<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
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(1) Per Unit(2) Price(1)(2) Fee(1)(2)(3)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $3,835,751,000 100% $3,835,751,000 $1,131,546.55
==============================================================================================================
</TABLE>
(1) Pursuant to rule 429 under the Securities Act of 1933, includes
$835,751,000 of securities carried forward from the Registration
Statement on Form S-3 (File No. 333-32019) for which a filing fee of
$246,546.55 has been previously paid.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes $246,546.55 in filing fees which have been previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to rule 429 under the Securities Act of 1933, each Prospectus
which is part of the Registration Statement shall relate to any securities which
remain unsold under the Registration Statement on Form S-3 (File No. 333-32019)
of the Registrant, and this Registration Statement constitutes a post-effective
amendment to such Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 15, 1998.
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
<PAGE>
- --------------------------------------------------------------------------------
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
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S-10
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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
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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>
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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
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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
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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>
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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>
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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>
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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
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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 or identify any such material concentration and add
appropriate cross-reference to "Risk Factors" section of Prospectus.]
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
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<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>
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: Manufactured Housing Communities,
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 manufactured housing communities, 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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)
--------
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 ____________.
<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 or the characteristics of the neighborhood in which a
multifamily rental property is located may change over time in relation to newer
developments. 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 provide for decontrol of rental rates upon vacancy of individual units.
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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation and personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 ________________.
<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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations, 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 _______________.
<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 bankrupt or
insolvent, 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. The
correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 _______________.
<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
costs 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 of 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 associated
liquor license, 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 ________________.
<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. Competition among
major casinos may involve attracting patrons by providing alternate forms of
entertainment (e.g., performers and sporting events), which may materially
increase operating expenses, as well as low-priced or free food and lodging. In
addition, to avoid criminal influence, the ownership and operation of casino
properties is often subject to local or state governmental regulation. A
government agency or authority may have jurisdiction over or influence with
respect to the foreclosure of a casino property and/or the bankruptcy of its
owner or operator. In some jurisdictions, it may be necessary to receive
governmental approval before foreclosing, thereby resulting in substantial
delays. 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.
[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. Competition among
major casinos may involve attracting patrons by providing alternate forms of
entertainment (e.g., performers and sporting events), which may materially
increase operating expenses, as well as low-priced or free food and lodging.
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. For public policy reasons, applicable
government agencies are given substantial powers in this regard. A government
agency or authority may have jurisdiction over or influence with respect to the
foreclosure of a casino property and/or the bankruptcy of its owner or operator.
In some jurisdictions, it may be necessary to receive governmental approval
before foreclosing, thereby resulting in substantial delays. 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
- 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 _______________.
<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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 ______________.
<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
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.
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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 ________________.
- 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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 _______________.
<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 cost, quality
and availability of food and beverage products; negative publicity resulting
from instances of food contamination, food-borne illness and similar events;
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, whether local, regional or national,
may limit the amount that may be charged for food and beverages and the extent
to which customers 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 more quickly than do other commercial properties.
In general, if a Mortgage Asset Pool involves a material concentration
of Restaurants, such Restaurants will be part of a chain (including a fast food
chain). 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.
In addition, commercial loans secured by property used in the operation
of chain restaurants are subject to various risks not associated with commercial
loans made to independent enterprises. Chain restaurants may be operated under
franchise agreements, and such agreements typically do not contain provisions
protective of lenders. A borrower's rights as franchisee typically may be
terminated without informing the lender, and the borrower may be precluded from
competing with the franchisor upon such termination. In addition, a lender that
acquires title to a restaurant site through foreclosure or similar proceedings
may be restricted in the use of such site or may be unable to succeed to the
rights of the franchisee under the related franchise agreement. The
transferability of a franchise may be subject to other restrictions, and federal
and state franchise regulations may impose additional risks (including the risk
that the transfer of a franchise acquired through foreclosure or similar
proceedings may require registration with governmental authorities or disclosure
to prospective transferees).
[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 cost, quality and availabiity
of food and beverage products; negative publicity resulting from instances of
food contamination, food-borne illness and similar events; 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
- 4 -
<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, Mortgage Loans secured by
property used in the operation of chain restaurants are subject to various risks
not associated with Mortgage Loans made to independent enterprises. Chain
restaurants may be operated under franchise agreements, and such agreements
typically do not contain provisions protective of lenders. A borrower's rights
as franchisee typically may be terminated without informing the lender, and the
borrower may be precluded from competing with the franchisor upon such
termination. In addition, a lender that acquires title to a restaurant site
through foreclosure or similar proceedings may be restricted in the use of such
site or may be unable to succeed to the rights of the franchisee under the
related franchise agreement. The transferability of a franchise may be
subject to other restrictions, and federal and state franchise regulations may
impose additional risks (including the risk that the transfer of a franchise
acquired through foreclosure or similar proceedings may require registration
with governmental authorities or disclosure to prospective transferees). Also,
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).
- 5 -
<PAGE>
Version 10: Manufactured Housing Communities, Mobile Home
Parks and Recreational Vehicle Parks
[The following to be inserted, as indicated on the next page, on the
cover of the Prospectus.]
Manufactured housing communities, 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: Manufactured Housing Communities, 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations and restaurants;
and (iii) mixed use properties (that is, any combination of the foregoing) and
unimproved land. Manufactured housing communities, 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 ______________.
<PAGE>
Version 10: Manufactured Housing Communities, 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.
- 3 -
<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 Manufactured Housing Communities, Mobile Home
Parks and Recreational Vehicle Parks. The successful operation of a Mortgaged
Property operated as a manufactured housing community, mobile home park or
recreational vehicle park will generally depend upon the number of comparable
competing properties 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. Manufactured housing communities and 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).
Manufactured housing communities, 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 manufactured housing community, 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 Manufactured Housing Communities, Mobile Home
Parks and Recreational Vehicle Parks. Manufactured housing communities and
mobile home parks consist of land that is divided into "spaces" or "homesites"
that are primarily leased to owners of the individual mobile homes or other
housing units (the "Homes"; and such owners, the "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 Homes are situated, but not the
Homes themselves. The Home Owner often invests in site-specific improvements
such as carports, steps, fencing, skirts around the base of the Home, and
landscaping. The land owner typically provides private roads within the park,
common facilities and, in many cases, utilities. Community/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 homesites, the value of a Home in place in a manufactured housing
community or mobile home park is generally higher, and can be significantly
higher, than the value of the same unit not placed in a manufactured housing
community or mobile home park. As a result, a well-operated manufactured housing
community or 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 Home of a tenant who defaulted in his
or her space rent generally has an incentive to keep rental payments current
until the 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
- 4 -
<PAGE>
Version 10: Manufactured Housing Communities, 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 manufactured housing communities,
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 comparable competing properties, 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, manufactured housing communities and 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). Manufactured
housing communities, 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 manufactured
housing community, 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 manufactured housing community, 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 property were
readily adaptable to other uses.
Certain states regulate the relationship of a manufactured housing
community or 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. Manufactured housing community and 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 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 Home.
Certain states also regulate changes in the use of a manufactured housing
community or mobile home park 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 manufactured housing
communities and 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 Home is removed from the homesite. Local
authority to impose rent control on manufactured housing communities and 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 JULY 15, 1998.
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 rental or cooperatively-owned buildings
with multiple dwelling units, manufactured housing communities and mobile home
parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sales of consumer goods and other products and
facilities related to providing entertainment, recreation or personal services,
hotels and motels, casinos, health care-related facilities, recreational vehicle
parks, golf courses, marinas, ski resorts, amusement parks and other
recreational properties, arenas, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots and
garages, churches and other religious facilities, gas stations 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)
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<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
16 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.
<PAGE>
-----------
The date of this Prospectus is July __, 1998.
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<PAGE>
(cover continued from prior page)
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.
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, if
so, the designation of the "regular interests" and "residual interests" in
each REMIC to be created and the identity of the REMIC Administrator (as
defined herein) 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.
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
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<S> <C>
SUMMARY OF PROSPECTUS.............................................................................................9
RISK FACTORS.....................................................................................................17
Limited Liquidity of Offered Certificates...............................................................17
Limited Assets..........................................................................................18
Credit Support Limitations..............................................................................18
Effect of Prepayments on Average Life of Certificates...................................................19
Effect of Prepayments on Yield of Certificates..........................................................20
Limited Nature of Ratings...............................................................................20
Certain Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans.......................20
Inclusion of Delinquent and Nonperforming Mortgage Loans in a Mortgage Asset Pool.......................25
Certain Federal Tax Considerations Regarding REMIC Residual Certificates................................25
Book-Entry Registration.................................................................................26
Potential Conflicts of Interest.........................................................................26
Termination.............................................................................................27
DESCRIPTION OF THE TRUST FUNDS...................................................................................27
General.................................................................................................27
Mortgage Loans..........................................................................................27
MBS.....................................................................................................31
Undelivered Mortgage Assets.............................................................................32
Certificate Accounts....................................................................................32
Credit Support..........................................................................................32
Cash Flow Agreements....................................................................................33
YIELD AND MATURITY CONSIDERATIONS................................................................................33
General.................................................................................................33
Pass-Through Rate.......................................................................................33
Payment Delays..........................................................................................33
Certain Shortfalls in Collections of Interest...........................................................34
Yield and Prepayment Considerations.....................................................................34
Weighted Average Life and Maturity......................................................................35
Other Factors Affecting Yield, Weighted Average Life and Maturity.......................................36
THE DEPOSITOR....................................................................................................38
DESCRIPTION OF THE CERTIFICATES..................................................................................38
General.................................................................................................38
Distributions...........................................................................................39
Distributions of Interest on the Certificates...........................................................40
Distributions of Principal of the Certificates..........................................................41
Distributions on the Certificates in Respect of Prepayment Premiums or in Respect
of Equity Participations.............................................................................41
Allocation of Losses and Shortfalls.....................................................................42
Advances in Respect of Delinquencies....................................................................42
Reports to Certificateholders...........................................................................43
Voting Rights...........................................................................................43
Termination.............................................................................................43
Book-Entry Registration and Definitive Certificates.....................................................44
DESCRIPTION OF THE POOLING AGREEMENTS............................................................................45
General.................................................................................................45
Assignment of Mortgage Assets...........................................................................46
</TABLE>
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<TABLE>
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<S> <C>
Representations and Warranties with respect to Mortgage Assets; Repurchases and Other Remedies..........47
Collection and Other Servicing Procedures with respect to Mortgage Loans................................48
Sub-Servicers...........................................................................................50
Collection of Payments on MBS...........................................................................50
Certificate Account.....................................................................................51
Modifications, Waivers and Amendments of Mortgage Loans.................................................54
Realization Upon Defaulted Mortgage Loans...............................................................54
Hazard Insurance Policies...............................................................................55
Due-on-Sale and Due-on-Encumbrance Provisions...........................................................56
Servicing Compensation and Payment of Expenses..........................................................56
Evidence as to Compliance...............................................................................57
Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC Administrator,
the Manager and the Depositor........................................................................58
Events of Default.......................................................................................59
Rights Upon Event of Default............................................................................59
Amendment...............................................................................................60
List of Certificateholders..............................................................................61
The Trustee.............................................................................................61
Duties of the Trustee...................................................................................61
Certain Matters Regarding the Trustee...................................................................62
Resignation and Removal of the Trustee..................................................................62
DESCRIPTION OF CREDIT SUPPORT....................................................................................62
General.................................................................................................62
Subordinate Certificates................................................................................63
Insurance or Guarantees with Respect to Mortgage Loans..................................................63
Letter of Credit........................................................................................63
Certificate Insurance and Surety Bonds..................................................................64
Reserve Funds...........................................................................................64
Credit Support with Respect to MBS......................................................................64
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..........................................................................64
General.................................................................................................65
Types of Mortgage Instruments...........................................................................65
Leases and Rents........................................................................................65
Personalty..............................................................................................65
Foreclosure.............................................................................................65
Bankruptcy Laws.........................................................................................69
Environmental Considerations............................................................................70
Due-on-Sale and Due-on-Encumbrance Provisions...........................................................72
Junior Liens; Rights of Holders of Senior Liens.........................................................72
Subordinate Financing...................................................................................72
Default Interest and Limitations on Prepayments.........................................................73
Applicability of Usury Laws.............................................................................73
Certain Laws and Regulations............................................................................73
Americans with Disabilities Act.........................................................................73
Soldiers' and Sailors' Civil Relief Act of 1940.........................................................74
Forfeitures in Drug and RICO Proceedings................................................................74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................................................................74
General.................................................................................................74
</TABLE>
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<PAGE>
<TABLE>
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<S> <C>
REMICs..................................................................................................75
Grantor Trust Funds.....................................................................................91
STATE AND OTHER TAX CONSEQUENCES.................................................................................99
ERISA CONSIDERATIONS.............................................................................................99
General.................................................................................................99
Plan Asset Regulations.................................................................................100
Prohibited Transaction Exemptions......................................................................101
Insurance Company General Accounts.....................................................................101
Consultation With Counsel..............................................................................102
Tax Exempt Investors...................................................................................102
LEGAL INVESTMENT................................................................................................102
USE OF PROCEEDS.................................................................................................104
METHOD OF DISTRIBUTION..........................................................................................104
LEGAL MATTERS...................................................................................................105
FINANCIAL INFORMATION...........................................................................................105
RATING..........................................................................................................105
INDEX OF PRINCIPAL DEFINITIONS..................................................................................107
</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".
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
-9-
<PAGE>
and/or leasehold estates in one
or more of the following types of
real property: (i) residential
properties consisting of rental or
cooperatively-owned buildings with
multiple dwelling units,
manufactured housing communities
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
consumer goods and other
products), 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, golf courses,
marinas, ski resorts, amusement
parks and other recreational
properties, arenas, warehouse
facilities, mini-warehouse
facilities, self-storage
facilities, industrial facilities,
parking lots and garages, churches
and other religious facilities,
gas stations 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
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".
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<PAGE>
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 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
-11-
<PAGE>
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.
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
-12-
<PAGE>
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,
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
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<PAGE>
"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 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
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<PAGE>
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 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
-15-
<PAGE>
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
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.
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 Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis.
-17-
<PAGE>
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 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.
-18-
<PAGE>
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 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
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<PAGE>
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 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".
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<PAGE>
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; increases in competition,
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 borrower, 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 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. Because of the nature of
their business, recreational and entertainment facilities (including arenas,
golf courses, marinas, ski resorts, amusement parks, movie theaters, bowling
alleys and similar type businesses), hotels and motels and restaurants will
tend to be adversely affected more quickly by a general economic downturn than
other types of commercial properties as potential patrons respond to having
less disposable income. In addition, marinas will be affected by various
statutes and government regulations that govern the use of, and construction
on, rivers, lakes and other waterways. Certain recreational properties, as well
as certain hotels and motels, may have seasonal fluctuations and/or may be
adversely affected by prolonged unfavorable weather conditions. Churches and
other religious facilities may be highly dependent on donations which are
likely to decline as economic conditions decline. Properties used as gas
stations, drycleaners and industrial facilities may be more likely to have
environmental issues. Many types of commercial properties are not readily
convertible to alternative uses if the use for which any such property was
originally intended is not successful.
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
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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 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
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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 casinos, gambling could become prohibited in the relevant jurisdiction.
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.
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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 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 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
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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".
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
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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".
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.
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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 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 rental or cooperatively-owned buildings with
multiple dwelling units, manufactured housing communities 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 consumer goods and other products), 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, golf courses, marinas, ski resorts,
amusement parks and other recreational properties, arenas, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
facilities, parking lots and garages, churches and other religious facilities,
gas stations 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
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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 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,
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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
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.
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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".
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.
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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.
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, or unless otherwise discussed with
the Commission, 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 obligation to
repurchase or substitute assets underlying the MBS after a certain date or
under other circumstances specified in the related Prospectus Supplement.
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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 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 a Certificate Account consisting of one
or more accounts established and maintained on behalf of the
Certificateholders into which all payments and collections received or
advanced with respect to the Mortgage Assets and other assets in the Trust
Fund will be deposited to the extent described herein and in the related
Prospectus Supplement. See "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
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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, 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.
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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 the related Determination Date (as defined
herein) 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.
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.
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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 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
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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.
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.
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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 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,
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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.
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
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the Mortgage Assets in the related Trust Fund; (vi) provide for
distributions of principal thereof to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or (vii)
provide for distributions based on collections on the Mortgage Assets in the
related Trust Fund attributable to Prepayment Premiums and Equity
Participations.
If so specified in the related Prospectus Supplement, a Class of
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
("Certificateholders") 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
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
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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 is otherwise
distributable on (or, in the case of Accrual Certificates, 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
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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 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.
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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 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.
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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 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.
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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.
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 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.
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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 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
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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 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 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
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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 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
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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
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
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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 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
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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 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.
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Certificate Account
General. The related Trustee and any related Master Servicer, 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 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;
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(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 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 and other compensation to which it is
entitled in respect of such Mortgage Loans and that was 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
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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 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 reasonably foreseeable, (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 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.
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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 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 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
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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.
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
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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.
Evidence as to Compliance
Unless otherwise specified in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the related Master Servicer and Special
Servicer will each be required, at its expense, to cause a firm of independent
public accountants to furnish to the Trustee, on or before a specified date in
each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, a statement generally to the effect that
such firm has examined such documents and records as it has deemed necessary
and appropriate relating to the Master Servicer's or Special Servicer's as the
case may be, servicing of the Mortgage Loans under the Pooling Agreement or
servicing of mortgage loans similar to the Mortgage Loans under substantially
similar agreements for the preceding calendar year (or during the period from
the date of commencement of the Master Servicer's or Special Servicer's, as
the case may be, duties under the Pooling Agreement until the end of such
preceding calendar year in the case of the first such statement) and that the
assertion of the management of the Master Servicer or Special Servicer, as the
case may be, that it maintained an effective internal control system over
servicing of the Mortgage Loans or similar mortgage loans is fairly stated in
all material respects, based upon established criteria, which statement meets
the standards applicable to accountants' reports intended for general
distribution. 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
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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 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
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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.
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 25% (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,
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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 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 the related
Series entitled to not less than 25% of the Voting Rights for such Series 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 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 clauses (vi) and (vii) above) may not, as evidenced by an opinion
of counsel obtained by or delivered to the Trustee,
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adversely affect in any material respect the interests of any holder of
Certificates of the related Series; 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.
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, the Certificates of
such Series 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
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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
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
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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.
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
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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.
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
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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 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
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required to commence a foreclosure action or otherwise take possession of the
property in order to enforce its rights to collect the room rates following a
default. In the bankruptcy setting, however, the lender will be stayed from
enforcing its rights to collect room rates, but those room rates (in light of
certain revisions to the Bankruptcy Code which are effective for all
bankruptcy cases commenced on or after October 22, 1994) constitute "cash
collateral" and therefore cannot be used by the bankruptcy debtor without a
hearing or lender's consent and unless the lender's interest in the room rates
is given adequate protection (e.g., cash payment for otherwise encumbered
funds or a replacement lien on unencumbered property, in either case equal in
value to the amount of room rates that the debtor proposes to use, or other
similar relief). See "--Bankruptcy Laws".
Personalty
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the
borrower and not previously pledged) may constitute a significant portion of
the property's value as security. The creation and enforcement of liens on
personal property are governed by the UCC. Accordingly, if a borrower pledges
personal property as security for a mortgage loan, the lender generally must
file UCC financing statements in order to perfect its security interest
therein, and must file continuation statements, generally every five years, to
maintain that perfection. In certain cases, Mortgage Loans secured in part by
personal property may be included in a Trust Fund even if the security
interest in such personal property was not perfected or the requisite UCC
filings were allowed to lapse.
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
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recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as
a failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of
sale does not involve sufficient state action to trigger constitutional
protections.
In addition, some states may have statutory protection such as the
right of the borrower to reinstate mortgage loans after commencement of
foreclosure proceedings but prior to a foreclosure sale.
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 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.
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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.
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.
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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 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
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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".
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
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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.
Certain federal, state and local laws, regulations and ordinances
govern the management, removal, encapsulation or disturbance of
asbestos-containing materials ("ACMs"). Such laws, as well as common law
standards, may impose liability for releases of or exposure to ACMs and may
provide for third parties to seek recovery from owners or operators of real
properties for personal injuries associated with such releases.
Recent federal legislation will in the future require owners of
residential housing constructed prior to 1978 to disclose to potential
residents or purchasers any known lead-based paint hazards and will impose
treble damages for any failure to so notify. In addition, the ingestion of
lead-based paint chips or dust particles by children can result in lead
poisoning, and the owner of a property where such circumstances exist may be
held liable for such injuries and for the costs of removal or encapsulation of
the lead-based paint. Testing for lead-based paint or lead in the water was
conducted with respect to certain of the Mortgaged Properties, generally based
on the age and/or condition thereof.
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.
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.
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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 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
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the junior lender's security may create a superior equity in favor of the
junior lender. For example, if the borrower and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the senior
loan, the senior lender may lose its priority to the extent any existing
junior lender is harmed or the borrower is additionally burdened. Third, if
the borrower defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior lenders can impair the
security available to the senior lender and can interfere with or delay the
taking of action by the senior lender. Moreover, the bankruptcy of a junior
lender may operate to stay foreclosure or similar proceedings by the senior
lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made,
and in some circumstances, may prohibit prepayments for a specified period
and/or condition prepayments upon the borrower's payment of prepayment fees or
yield maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations shall
not apply to certain types of residential (including multifamily) first
mortgage loans originated by certain lenders after March 31, 1980. Title V
authorized any state to reimpose interest rate limits by adopting, before
April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
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
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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 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
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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
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
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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 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)(4)(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)(4)(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 from payments on Mortgage Loans held
pending distribution is considered part of the Mortgage Loans for purposes of
Section 856(c)(4)(A) of the Code.
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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)(4)(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.
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
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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 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
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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 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
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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 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
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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 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
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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 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
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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.
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".
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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.
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.
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In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a
calendar quarter its ratable portion of the product of the "adjusted issue
price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120% of the "long-term Federal rate" in effect on the Closing
Date. For this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter will be equal to the
issue price of the REMIC Residual Certificate, increased by the sum of the
daily accruals for all prior quarters and decreased (but not below zero) by
any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond houses and
brokers) at which a substantial amount of the REMIC Residual Certificates were
sold. The "long-term Federal rate" is an average of current yields on Treasury
securities with a remaining term of greater than nine years, computed and
published monthly by the IRS.
Although it has not done so, the Treasury 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
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(discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected
to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) on the REMIC Residual Certificate
equals at least the present value of the expected tax on the anticipated
excess inclusions, and (2) the transferor reasonably expects that the
transferee will receive distributions with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to certain restrictions under the terms of
the related Pooling 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 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
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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".
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
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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.
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, 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
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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 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
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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 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
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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.
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.
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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 the meaning of
Section 856(c)(4)(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)(4)(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
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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 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
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Interest Certificate by that holder. Certificateholders are advised to consult
their tax advisors concerning reporting original issue discount 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 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
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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 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 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 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
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(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.
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).
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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.
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.
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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.
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 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.
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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.
ERISA CONSIDERATIONS
General
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,
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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
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.
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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 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.
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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.
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
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<PAGE>
to purchase and sell for their own account, without limitation as to a
percentage of the bank's capital and surplus (but subject to compliance with
certain general standards concerning "safety and soundness" and retention of
credit information in 12 C.F.R. Section 1.5), certain "Type IV securities",
defined in 12 C.F.R. Section 1.2(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 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.
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<PAGE>
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. Furthermore, the Trust Fund for one Series of Offered
Certificates may include Offered Certificates from other Series.
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 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
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<PAGE>
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.
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.
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<PAGE>
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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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
401(c) Regulations......................................................101
Accrual Certificates.....................................................13
ACMs.....................................................................71
ADA......................................................................73
ARM Loans................................................................30
Book-Entry Certificates..................................................39
Call Risk................................................................19
Cash Flow Agreement......................................................15
CERCLA...................................................................70
Certificate Account......................................................51
Certificate Notional Amount..............................................13
Certificate Owner........................................................44
Certificate Principal Balance............................................13
Certificates .............................................................1
Class.....................................................................1
Closing Date.............................................................11
Code.....................................................................16
Commercial Properties....................................................27
Commission................................................................3
Committee Report.........................................................77
Companion Class..........................................................41
Contributions Tax .......................................................88
Controlled Amortization Class............................................41
Cooperatives.............................................................27
CPR......................................................................36
Credit Support...........................................................15
Crime Control Act........................................................74
Cut-off Date.............................................................11
Definitive Certificates..................................................39
Depositor.................................................................1
Determination Date.......................................................39
Distribution Date........................................................13
Distribution Date Statement..............................................43
DOL.....................................................................100
DTC.......................................................................3
DTC Participants.........................................................26
Due Dates................................................................30
Equity Participation.....................................................30
ERISA....................................................................16
Exchange Act..............................................................3
Extension Risk...........................................................19
FAMC.....................................................................31
FAMC Certificates........................................................31
FHLMC....................................................................31
FHLMC Certificates.......................................................31
Financial Intermediary...................................................44
FNMA.....................................................................31
FNMA Certificates........................................................31
Garn Act.................................................................72
GNMA.....................................................................31
GNMA Certificates........................................................31
Grantor Trust Certificates...............................................16
Grantor Trust Fund.......................................................75
IRS......................................................................77
Issue Premium............................................................83
Lender Liability Act.....................................................70
Letter of Credit Bank....................................................63
Liquidation Proceeds.....................................................51
Lock-out Date............................................................30
Lock-out Period..........................................................30
Mark-to-Market Regulations...............................................86
Master Servicer...........................................................9
MBS...............................................................1, 11, 27
MBS Administrator.........................................................9
MBS Agreement............................................................31
MBS Issuer...............................................................31
MBS Servicer.............................................................31
MBS Trustee..............................................................31
Mortgage Asset Pool.......................................................1
Mortgage Asset Seller....................................................27
Mortgage Assets.......................................................1, 27
Mortgage Loans.....................................................1, 9, 27
Mortgage Notes...........................................................27
Mortgage Rate............................................................10
Mortgaged Properties.....................................................27
Mortgages................................................................27
Multifamily Properties...................................................27
Net Leases...............................................................29
Nonrecoverable Advance...................................................42
OCC.....................................................................102
Offered Certificates......................................................1
OID Regulations..........................................................75
Originator...............................................................28
OTS.....................................................................103
Parties in Interest......................................................99
Pass-Through Rate........................................................13
Percentage Interest......................................................40
Permitted Investments....................................................51
Plan Asset Regulations..................................................100
Plans....................................................................99
Policy Statement........................................................103
Pooling Agreement........................................................12
Prepayment Assumption....................................................95
Prepayment Interest Shortfall............................................34
Prepayment Premium.......................................................30
Prohibited Transactions Tax..............................................88
Prospectus Supplement.....................................................1
PTCE....................................................................101
Purchase Price...........................................................48
Rating Agency............................................................16
Record Date..............................................................39
Related Proceeds.........................................................42
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<PAGE>
Relief Act...............................................................74
REMIC.................................................................2, 75
REMIC Administrator.......................................................9
REMIC Certificates.......................................................75
REMIC Provisions.........................................................75
REMIC Regular Certificates...............................................16
REMIC Regulations........................................................75
REMIC Residual Certificates..............................................16
REO Property.............................................................48
RICO.....................................................................74
Securities Act............................................................3
Senior Certificates......................................................12
Senior Liens.............................................................28
Series....................................................................1
SMMEA....................................................................16
SPA......................................................................36
Special Servicer..........................................................9
Stripped Interest Certificates...........................................12
Stripped Principal Certificates..........................................12
Sub-Servicer.............................................................50
Sub-Servicing Agreement..................................................50
Subordinate Certificates.................................................12
Tax Exempt Investor.....................................................102
Tiered REMICs............................................................77
Title V..................................................................73
Trust Assets..............................................................2
Trust Fund................................................................1
Trustee...................................................................9
UBTI....................................................................102
UCC......................................................................65
Undelivered Mortgage Assets..............................................11
Voting Rights............................................................43
Warranting Party.........................................................47
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement ........................ $1,131,546.55*
Legal Fees and Expenses ...................................... 1,500,000.00**
-------------
Accounting Fees and Expenses ................................. 600,000.00**
-------------
Trustee's Fees and Expenses
(including counsel fees) ....................... 200,000.00**
-------------
Blue Sky Fees and Expenses ................................... 25,000.00**
-------------
Printing and Engraving Fees .................................. 450,000.00**
-------------
Rating Agency Fees ........................................... 5,250,000.00**
-------------
Miscellaneous ................................................ 250,000.00**
-------------
Total ........................................................ $9,406,546.55
- ----------------------
* Includes $246,546.55 in filing fees paid with respect to $835,751,000 of
securities carried forward from Registration Statement on Form S-3 (File No.
333-32019)
** 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).
* Incorporated herein by reference to Registration Statement on Form S-3 (File
No. 333-32019) filed with the Commission on July 24, 1997 and declared
effective on December 29, 1997.
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 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 15th day of July, 1998.
DLJ COMMERCIAL MORTGAGE CORP.
By: /s/ MARJORIE S. WHITE
-------------------------------------------
Name: Marjorie S. White
Title: Secretary and Treasurer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints N. Dante LaRocca, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LEON M. POLLACK President and Director July 15, 1998
- ------------------------------- (principal executive officer)
Leon M. Pollack
/s/ STEVEN L. KANTOR Senior Vice President July 15, 1998
- ------------------------------- and Director
Steven L. Kantor
/s/ MARJORIE S. WHITE Secretary and Treasurer July 15, 1998
- -------------------------------- and Director (principal
Marjorie S. White financial and accounting
officer)
/s/ THOMAS E. SIEGLER Director July 15, 1998
- --------------------------------
Thomas E. Siegler
</TABLE>
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<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).
* Incorporated herein by reference to Registration Statement on Form S-3
(File No. 333-32019) filed with the Commission on July 24, 1997 and
declared effective on December 29, 1997.
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN]
July 15, 1998
DLJ Commercial Mortgage Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Commercial Mortgage Corp.
Mortgage Pass-Through Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for DLJ Commercial Mortgage Corp., a Delaware
corporation (the "Registrant"), in connection with the registration statement on
Form S-3 (the "Registration Statement") being filed by the Registrant on or
about the date hereof with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 (the "Act") with respect to the
Registrant's Mortgage Pass-Through Certificates (the "Certificates") to be
issued from time to time. The Registration Statement relates to the registration
under the Act of Certificates that will evidence interests in trust funds as
described in the Registration Statement. The Certificates are issuable in one or
more series (each a "Series") under separate pooling and servicing agreements
(each, a "Pooling and Servicing Agreement") among the Registrant, the Master
Servicer named therein, the Special Servicer (if any) named therein, the REMIC
Administrator (if any) named therein and the Trustee named therein. The
Certificates of each Series are to be sold as described in the Registration
Statement, in any amendment thereto and in the prospectus and prospectus
supplement relating to such Series (the "Prospectus" and "Prospectus
Supplement", respectively).
In this connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we deemed necessary for the purposes of this opinion.
In our examination, we have assumed the following: (a) the genuineness of all
signatures; (b) the legal capacity of natural persons; (c) the authenticity of
all documents submitted to us as originals; (d) the conformity to original
documents of all
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DLJ Commercial Mortgage Corp.
July 15, 1998
Page 2
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents; and (e) the truth, accuracy and
completeness of the information, representations and warranties contained in the
records, documents, instruments and certificates that we have reviewed. As to
any facts material to the opinions expressed herein which were not known to us,
we have relied upon certificates, statements and representations of officers
and other representatives of the Registrant and others.
In rendering this opinion, we have assumed that the Pooling and Servicing
Agreement with respect to each Series of Certificates is executed and delivered
substantially in the form included as Exhibit 4.1 to the Registration Statement
and that the transactions contemplated to occur under the Registration Statement
and such Pooling and Servicing Agreement with respect to such Series of
Certificates in fact occur in accordance with the terms thereof. We have
further assumed, in connection with the issuance of each Series of Certificates,
that (a) each party to the Pooling and Servicing Agreement with respect to such
Series of Certificates will have the power and authority to enter into and
perform all of such party's obligations thereunder, (b) such Pooling and
Servicing Agreement will have been duly authorized by all necessary action,
executed and delivered by each party thereto and (c) such Pooling and Servicing
Agreement will constitute the valid and binding obligation of each party
thereto, enforceable against such party in accordance with its terms.
Based upon and subject to the foregoing, we are of the opinion that when
(i) the issuance and principal terms of each Series of Certificates
have been duly authorized by appropriate corporate action by the
Registrant, and
(ii) the Certificates of such Series have been duly executed,
authenticated and delivered in accordance with the terms and conditions of
the Pooling and Servicing Agreement relating to such Series and sold in the
manner described in the Registration Statement, in any amendment thereto
and in the Prospectus and Prospectus Supplement relating thereto,
-2-
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DLJ Commercial Mortgage Corp.
July 15, 1998
Page 3
the Certificates of such Series will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of such Certificates
will be entitled to the benefits of the Pooling and Servicing Agreement relating
to such Series as provided therein.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus and the Prospectus Supplement relating to each Series
of Certificates with respect to which we act as counsel to the Registrant. In
giving such consent, we do not consider that we are "experts", within the
meaning of the term as used in the Act or the rules and regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
We express no opinion as to any laws other than the laws of the State of
New York and the federal laws of the United States of America, and do not
express any opinion, either implicitly or otherwise, on any issue not expressly
addressed above.
Very truly yours,
/s/ SIDLEY & AUSTIN
-3-
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN]
July 15, 1998
DLJ Commercial Mortgage Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Commercial Mortgage Corp.
Mortgage Pass-Through Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for DLJ Commercial Mortgage Corp., a Delaware
corporation (the "Registrant"), in connection with the registration statement on
Form S-3 (the "Registration Statement") being filed by the Registrant on or
about the date hereof with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 (the "Act") with respect to the
Registrant's Mortgage Pass-Through Certificates (the "Certificates") to be
issued from time to time. The Registration Statement relates to the registration
under the Act of Certificates that will evidence interests in trust funds as
described in the Registration Statement. The Certificates are issuable in one or
more series (each a "Series") under separate pooling and servicing agreements
among the Registrant, the Master Servicer named therein, the Special Servicer
(if any) named therein, the REMIC Administrator (if any) named therein and the
Trustee named therein. The Certificates of each Series are to be sold as
described in the Registration Statement, in any amendment thereto and in the
prospectus and prospectus supplement relating to such Series (the "Prospectus"
and "Prospectus Supplement", respectively).
In this connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we deemed necessary for the purposes of this opinion.
In our examination, we have assumed the following: (a) the genuineness of all
signatures; (b) the legal capacity of natural persons; (c) the authenticity of
all documents submitted to us as originals; (d) the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such documents; and (e) the
<PAGE>
DLJ Commercial Mortgage Corp.
July 15, 1998
Page 2
truth, accuracy and completeness of the information, representations and
warranties contained in the records, documents, instruments and certificates
that we have reviewed. As to any facts material to the opinions expressed herein
which were not known to us, we have relied upon certificates, statements and
representations of officers and other representatives of the Registrant and
others.
Based upon the foregoing, we are of the opinion that the description set
forth under the caption "Certain Federal Income Tax Consequences" in the
Prospectus included as a part of the Registration Statement correctly describes
the material aspects of the federal income tax treatment of an investment in the
Certificates to investors that are United States Persons (as defined in the
Prospectus), as of the date hereof, and, where expressly indicated therein, to
investors that are not United States Persons.
We know that we are referred to under the heading "Certain Federal Income
Tax Consequences" in the Prospectus forming a part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 8.1 thereto. In giving such consent, we do not consider
that we are "experts", within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
We express no opinion as to any laws other than the federal laws of the
United States of America, and do not express any opinion, either implicitly or
otherwise, on any issue not expressly addressed above.
Very truly yours,
/s/ SIDLEY & AUSTIN
