acquisition or disposition in the secondary market
of Senior Certificates by a Plan and (iii) the holding of Senior Certificates by
a Plan.
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Further, if the general conditions of the Exemption, as well as certain
other conditions set forth in the Exemption, are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a), 406(b)
and 407(a) of ERISA, and the taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Section 4975(c) of the Code for transactions in connection
with the servicing, management and operation of the Trust Fund.
Lastly, if the general conditions of the Exemption are satisfied, the
Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a Party in Interest with respect to an investing Plan by virtue of
providing services to the Plan (or by virtue of having certain specified
relationships to such a person) solely as a result of the Plan's ownership of
Senior Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm (i) that the Senior Certificates constitute "certificates" for purposes
of the Exemption and (ii) that the general and other conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied at the time of such purchase.
In addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the Plan fiduciary considering an
investment in Offered Certificates should consider the availability of any other
prohibited transaction exemptions. See "ERISA Considerations" in the Prospectus.
There can be no assurance that any such class exemptions will apply with respect
to any particular Plan investment in Offered Certificates or, even if it were
deemed to apply, that any exemption would apply to all prohibited transactions
that may occur in connection with such investment. A purchaser of Offered
Certificates should be aware, however, that even if the conditions specified in
one or more exemptions are satisfied, the scope of relief provided by an
exemption may not cover all acts which might be construed as prohibited
transactions.
Because the characteristics of the Class A-2, Class A-3 and Class B-1
Certificates do not meet the requirements of the Exemption, the purchase or
holding of such Certificates by a Plan may result in a prohibited transaction or
the imposition of excise taxes or civil penalties. As a result, no transfer of a
Class A-2, Class A-3 or Class B-1 Certificate or any interest therein may be
made to a Plan or to any person who is directly or indirectly purchasing such
Certificate or interest therein on behalf of, as named fiduciary of, as trustee
of, or with assets of a Plan unless the purchase and holding of such Certificate
or interest therein is exempt from the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code under Sections I and III of
Prohibited Transaction Class Exemption 95-60, which provides an exemption from
the prohibited transaction rules for certain transactions involving an insurance
company general account. Any person to whom a transfer of any such Certificate
or interest therein is made shall be deemed to have represented to the
Depositor, the Underwriter, the Master Servicer, the Special Servicer and the
Trustee that either (i) it is not a Plan and is not directly or indirectly
purchasing such Certificate or interest therein on behalf of, as named fiduciary
of, as trustee of, or with assets of a Plan or (ii) the purchase and holding of
such Certificate or interest therein is so exempt on the basis of Prohibited
Transaction Class Exemption 95-60.]
Any Plan fiduciary considering whether to purchase an Offered 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.
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LEGAL INVESTMENT
[The Offered Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered Certificates,
is subject to significant interpretive uncertainties. The Depositor makes no
representation as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment or other restrictions. All
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Offered Certificates constitute legal investments for
them or are subject to investment, capital or other restrictions.]
All depository institutions considering an investment in the Offered
Certificates should review the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on the Selection of Securities Dealers
and Unsuitable Investment Practices (to the extent adopted by their respective
regulatory authorities), setting forth, in relevant part, certain investment
practices deemed to be unsuitable for an institution's investment portfolio, as
well as guidelines for investing in certain types of mortgage related
securities.
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.
See "Legal Investment" in the Prospectus.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
respective Classes thereof receive the following credit ratings from
____________________ ("______") and/or ________________ ("________"; and
together with _______, the "Rating Agencies"):
[Rating [Rating
Class Agency] Agency]
----- ------- -------
Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class B-1
The ratings on the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled and, in the case of the Class A and Class B-1 Certificates, the
ultimate receipt by the holders thereof of all payments of principal to which
they are entitled on or before the Distribution Date in _________ 20__ (the
"Rated Final Distribution Date"). The ratings take into consideration the credit
quality of the Mortgage Pool, structural and legal aspects associated with the
Offered Certificates, and the extent to which the payment stream from the
Mortgage Pool is adequate to make payments of principal and interest required
under the Offered Certificates. The ratings on the respective
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Classes of Offered Certificates do not represent any assessment of (i) the
likelihood or frequency of principal prepayments on the Mortgage Loans, (ii) the
degree to which such prepayments might differ from those originally anticipated
or (iii) whether and to what extent Prepayment Premiums and Yield Maintenance
Premiums will be received. Also a security rating does not represent any
assessment of the yield to maturity that investors may experience or the
possibility that the Class S Certificateholders might not fully recover their
investment in the event of rapid prepayments and/or other liquidations of the
Mortgage Loans. In general, the ratings address credit risk and not prepayment
risk. As described herein, the amounts payable with respect to the Class S
Certificates consist only of interest (and, to the extent described herein, may
consist of a portion of the Yield Maintenance Premiums and Prepayment Premiums
actually collected on the Mortgage Loans). If the entire pool were to prepay in
the initial month, with the result that the Class S Certificateholders receive
only a single month's interest and thus suffer a nearly complete loss of their
investment, all amounts "due" to such Certificateholders will nevertheless have
been paid, and such result is consistent with the rating received from _____ on
the Class S Certificates. The Class Notional Amount upon which interest is
calculated with respect to the Class S Certificates is subject to reduction by
the allocation of Realized Losses and prepayments, whether voluntary or
involuntary. The rating does not address the timing or magnitude of reduction of
such Class Notional Amount, but only the obligation to pay interest timely on
such Class Notional Amount as so reduced from time to time. Accordingly, the
rating of the Class S Certificates should be evaluated independently from
similar ratings on other types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by either
Rating Agency.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating organization. Each security
rating should be evaluated independently of any other security rating.
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<TABLE>
<CAPTION>
INDEX OF PRINCIPAL TERMS
<S> <C>
Accrued Certificate Interest............................................................................S-53
Additional Trust Fund Expenses....................................................................S-21, S-56
Advances................................................................................................S-45
Appraisal Reduction Amount..............................................................................S-57
ARM Loans...............................................................................................S-11
Assumed Final Distribution Date..........................................................................S-2
Assumed Scheduled Payment.........................................................................S-18, S-54
Assumed Settlement Date.................................................................................S-63
Available Distribution Amount.....................................................................S-14, S-50
Balloon Loans...........................................................................................S-11
Balloon Payment.........................................................................................S-11
Book-Entry Certificates..................................................................................S-9
Certificate Notional Amount.......................................................................S-23, S-47
Certificate Owner..................................................................................S-9, S-47
Certificate Principal Balance.....................................................................S-23, S-47
Certificate Registrar...................................................................................S-48
Certificate Yield Maintenance Amount..............................................................S-19, S-54
Certificateholders.................................................................................S-2, S-50
Certificates..................................................................................S-1, S-8, S-47
Class.........................................................................................S-1, S-8, S-47
Class A Certificates..........................................................................S-1, S-8, S-47
Class B Certificates..........................................................................S-1, S-8, S-47
Class Notional Amount.............................................................................S-12, S-48
Class Principal Balance...........................................................................S-12, S-48
Closing Date.......................................................................................S-1, S-47
Code....................................................................................................S-24
Collection Period.......................................................................................S-49
Compensating Interest Payment.....................................................................S-22, S-43
Corporate Trust Office..................................................................................S-58
Corrected Mortgage Loan.................................................................................S-41
Cut-off Date.............................................................................................S-2
Cut-off Date Balance...............................................................................S-9, S-30
DCR.....................................................................................................S-68
Debt Service Coverage Ratio.............................................................................S-37
Definitive Certificate.............................................................................S-9, S-47
Depositor................................................................................................S-2
Determination Date......................................................................................S-50
Distributable Certificate Interest................................................................S-17, S-53
Distribution Date..................................................................................S-2, S-50
DTC.....................................................................................................S-47
DTC Participants........................................................................................S-47
Due Date................................................................................................S-10
ERISA...................................................................................................S-24
Excluded Plan...........................................................................................S-69
Exemption...............................................................................................S-68
Exemption-Favored Party.................................................................................S-68
Fitch...................................................................................................S-68
Fixed Rate Loans........................................................................................S-11
Form 8-K................................................................................................S-40
Gross Margin............................................................................................S-11
Index...................................................................................................S-11
Initial Pool Balance..........................................................................S-2, S-9, S-30
Interest Rate Adjustment Date...........................................................................S-11
IRS.....................................................................................................S-65
Liquidation Fee.........................................................................................S-44
Liquidation Fee Rate....................................................................................S-44
Lockout Period ...................................................................................S-12, S-31
LTV Ratio...............................................................................................S-37
Master Servicer....................................................................................S-2, S-42
Master Servicing Fee....................................................................................S-43
Master Servicing Fee Rate...............................................................................S-43
Maturity Date...........................................................................................S-11
Modeling Assumptions....................................................................................S-63
Modified Mortgage Loan..................................................................................S-58
Monthly Payments........................................................................................S-10
Moody's.................................................................................................S-68
Mortgage..........................................................................................S-10, S-30
Mortgage Asset Seller...................................................................................S-30
Mortgage Loan Purchase Agreement..................................................................S-11, S-30
Mortgage Loan Seller.....................................................................................S-8
Mortgage Loans................................................................................S-2, S-9, S-30
Mortgage Note.....................................................................................S-10, S-30
Mortgage Pool............................................................................................S-2
Mortgage Rate...........................................................................................S-11
Mortgaged Property................................................................................S-10, S-30
Mortgagor.........................................................................................S-10, S-30
Net Aggregate Prepayment Interest Shortfall.......................................................S-22, S-44
Net Mortgage Rate.................................................................................S-14, S-49
Net Operating Income....................................................................................S-37
Offered Certificates..........................................................................S-1, S-8, S-47
OID Regulations.........................................................................................S-65
Open Period.......................................................................................S-12, S-31
P&I Advance.......................................................................................S-21, S-56
Pass-Through Rate.......................................................................................S-13
Payment Adjustment Date.................................................................................S-11
Percentage Interest.....................................................................................S-49
Plan..............................................................................................S-24, S-68
Pooling Agreement............................................................................S-2, S-12, S-47
Prepayment Interest Excess........................................................................S-22, S-43
Prepayment Interest Shortfall.....................................................................S-22, S-43
Prepayment Premium................................................................................S-12, S-31
Principal Distribution Amount.....................................................................S-17, S-53
Principal Prepayment..............................................................................S-12, S-31
Private Certificates.....................................................................................S-8
Property Servicing Fee..................................................................................S-44
Property Servicing Fee Rate.............................................................................S-44
Purchase Price .........................................................................................S-40
Rated Final Distribution Date......................................................................S-2, S-71
Rating Agencies..............................................................................S-2, S-25, S-71
Realized Losses...................................................................................S-20, S-55
Record Date.............................................................................................S-50
Reimbursement Rate................................................................................S-22, S-57
Related Proceeds........................................................................................S-45
REMIC..............................................................................................S-3, S-23
REMIC Administrator......................................................................................S-2
REMIC I......................................................................................S-3, S-23, S-65
REMIC II.....................................................................................S-3, S-23, S-65
REMIC III....................................................................................S-3, S-23, S-65
REMIC Regular Certificates....................................................................S-1, S-8, S-47
REMIC Residual Certificates...................................................................S-1, S-8, S-47
REO Property......................................................................................S-21, S-41
Required Appraisal Loan.................................................................................S-57
Restricted Group........................................................................................S-68
S&P.....................................................................................................S-68
Scheduled Payment.................................................................................S-18, S-54
Securities Act...........................................................................................S-8
Senior Certificates..........................................................................S-3, S-20, S-51
Senior Principal Distribution Cross-Over Date...........................................................S-53
Sequential Pay Certificates..................................................................S-3, S-12, S-48
Servicing Advances......................................................................................S-45
Servicing Standard......................................................................................S-40
Servicing Transfer Event................................................................................S-41
SMMEA...................................................................................................S-26
Special Servicer.........................................................................................S-2
Special Servicer Report.................................................................................S-58
Special Servicing Fee...................................................................................S-44
Special Servicing Fee Rate..............................................................................S-44
Specially Serviced Mortgage Loans.......................................................................S-41
Stated Principal Balance................................................................................S-49
Sub-Servicer............................................................................................S-43
Sub-Servicing Agreement.................................................................................S-43
Subordinate Certificates.....................................................................S-3, S-20, S-55
Trust Fund...................................................................................S-2, S-12, S-47
Trustee..................................................................................................S-2
Trustee Fee.............................................................................................S-60
Trustee Fee Rate........................................................................................S-60
Trustee Report..........................................................................................S-58
Underwriter..............................................................................................S-1
Underwriting Agreement..................................................................................S-67
Voting Rights...........................................................................................S-59
Weighted Average Net Mortgage Rate...........................................................S-2, S-13, S-49
Workout Fee.............................................................................................S-44
Workout Fee Rate........................................................................................S-44
Yield Maintenance Premium.........................................................................S-12, S-31
</TABLE>
S-73
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus Supplement and
the Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Depositor or by the
Underwriter. This Prospectus Supplement and the Prospectus do not constitute an
offer to sell, or a solicitation of an offer to buy, the securities offered
hereby to anyone in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this Prospectus Supplement or the
Prospectus.
TABLE OF CONTENTS
Page
Prospectus Supplement
Table of Contents.........................................................S-5
Transaction Overview......................................................S-7
Summary of Prospectus Supplement..........................................S-8
Risk Factors..............................................................S-27
Description of the Mortgage Pool..........................................S-30
Servicing of the Mortgage Loans...........................................S-40
Description of the Certificates...........................................S-47
Yield and Maturity Considerations.........................................S-60
Certain Federal Income Tax Consequences...................................S-65
Method of Distribution....................................................S-67
Legal Matters.............................................................S-68
ERISA Considerations......................................................S-68
Legal Investment..........................................................S-71
Ratings ..................................................................S-71
Index of Principal Terms..................................................S-73
Prospectus
Prospectus Supplement.....................................................3
Available Information.....................................................3
Incorporation of Certain Information by Reference.........................4
Table of Contents.........................................................5
Summary of Prospectus.....................................................8
Risk Factors..............................................................18
Description of the Trust Funds............................................29
Yield and Maturity Considerations.........................................36
The Depositor.............................................................42
Description of the Certificates...........................................42
Description of the Pooling Agreements.....................................50
Description of Credit Support.............................................70
Certain Legal Aspects of Mortgage Loans...................................72
Certain Federal Income Tax Consequences...................................83
State and Other Tax Consequences..........................................111
ERISA Considerations......................................................112
Legal Investment..........................................................115
Use of Proceeds...........................................................117
Method of Distribution....................................................117
Legal Matters.............................................................118
Financial Information.....................................................118
Rating....................................................................119
Index of Principal Definitions............................................120
$ (Approximate)
DLJ COMMERCIAL MORTGAGE CORP.
(Depositor)
Mortgage Pass-Through
Certificates
Series 199_-_
Class S, Class A-1A, Class A-1B,
Class A-2, Class A-3 and
Class B-1
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
[UNDERWRITER]
Dated __________, 199_
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The approximate expenses expected to be incurred in connection with the
issuance and distribution of the Certificates being registered, other than
underwriting compensation, are as set forth below.
Filing Fee for Registration Statement ........................ $ 885,000
Legal Fees and Expenses ...................................... 1,250,000*
----------
Accounting Fees and Expenses ................................. 550,000*
----------
Trustee's Fees and Expenses
(including counsel fees) ....................... 200,000*
----------
Blue Sky Fees and Expenses ................................... 25,000*
----------
Printing and Engraving Fees .................................. 450,000*
----------
Rating Agency Fees ........................................... 5,250,000*
----------
Miscellaneous ................................................ 250,000*
----------
Total ........................................................ $8,860,000
- ----------------------
* Based on 5 offerings.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling Agreements will provide that no director, officer, employee or agent
of the Registrant is liable to the Trust Fund or the Certificateholders, except
for such person's own willful misfeasance, bad faith or gross negligence in the
performance of duties or reckless disregard of obligations and duties. The
Pooling Agreements will further provide that, with the exceptions stated above,
a director, officer, employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense incurred in connection with
legal actions relating to such Pooling Agreements and related Certificates other
than such expenses related to particular Mortgage Assets.
Any purchase agreement pursuant to which the Registrant acquires Mortgage Assets
for inclusion in a Trust Fund may provide under certain circumstances that each
director of the Registrant, each officer of the Registrant that signed this
Registration Statement or any amendment hereof, and certain controlling persons
of the Registrant, are entitled to be indemnified by the seller of such Mortgage
Assets or an affiliate against certain liabilities, including liabilities under
the Securities Act of 1933, relating to such Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
It is contemplated that the Registrant will enter into an agreement with
Donaldson, Lufkin & Jenrette, Inc., a Delaware corporation, pursuant to which
Donaldson, Lufkin & Jenrette, Inc. will be obligated to indemnify the Registrant
and each officer, director or employee of the Registrant and certain others
against certain liabilities under the Securities Act of 1933 or the Securities
Exchange Act of 1934 or other laws to the extent such liabilities arise in
connection with the issuance of securities under this Registration Statement.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of
II-1
<PAGE>
the fact that such person acted in any of the capacities set forth above,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine that despite the adjudication of liability
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 further provides that to the extent a director, officer, employee or
agent of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent and under
the circumstances permitted by subsections (a) and (b) of Section 145 of the
General Corporation Law of the State of Delaware, the Registrant (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer, or
his testator or intestate is or was a director or officer of the Registrant,
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Sidley & Austin with respect
to legality.*
8.1 -- Opinion of Sidley & Austin with respect
to certain tax matters.*
23.1 -- Consent of Sidley & Austin (included as
part of Exhibit 5.1 and Exhibit 8.1).*
24.1 -- Power of Attorney (included in signature
pages to this Registration Statement).*
* Previously filed.
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement B.5. of Form S-3 will be
met by the time of the sale of the securities registered hereunder and has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York on the 23rd day of December, 1997.
DLJ COMMERCIAL MORTGAGE CORP.
By: *
-------------------------------------------
Name: Marjorie S. White
Title: Secretary and Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director December 23, 1997
- ------------------------------- (principal executive officer)
Leon M. Pollack
* Senior Vice President December 23, 1997
- ------------------------------- and Director
Steven L. Kantor
* Secretary and Treasurer December 23, 1997
- -------------------------------- and Director (principal
Marjorie S. White financial and accounting
officer)
</TABLE>
* N. Dante La Rocca, by signing his name hereto, does sign this document
on behalf of each of the persons indicated above for whom he is
attorney-in-fact pursuant to a power of attorney duly executed by such
person and filed with the Securities and Exchange Commission.
/s/ N. Dante LaRocca
-----------------------
N. Dante LaRocca
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
Page Number
-----------
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Sidley & Austin with respect
to legality.*
8.1 -- Opinion of Sidley & Austin with respect
to certain tax matters.*
23.1 -- Consent of Sidley & Austin (included as
part of Exhibit 5.1 and Exhibit 8.1).*
24.1 -- Power of Attorney (included in signature pages
to this Registration Statement).*
* Previously filed.
