<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. ____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
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
principal 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount to be Price Offering Registration
Title of Securities Being Registered Registered(1) Per Unit(2) Price(1)(2) Fee(1)
- ------------------------------------ ------------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $ 3,000,000,000 100% $ 3,000,000,000 $ 834,000
================================== =================== ============== ================ ==========
</TABLE>
(1) Pursuant to Rule 429 under the Securities Act of 1933, each prospectus
which is part of this Registration Statement also relates to $356,611,000
of securities carried forward from the Registration Statement on Form S-3
(File No. 333-59167) for which a filing fee of $105,200.25 has been
previously paid.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to rule 429 under the Securities Act of 1933, each Prospectus
which is part of this Registration Statement shall relate to any securities
which remain unsold under the Registration Statement on Form S-3 (File No.
333-59167) of the Registrant, and this Registration Statement constitutes a
post-effective amendment to such Registration Statement.
<PAGE>
PROSPECTUS SUPPLEMENT
(to Prospectus dated [ o ], 1999)
[$o] (Approximate)
DLJ Commercial Mortgage Corp.,the Depositor
DLJ Commercial Mortgage Trust __________, the Trust
Commercial Mortgage Pass Through Certificates, Series _______________________
We, DLJ Commercial Mortgage Corp., are offering pursuant to this
prospectus supplement the certificates identified in the table below. These
certificates are the only securities offered pursuant to this prospectus
supplement. This prospectus supplement may be used to offer and sell these
certificates only if accompanied by our prospectus dated _______, 1999. We will
not list the offered certificates on any national securities exchange or any
automated quotation system of any registered securities association such as
NASDAQ.
The assets of the trust will include a pool of ______ [fixed rate,
monthly pay] mortgage loans secured by [first] mortgage liens on ownership
and/or leasehold interests in various commercial and multifamily real
properties. The mortgage pool will have an "initial pool balance" of
approximately $_______. The mortgage loans and related mortgaged properties are
more fully described in this prospectus supplement.
No governmental agency or instrumentality has insured or guaranteed the
offered certificates or the underlying mortgage loans. The offered certificates
will represent interests in the trust only and will not represent an interest in
or obligations of any other party.
--------------------------
<TABLE>
<CAPTION>
Initial Aggregate
Principal Month of
Balance or Initial Rate of Interest Assumed Final
Offered Certificates Notional Amount(1) Interest(3) Rate Description(4) Ratings(7) Distribution Date(6)
- -------------------- ------------------ --------------- ------------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
[Class S....................... $ %
Class A-1A..................... $ %
Class A-1B..................... $ %
Class A-2...................... $ %
Class A-3...................... $ % (5)
Class A-4...................... $ % (5)
Class B-1...................... $ % (6)
Class B-2...................... $ % (6)
</TABLE>
(footnotes to table on next page)
--------------------------
You should fully consider the risk factors beginning on page [S-] in
this prospectus supplement prior to investing in the offered certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
--------------------------
The underwriters named below will purchase the offered certificates
from us, subject to the satisfaction of certain conditions. Each underwriter
currently intends to sell its allocation of the offered certificates from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to us from the sale of the offered
certificates will be an amount equal to approximately ___% of the initial total
principal balance of the offered certificates, plus accrued interest, before
deducting expenses payable by us. See "Method of Distribution" in this
prospectus supplement.
The date of this prospectus supplement is ________.
Donaldson, Lufkin & Jenrette [Underwriter]
<PAGE>
Footnotes to the table on the cover of this prospectus supplement:
(1) The actual initial total certificate principal balance or certificate
notional amount of any class of offered certificates at the date of
issuance may be larger or smaller than the amount shown, depending on
the actual size of the initial pool balance. The initial pool balance
may be as much as [5]% larger or smaller than the amount presented in
this prospectus supplement. The terms "certificate principal balance"
and "certificate notional amount" have the definitions specified in
this prospectus supplement under "Description of the Offered
Certificates--General".
(2) The [Class S certificates] will not have certificate principal balances
and will not entitle the holders thereof to any distributions of
principal. The [Class S certificates] will accrue interest on a total
certificate notional amount that is equal to the total certificate
principal balance outstanding from time to time of all those
certificates that have certificate principal balances.
(3) The interest rates shown in the table on the cover page for the [Class
S, Class A-3, Class A-4, Class B-1 and B-2 certificates] are the rates
applicable for distributions to be made in ________. The interest rates
for those classes will be variable or otherwise subject to change as
described under "Description of the Offered Certificates
--Distributions--Calculation of Pass-Through Rates" in this prospectus
supplement. The interest rates for the [Class A-1A, class A-1B and
Class A-2 certificates] are fixed at the respective annual rates
specified in the table.
(4) In addition to distributions of interest, the holders of one or more
classes of the offered certificates may be entitled to receive a
portion of any prepayment premiums or yield maintenance charges
received from time to time on the underlying mortgage loans. See
"Description of the Offered Certificates-Distributions-Distributions of
Prepayment Premiums and Yield Maintenance Charges" in this prospectus
supplement.
[(5) "WAC Cap" refers to an interest rate that is, from time to time, equal
to the lesser of (i) the initial rate of interest for the subject class
of certificates and (ii) a weighted average coupon derived from
interest rates on the underlying mortgage loans.].
[(6) "WAC" refers to a an interest rate that is, from time to time, equal to
a weighted average coupon derived from interest rates on the underlying
mortgage loans.]
(7) By _______. See "Ratings" in this prospectus supplement.
(8) "assumed final distribution date" has the definition specified in this
prospectus supplement under "Summary of Prospectus Supplement--Relevant
Dates and Periods". The rated final distribution date, which is also
described in "Summary of Prospectus Supplement--Relevant Dates and
Periods" in this prospectus supplement, will occur in _______.
Important notice about the information contained in this prospectus supplement
and the accompanying prospectus
Information about the offered certificates is contained in two separate
documents, each of which provides summary information in the front part thereof
and more detailed information in the text that follows: (a) the accompanying
prospectus dated _________, which provides general information, some of which
may not apply to the offered certificates; and (b) this prospectus supplement
dated _________, which describes the specific terms of the offered certificates.
You should read both the prospectus and this prospectus supplement in
full to obtain material information concerning the offered certificates. If the
descriptions of the offered certificates vary between this prospectus supplement
and the prospectus, you should rely on the information contained in this
prospectus supplement. You should only rely on the information contained in this
prospectus supplement and the prospectus. We have not authorized any person to
give any information or to make any representation that is different from the
information contained in this prospectus supplement or the prospectus.
S-2
<PAGE>
This prospectus supplement and the prospectus include cross-references
to sections in these materials where you can find further related discussions.
The table of contents in this prospectus supplement and the prospectus identify
the pages where these sections are located.
FORWARD-LOOKING STATEMENTS
This prospectus supplement uses certain capitalized terms that are
defined either in a different section of this prospectus supplement or in the
prospectus.
This prospectus supplement and the prospectus includes the words
"expects", "intends", "anticipates", "estimates" and similar words and
expressions. Such words and expressions are intended to identify forward-
looking statements. Any forward-looking statements are made subject to risks
and uncertainties which could cause actual results to differ materially from
those stated. Such risks and uncertainties include, among other things,
declines in general economic and business conditions, increased competition,
changes in demographics, changes in political and social conditions, regulatory
initiatives and changes in customer preferences, many of which are beyond our
control and the control of the Master Servicer, the Special Servicer, the
Trustee or any related borrower. The forward-looking statements made in this
prospectus supplement are accurate as of the date stated on the cover of this
prospectus supplement. We have no obligation to update or revise any
forward-looking statement.
-----------------------------
We filed with the Securities and Exchange Commission a registration
statement (of which this prospectus supplement and the prospectus form a part)
under the Securities Act of 1933, as amended, with respect to the offered
certificates. This prospectus supplement and the prospectus do not contain all
of the information contained in the registration statement. For further
information regarding the documents referred to in this prospectus supplement
and the prospectus, you should refer to the registration statement and the
exhibits to the registration statement. The registration statement and exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the SEC at its public reference section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices located at:
Chicago regional office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York regional office, Seven World Trade Center, New
York, New York 10048. Copies of these materials can also be obtained
electronically through the SEC's internet web site (http:\\www.sec.gov).
-----------------------------
___________________ is offering the offered certificates subject to
prior sale, when, as and if delivered to and accepted by it, and subject to
certain other conditions. _________________________ is acting as lead manager
and sole bookrunner. It is expected that we will deliver the offered
certificates in book-entry form only through the facilities of The Depository
Trust Company, in New York, New York, on or about _________, against payment
therefor in immediately available funds.
-----------------------------
S-3
<PAGE>
TABLE OF CONTENTS
Page
----
IMPORTANT NOTICE ABOUT THE
INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS............................................ S-2
FORWARD-LOOKING STATEMENTS......................................... S-3
EXECUTIVE SUMMARY.................................................. S-6
SUMMARY OF PROSPECTUS
SUPPLEMENT....................................................... S-8
RISK FACTORS................ ...................................... S-38
Risks Related to the Offered Certificates.......................... S-38
Risks Related to the Mortgage Loans................................ S-40
DESCRIPTION OF THE
MORTGAGE POOL.................................................... S-47
General............................................................ S-47
Certain Terms and Conditions of
the Mortgage Loans................................................ S-51
Certain Mortgage Pool Characteristics.............................. S-60
Additional Mortgage Loan Information............................... S-67
Certain Underwriting Matters....................................... S-69
Cash Management and Certain
Escrows and Reserves............................................. S-75
Significant Mortgage Loans......................................... S-77
The Mortgage Loan Sellers and
the Originators.................................................. S-77
Assignment of the Mortgage Loans................................... S-77
Representations and Warranties..................................... S-78
Cures, Repurchases and Substitutions............................... S-80
Changes in Mortgage Pool Characteristics........................... S-81
SERVICING OF THE
MORTGAGE LOANS..................................................... S-82
General............................................................ S-82
The Master Servicer and
the Special Servicer............................................. S-85
Servicing and Other Compensation and Payment of
Expenses......................................................... S-85
Evidence as to Compliance.......................................... S-90
Modifications, Waivers, Amendments
and Consents..................................................... S-91
Collection Account................................................. S-94
The Controlling Class Representative............................... S-97
Replacement of the Special Servicer................................ S-100
Realization Upon Defaulted
Mortgage Loans..................................................... S-101
REO Properties..................................................... S-104
Inspections; Collection of
Operating Information.............................................. S-106
Maintenance of Insurance........................................... S-106
Certain Matters Regarding the Issuer, the
Master Servicer and the Special Servicer......................... S-107
Events of Default.................................................. S-109
Rights Upon Event of Default....................................... S-110
Sale of Master Servicing Rights.................................... S-111
DESCRIPTION OF THE
OFFERED CERTIFICATES............................................. S-111
General............................................................ S-111
Registration and Denominations..................................... S-114
Delivery, Form and Denomination.................................... S-114
Seniority.......................................................... S-116
Certain Relevant Characteristics of the
Mortgage Loans................................................... S-118
Distributions...................................................... S-119
Allocation of Realized Losses and
Certain Other Shortfalls and Expenses............................ S-129
Advances of Principal and/or Interest.............................. S-131
Appraisal Reductions............................................... S-132
Reports to Certificateholders; Certain
Available Information............................................ S-135
Voting Rights...................................................... S-137
Termination........................................................ S-137
The Trustee........................................................ S-138
YIELD AND MATURITY
CONSIDERATIONS................................................... S-139
Yield Considerations............................................... S-139
Weighted Average Lives of Certain
Classes Offered Certificates..................................... S-143
The Maturity Assumptions........................................... S-144
S-4
<PAGE>
Page
----
Yield Sensitivity of the
[Class S Certificates]........................................... S-145
USE OF PROCEEDS.................................................... S-146
FEDERAL INCOME TAX
CONSEQUENCES..................................................... S-146
General............................................................ S-146
Discount and Premium; Prepayment
Consideration.................................................... S-147
Constructive Sales of
[Class S Certificates]........................................... S-148
Characterization of Investments
in Offered Certificates.......................................... S-149
Possible Taxes on Income From
Foreclosure Property and Other Taxes............................. S-149
CERTAIN ERISA CONSIDERATIONS....................................... S-150
LEGAL INVESTMENT................................................... S-154
METHOD OF DISTRIBUTION............................................. S-155
LEGAL MATTERS...................................................... S-156
RATINGS............................................................ S-157
EXHIBIT A-1--
Certain Characteristics of Mortgage Loans
and Mortgaged Properties....................................... A-1-1
EXHIBIT A-2--
Mortgage Pool Information........................................ A-2-1
EXHIBIT B--
Form of Trustee Report........................................... B-1
EXHIBIT C--
Decrement Tables for Certain Classes
of Offered Certificates ....................................... C-1
EXHIBIT D--
Price/Yield Tables for the
Class S Certificates .......................................... D-1
EXHIBIT E--
Summary Term Sheet............................................... E-1
S-5
<PAGE>
EXECUTIVE SUMMARY
This executive summary does not contain all of the information you need
to consider in making your investment decision. To understand all of the terms
of the offering of the offered certificates, you should read carefully this
prospectus supplement and the prospectus in full.
<TABLE>
<CAPTION>
Initial Aggregate
Principal Approx. Approx. Weighted
Balance or % of Initial Interest Initial Average
Notional Initial Pool Credit Rate Interest Life Principal
Class Ratings (1) Amount (2) Balance Support (3) Description Rate (years)(4) Window(4)
----- ----------- ----------------- ------------ ----------- ----------- -------- ---------- ---------
Offered Certificates
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[S $ (5) N/A N/A % N/A N/A
A-1A $ % % %
A-1B $ % % %
A-2 $ % % %
A-3 $ % % (6) %
A-4 $ % % (6) %
B-1 $ % % (7) %
B-2 $ % % (7) %
<CAPTION>
Private Certificates--Not Offered Hereby (8)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B-3 (9) $ % (9) % (9) (9)
B-4 (9) $ % (9) % (9) (9)
B-5 (9) $ % (9) % (9) (9)
B-6 (9) $ % (9) % (9) (9)
B-7 (9) $ % (9) % (9) (9)
B-8 (9) $ % (9) % (9) (9)
C (9) $ % (9) % (9) (9)
- ---------------------
(1) Ratings shown are those of _______.
(2) The actual initial total certificate principal balance or certificate
notional amount of any class of certificates at the date of issuance
may be larger or smaller than the amount shown above, depending on the
actual size of the initial pool balance. The actual size of the initial
pool balance may be as much as 5% larger or smaller than the amount
presented in this prospectus supplement.
(3) Represents the initial total certificate principal balance (expressed
as a percentage of the initial pool balance) of all classes of
certificates subordinate to the indicated class.
(4) Based on the assumptions that each borrower timely makes all payments
on its underlying mortgage loan, that each underlying mortgage loan
with an anticipated repayment date (as described under "Summary of
Prospectus Supplement--The Mortgage Loans and Mortgaged Properties" in
this prospectus supplement) is paid in full on that date, and that no
underlying mortgage loan is otherwise prepaid prior to stated maturity.
Further based on the other maturity assumptions (as described under
"Yield and Maturity Considerations" in this prospectus supplement).
(5) Total certificate notional amount.
[(6) "WAC Cap" refers to an interest rate that is, from time to time, equal
to the lesser (i) of the initial rate of interest for the subject class
of certificates and a (ii) weighted average coupon derived from rates
on the underlying mortgage loans.]
S-6
<PAGE>
[(7) "WAC"refers to an interest rate that is, from time to time, equal to a
weighted average coupon derived from rates on the underlying mortgage
loans.]
[(8) The private certificates will also include the [Class __ certificates]
which are not shown above. The [Class __ certificates] do not have
certificate principal balances or interest rates.]
(9) Not presented.
S-7
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary contains selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. To understand all of the terms of the offering
of the offered certificates, you should read carefully this prospectus
supplement and the prospectus in full.
Overview of the Transaction
</TABLE>
<TABLE>
<S> <C>
Establishment of the Trust ..................... We will establish a trust, to be designated as DLJ Commercial
Mortgage Trust _____. The assets of the trust will consist of a
pool of multifamily rental and commercial mortgage loans having
the characteristics described in this prospectus supplement.
Issuance of the Certificates.................... We are establishing the trust for purposes of issuing the Series
___ Commercial Mortgage Pass-Through Certificates in
multiple classes. The certificates will, in total,
represent the entire beneficial ownership of the trust.
Governing Document.............................. The governing document for purposes of establishing the trust
and issuing the certificates will be a Pooling and Servicing
Agreement to be dated as of _________________, between us,
the Trustee, the REMIC Administrator, the Master Servicer and
the Special Servicer. See "--The Relevant Parties" and
"--Relevant Dates and Periods" below. The Pooling and
Servicing Agreement will also govern the servicing and
administration of the mortgage loans and the other assets of the
trust. A copy of the Pooling and Servicing Agreement will be
filed with the SEC as an exhibit to a Current Report on Form 8-
K, within 15 days after the initial issuance of the offered
certificates. The SEC will make the Form 8-K and its exhibits
available to the public for inspection.
<CAPTION>
Relevant Parties
<S> <C>
Depositor....................................... DLJ Commercial Mortgage Corp., a Delaware corporation. Our
address is 277 Park Avenue, 9th Floor, New York, New York
10172 and its telephone number is (212) 892-3000. See "The
Depositor" in the prospectus.
Master Servicer................................. _________________, a _________________ corporation. See
"Servicing of the Mortgage Loans--The Master Servicer and the
Special Servicer" in this prospectus supplement.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Special Servicer................................ _________________, a _________________ corporation. See
"Servicing of the Mortgage Loans--The Master Servicer and the
Special Servicer" in this prospectus supplement.
The holders of certificates representing a majority
interest in the controlling class of certificates will
have the right, subject to certain conditions described
in this prospectus supplement, to replace the Special
Servicer and, further, to select a representative that may
direct and advise the Special Servicer on various servicing
matters. At any particular time, the "controlling class"
will, be the most subordinate class of the certificates
(other than the [Class D-1, Class D-2, Class S, Class
R-I, Class R-II and Class R-III] certificates) then
outstanding that has a then-current total certificate
principal balance that is not less than 25% of such class'
initial total certificate principal balance. See also "Servicing
of the Mortgage Loans--Replacement of the Special Servicer"
and "--The Controlling Class Representative" in this prospectus
supplement.
Trustee and REMIC Administrator................. _______________________. See "Description of the Offered
Certificates--The Trustee" in this prospectus supplement. The
Trustee will also have certain duties with respect to REMIC
administration.
Mortgage Loan Sellers........................... _________________ a ___________________ corporation and
__________________ a ____________________ corporation.
The mortgage loan sellers will sell their respective
mortgage loans to us and we will transfer them to the
trust.
<CAPTION>
Mortgage Number of % of Initial
Loan Seller Mortgage Loans Pool Balance
----------- -------------- ------------
%
%
<S> <C>
See "Description of the Mortgage Pool--The Mortgage
Loan Sellers and the Originators" in this prospectus supplement.
Originators..................................... Each mortgage loan was originated by one of the following
parties:
o _______________ originated ____________ mortgage
loans representing _____________ of the initial pool
balance.
o ___________________originated______________
mortgage loans, representing _____________ of the
initial pool balance.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
See "The Mortgage Loan Sellers and the Originators"
in this prospectus supplement.
<CAPTION>
Relevant Dates and Periods
<S> <C>
Cut-off Date.................................... __________________. The cut-off date is the date we establish
the trust.
Closing Date.................................... On or about ___________________. The closing date is the
date on which the offered certificates will initially be issued.
Distribution Date............................... With respect to any calendar month (beginning with ________),
the later of (i) the ________ of the month (or, if the ________
is not a business day, then the next succeeding business day) and
(ii) the _________ business day following the determination date
in the same month. The distribution date is the date during the
calendar month on which distributions are to be made on the
certificates.
Record Date..................................... With respect to any distribution date, the last business day of the
calendar month immediately preceding the month in which the
distribution date occurs. The record date is relevant for
establishing which holders of certificates are entitled to receive
distributions on the related distribution date.
Determination Date.............................. With respect to any calendar month (beginning with ________),
the _________ day of the calendar month (or, if the _______
day is not a business day, the immediately preceding business
day). The determination date during any calendar month is
relevant for purposes of establishing the end of the collection
period for the distribution date in the same month.
Collection Period............................... With respect to any distribution date, the period that begins
immediately following the determination date in the calendar
month prior to the month in which the distribution date occurs
and continues through and includes the determination date in the
calendar month in which the distribution date occurs, except that
the first collection period begins immediately following the cut-
off date. Amounts available for distribution on any distribution
date will be a function of the payments and other collections
received, and any advances of payments due, in respect of the
mortgage loans during the related collection period.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Interest Accrual Period......................... With respect to any distribution date, the calendar month
immediately preceding the month in which the distribution date
occurs. The amount of interest distributable with respect to the
interest-bearing certificates on any distribution date will be a
function of the interest accrued during the related interest
accrual period.
Rated Final Distribution Date................... The distribution date in _______. The rated final distribution
date is set at the first distribution date following the third
anniversary of the end of the amortization term for the mortgage
loan with the longest remaining amortization term as of the
closing date.
As discussed in this prospectus supplement, each rating assigned
to the offered certificates will represent the respective rating
agency's assessment of the likelihood of timely receipt by the
holders of certificates of all interest to which they are entitled on
each distribution date and, except in the case of the [Class S
certificates], the ultimate receipt by the holders of [Class S
certificates] of all principal to which they are entitled by the rated
final distribution date.
Assumed Final Distribution Date................. With respect to any class of certificates, the distribution date on
which the holders of those certificates would be expected to
receive their last distribution based upon--
o The assumption that each borrower timely makes all
payments on its mortgage loan.
o The assumption that each mortgage loan with an anticipated
repayment date is paid in full on that date.
o The assumption that no borrower otherwise prepays its
mortgage loan prior to stated maturity.
o The other maturity assumptions set forth under "Yield and
Maturity Considerations" in this prospectus supplement.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
The assumed final distribution date for each class of offered
certificates is the distribution date occurring in the calendar
month and year set forth below for each class.
Month of
Assumed Final
Class Distribution Date
----- -----------------
[Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class A-4
Class B-1
Class B-2]
<CAPTION>
Overview of the Certificates
<S> <C>
General......................................... The certificates will consist of ____ classes, only __________
of which are being offered pursuant to this prospectus
supplement and the prospectus.
We do not intend to register any of the remaining classes
of certificates under the Securities Act, and we are
not offering the certificates pursuant to this prospectus
supplement or the prospectus. We have included information
regarding the private certificates in this prospectus
supplement because of its potential relevance to an investment
decision with respect to the offered certificates.
The Offered Certificates........................ Each class of offered certificates will have the approximate initial
total certificate principal balance or certificate notional amount
set forth below and will accrue interest at an annual rate set forth
or described below:
Approx. Initial
Aggregate
Principal Balance
or Annual Rate
Class Notional Amount(1) of Interest
----- ------------------ -----------
[Class S $ (2) % (3)
Class A-1A $ % (4)
Class A-1B $ % (4)
Class A-2 $ % (4)
Class A-3 $ % (5)
Class A-4 $ % (5)
Class B-1 $ % (6)
Class B-2 $ % (6)
</TABLE>
S-12
<PAGE>
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<S> <C>
---------------
(1) the actual initial total certificate principal balance or
certificate notional amount of any class of offered
certificates at the date of issuance may be larger or smaller
than the amount shown above, depending on the actual size of
the initial pool balance. The actual size of the initial
pool balance may be as much as [5]% larger or smaller
than the amount presented in this prospectus supplement.
(2) [The Class S certificates will accrue interest based
on a total certificate notional amount equal to the
total certificate principal balance outstanding from
time to time of all those certificates that have certificate
principal balances.]
[(3) The rate of interest shown above for the [Class S certificates] is the
rate applicable for the distribution date in ____________. The rate of
interest for the [Class S certificates] will be variable and will be
determined pursuant to a formula described under "Description of the
Offered Certificates--Distributions--Calculation of Pass-Through
Rate" in this prospectus supplement. In general, the rate of interest
for this class will equal the weighted average of the strip rates at
which interest accrues on the respective components of the total
certificate notional amount of the [Class S certificates] from time to
time.]
[(4) Fixed rate of interest.]
[(5) The interest rates shown above for the [Class A-3 and Class A-4]
certificates are the rates applicable for the distribution date in
_____________. The interest rate for each of these classes will be
determined pursuant to a formula described under "Description of the
Offered Certificates--Distributions--Calculation of Pass-Through
Rates" in this prospectus supplement. In general, the interest rate for
each of these classes will equal the lesser of (i) the rate per annum
specified above for each of these classes (ii) and a weighted average
coupon derived from interest rates on the mortgage loans.]
[(6) The interest rates shown above for the [Class B-1 and class B-2]
certificates are the rates applicable for the distribution date in [ ]
1999. The interest rates for each of these classes will be variable and
will be determined pursuant to a formula described under "Description
of the Offered Certificates--Distributions--Calculation of Pass-
Through Rates" in this prospectus supplement. In general, the interest
rate for each of these classes will equal a weighted average coupon
derived from interest rates on the mortgage loans.]
See "Description of the Offered Certificates--General" and "--Distributions--
Calculation of Pass-Through Rates" in this prospectus supplement.
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The Private Certificates........................ Each class of the private certificates will have the approximate
initial total certificate principal balance set forth below and will
accrue interest at the annual rate set forth below:
Approx. Initial
Aggregate Annual Rate
Class Principal Balance(1) of Interest
----- -------------------- -----------
[Class B-3 $ %
Class B-4 $ %
Class B-5 $ %
Class B-6 $ %
Class B-7 $ %
Class B-8 $ %
Class C $ %
Class D-1 $ %
Class D-2 $ %
Class R-I $ %
Class R-II $ %
Class R-III] $ %
---------------
(1) The actual initial total certificate principal balance of
any class of private certificates at the date of issuance may
be larger or smaller than the amount shown above, depending on
the actual size of the initial pool balance. The actual
size of the initial pool balance may be as much as [5]%
larger or smaller than the amount presented in this
prospectus supplement.
(2) Fixed rate of interest
(3) holders of the [Class D-1 and Class D-2] certificates will be
entitled to receive, if and when paid, certain additional
interest accrued in respect of the mortgage loans with
an anticipated repayment date. The [Class D-1 and Class
D-2] certificates do not have certificate principal balances or
interest rates.
(4) The [Class R-I, R-II and R-III] certificates are REMIC residual
interests and do not have certificate principal balances or
interest rates.
Registration and Denominations.................. The trust will be issuing the offered certificates in book-entry
form in original denominations of: (i) in the case of the [Class S
certificates], [$10,000] initial certificate notional amount and in
any whole dollar denomination in excess of [$10,000]; (ii) in the
case of the [Class A-1A and Class A-1B] certificates, [$10,000]
initial certificate principal balance and in any whole dollar
denomination in excess of [$10,000]; and (ii) in the case of the
other classes of offered certificates, [$100,000] initial certificate
principal balance and in any whole dollar denomination in excess
of [$100,000].
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You will hold your certificates through The Depository Trust Company.
Transfers within The Depository Trust Company will be in accordance with its
usual rules and operating procedures. As a result, you will not receive a fully
registered physical certificate representing your interest in any offered
certificate, except under the limited circumstances described in this prospectus
supplement and in the prospectus. We may elect to terminate the book-entry
system through The Depository Trust Company with respect to any portion of
any class of offered certificates. See "Description of the Offered
Certificates--Registration and Denominations" in this prospectus supplement and
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the prospectus.
Optional Termination............................ The Master Servicer, the Special Servicer or any single holder or
group of holders of certificates representing a majority interest
in the controlling class, in that order of preference, may
terminate the trust when the total stated principal balance of the
mortgage pool is less than _______% of the initial pool balance.
See "Description of the Offered Certificates--Termination" in
this prospectus supplement.
Federal Income Tax Consequences................. The REMIC Administrator will make elections to treat
designated portions of the trust assets as three separate "real
estate mortgage investment conduits" under Sections 860A
through 860G of the Internal Revenue Code of 1986. The
designations for each REMIC are as follows:
o "REMIC I", the lowest tier REMIC, will hold, the
-------
mortgage loans, as well as any mortgaged properties (as
defined in this prospectus supplement under "--The
Mortgage Loans and Mortgaged Properties" below) that
may have been acquired by the trust following a
borrower default, but will exclude collections of
additional interest accrued and deferred as to payment in
respect of each mortgage loan with an anticipated
repayment date that remains outstanding.
o "REMIC II" will hold the "regular interests" in REMIC I.
o "REMIC III" will hold the "regular interests" in REMIC II.
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Any assets not included in a REMIC will be divided into______ groups, each of
which will constitute a grantor trust for federal income tax purposes.
The offered certificates will be treated as "regular interests" (or, in the case
of the [Class S certificates], multiple "regular interests") in REMIC
III. This means that they will be treated as newly issued debt instruments for
federal income tax purposes. You will have to report income on your certificates
in accordance with the accrual method of accounting even if you are otherwise a
cash method taxpayer. The offered certificates will not represent any interest
in the grantor trusts.
The [Class S and Class ___ certificates] will, be issued
with original issue discount. The [Class ___] certificates
will be issued with a de minimis amount of original
issue discount. The other classes of offered certificates will not be
issued with original issue discount. If you own a certificate issued with
original issue discount, you may have to report original
issue discount income and be subject to a tax on this
income before you receive a corresponding cash distribution.
For tax information reporting purposes, the REMIC Administrator will compute
the accrual of discount and premium on the certificates,
based on the assumption that each mortgage loan with an
anticipated repayment date will be paid in full on that
date and on the further assumption that no borrower
will otherwise prepay its mortgage loan prior to stated maturity.
It is anticipated that any prepayment premium or yield
maintenance charge allocable to a class of offered
certificates will be ordinary income to the holders of
those classes of certificates only after the Master
Servicer's actual receipt of any prepayment premium or
yield maintenance charge. See "Description of the Offered
Certificates--Distributions--Distributions of Prepayment Premiums and
Yield Maintenance Charges" and "Federal Income Tax
Consequences--Discount and Premium; Prepayment
Consideration" in this prospectus supplement.
For a more detailed discussion of the federal
income tax aspects of investing in the
certificates, see "Federal Income Tax Consequences" in
this prospectus supplement and "Federal Income Tax
Consequences" in the prospectus.
</TABLE>
S-16
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ERISA........................................... It is anticipated that certain retirement plans and other employee
benefit plans and arrangements subject to Title I of the
Employee Retirement Income Security Act of 1974 or Section
4975 of the U.S. tax code will be able to invest in the [Class A-
1A, Class A-1B and Class S certificates], without giving rise to
a prohibited transaction, based upon an individual prohibited
transaction exemption granted to __________ by the U.S.
Department of Labor. However, investments in the other
offered certificates by, on behalf of or with assets of these
entities, will be restricted as described under "Certain ERISA
Considerations" in this prospectus supplement.
If you are a fiduciary of any retirement plan or other
employee benefit plan or arrangement subject to Title
I of ERISA or section 4975 of the U.S. tax code, you should
review carefully with your legal advisors whether the
purchase or holding of the offered certificates could
give rise to a transaction that is prohibited under
ERISA or Section 4975 of the U.S. tax code. See "Certain
ERISA Considerations" in this prospectus supplement and
"ERISA Considerations" in the prospectus.
Legal Investment................................ The offered certificates will not constitute "mortgage related
securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
You should consult your own legal advisors to determine
whether and to what extent the offered certificates
constitute legal investments for you. See "Legal
Investment" in this prospectus supplement and in
the prospectus.
Certain Investment Considerations............... The rate and timing of payments and other collections of
principal on or in respect of the mortgage loans will affect the
yield to maturity on each offered certificate. In the case of
offered certificates purchased at a discount, a slower than
anticipated rate of payments and other collections of principal
could result in a lower than anticipated yield. In the case of
[Class S certificates] or any other offered certificates purchased
at a premium, a faster than anticipated rate of payments and
other collections of principal could result in a lower than
anticipated yield. If you are contemplating the purchase of
[Class S certificates], you should be aware that the yield to
maturity on the [Class S certificates] will be highly sensitive to
the rate and timing of principal prepayments and other
liquidations of mortgage loans and that an extremely rapid rate
of prepayments and/or other liquidations in respect of the
mortgage loans could result in a complete or partial loss of your
initial investment. The interest rates for the [Class S, Class A-
</TABLE>
S-17
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1B, Class A-2, Class A-3, Class A-4, Class B-1 and B-2]
certificates are either equal to, are based upon or are limited by
the weighted average of certain net interest rates on the
mortgage loans. The weighted average will vary as principal is
received on the various mortgage loans at different rates and will
be adversely affected by voluntary and involuntary prepayments
on mortgage loans with relatively high mortgage interest rates.
See "Yield and Maturity Considerations" in this prospectus supplement
and in the prospectus.
Ratings......................................... It is a condition to the issuance of the respective classes of the
offered certificates that they receive the credit ratings indicated
below:
Class [Rating] [Rating]
----- -------- --------
[Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class A-4
Class B-1
Class B-2]
The ratings of the offered certificates address the
timely payment of interest and, except in the case of
the [Class S certificates], the ultimate payment of
principal on or before the rated final distribution date.
For a description of the limitations of the ratings of
the offered certificates, see "Ratings" in this prospectus
supplement and "Risk Factors--Limited Nature of
Ratings" in the prospectus.
Reports to Certificateholders................... On each distribution date, the trustee report (substantially in the
form of Exhibit B to this prospectus supplement) will
be available to you through the sources described under
"Description of the Offered Certificates--Reports to
Certificateholders; Certain Available Information" in
this prospectus supplement.
You may review a loan-by-loan listing electronically in the
form of the standard Commercial Real Estate Secondary Market and
Securitization Association loan setup file and loan
periodic update file. The Trustee will electronically
provide these files on a monthly basis, to the extent
that it receives the information needed to do so.
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S-18
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Upon reasonable prior notice, you may also review at the
Trustee's offices during normal business hours a
variety of information and documents that pertain to the
mortgage loans and mortgaged properties, including loan
documents, borrower operating statements, rent rolls and
property inspection reports, to the extent the Trustee
receives the information and documents.
See "Description of the Offered Certificates--Reports to
Certificateholders; Certain Available Information" in this
prospectus supplement.
<CAPTION>
The Certificates: A Structural Summary
<S> <C>
Seniority....................................... The following chart sets forth the relative seniority of the
respective classes of certificates for purposes of--
o making distributions of interest and, if and when
applicable, distributions of principal; and
o allocating losses on the mortgage loans, as well as
certain default-related and other unanticipated expenses
of the trust.
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Each identified class of certificates will, for the above specified
purposes, be subordinate to each other class of certificates, if any,
listed above it in the following chart.
Summary Seniority Chart
Most Senior
--------------------------------------
[Class S, Class A-1A and Class A-1B]
--------------------------------------
[Class A-2]
--------------------------------------
[Class A-3]
--------------------------------------
[Class A-4]
--------------------------------------
--------------------------------------
[Class B-1]
--------------------------------------
[Class B-2]
--------------------------------------
private certificates
(other than the [Class D-1 and D-2] certificates)
--------------------------------------
Most Subordinate
The only form of credit support for any class of offered certificates
will be the above-referenced subordination of the other classes of
certificates to which it is senior, including all of the private
certificates (other than the [Class D-1 and Class D-2 certificates]).
Holders of the [Class D-1 and D-2 certificates] will be entitled to
receive, if and when paid, certain additional interest accrued in
respect of each mortgage loans with an anticipated repayment date.
Accordingly, the [Class D-1 and Class D-2 certificates] are neither
senior nor subordinate to any other class of certificates except to
the extent that amounts received on any particular mortgage loans
with an anticipated repayment date are applied to pay amounts other
than additional interest.
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S-20
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See "Description of the Offered Certificates--General",
"--Seniority", "--Distributions" and "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" in this prospectus
supplement.
Distributions
A. General..................................... Distributions of interest and principal will be made to the holders
of the various classes of certificates entitled thereto, sequentially
based upon their seniority as depicted in the Summary Seniority
Chart above. See "Description of the Offered
Certificates--Seniority" and "--Distributions--Priority of
Payments" in this prospectus supplement.
B. Distributions of Interest................... Each class of certificates (other than the [Class R-I, Class R-II,
Class R-III, Class D-1 and Class D-2 certificates]) will bear
interest. For any class of interest-bearing certificates, interest
will accrue during each interest accrual period based upon--
o the interest rate for the class for the related distribution
date,
o the total certificate principal balance or certificate
notional amount, as the case may be, of the class
outstanding immediately prior to the related distribution
date, and
o the assumption that each year consists of twelve 30-day
months.
The timing of a prepayment on a mortgage loans may result in the
collection of less than a full month's interest on the mortgage loan
during the collection period of prepayment. As and to the extent
described in this prospectus supplement, these shortfalls (net of the
respective portions thereof attributable to the fees of the Master
Servicer and certain other items) will be allocated to reduce the
amount of accrued interest otherwise payable to the holders of the
respective classes of interest-bearing certificates on a basis which
is proportional to the respective amounts of accrued interest.
On each distribution date, subject to available funds and the payment
priorities described above, you will be entitled to receive your
proportionate share of all unpaid distributable interest accrued in
respect of your class of offered certificates through the end of the
related interest accrual period.
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S-21
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See "Description of the Offered Certificates--Distributions
--Calculation of Interest" and "--Allocation of Realized Losses and
Certain Other Shortfalls and Expenses" in this prospectus supplement.
C. Distributions of Principal.................. The [Class S] certificates do not have a certificate principal
balance. In general, subject to available funds and the payment
priorities described above, the holders of each class of principal
balance certificates will be entitled to receive a total amount of
principal over time equal to the total certificate principal balance
of their particular class. However, the Pooling and Servicing
Agreement will require the Trustee to make distributions of
principal in a specified sequential order to ensure that--
o No distributions of principal will be made to the holders of
any class of private certificates until the total certificate
principal balance of the offered certificates is reduced to
zero.
o No distributions of principal will be made to the holders of
the [Class A-2, Class A-3, Class A-4, Class B-1 or Class B-2
certificates] until, in the case of each of these classes,
the total certificate principal balance of all more senior
classes of offered certificates is reduced to zero.
o No distributions of principal will be made to the holders of
the [Class A-1B certificates] until either:
(i) the total certificate principal balance of the [Class
A-1A certificates] is reduced to zero; or
(ii) the total certificate principal balance of the [Class
A-2, Class A-3, Class A-4, Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5, Class B-6, Class
B-7, Class B-8 and Class C certificates] is
reduced to zero due to losses on the mortgage
loans and/or certain default-related or other
unanticipated expenses of the trust and, as a
result, the [Class A-1A and Class A-1B
certificates] are the only outstanding principal
balance certificates (in which case, distributions
of principal will be made to the holders of the
[Class A-1A certificates] and the holders of the
[Class A-1B certificates] on a proportional
basis).
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S-22
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The total distributions of principal to be made on the respective
classes of principal balance certificates on any distribution date
will in general be a function of--
o the amount of scheduled payments of principal due (or, in
some cases, deemed due) on the mortgage loans during the
related collection period that are either received as of the
related determination date or advanced by the Master
Servicer, and
o the amount of any prepayments and other unscheduled
collections of previously unadvanced principal in respect of
the mortgage loans that are received during the related
collection period.
See "Description of the Offered Certificates--Distributions
--Calculation of the Principal Distribution Amount" and
"--Distributions--Priority of Payments" in this prospectus
supplement.
D. Distributions of
Prepayment Premiums and
Yield Maintenance Charges............... Any prepayment premium or yield maintenance charge collected
in respect of a mortgage loan will be distributed, in the
proportions described in this prospectus supplement, to the
holders of the [Class S certificates] and/or to the holders of the
class or classes of principal balance certificates then entitled to
receive distributions of principal. See "Description of the
Offered Certificates--Distributions of Prepayment Premiums and
Yield Maintenance Charges" in this prospectus supplement.
Allocation of Losses and Certain
Other Shortfalls and Expenses................ Realized losses on the mortgage loans, together with certain
default-related and other unanticipated expenses of the trust,
may cause the total stated principal balance of the pool of
mortgage loans to be less than the total certificate principal
balance of the principal balance certificates. If a deficit exists
following the distributions made on the certificates on any
distribution date, then the total certificate principal balances of
the respective classes of principal balance certificates will be
successively reduced in reverse order of their seniority (as
depicted in the chart above), until any deficit is eliminated.
In addition, the timing of a prepayment on a mortgage loan may result
in the collection of less than a full month's interest on the
mortgage loans during the collection period of prepayment. As in this
prospectus supplement, any shortfall after deducting the
</TABLE>
S-23
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fees of the Master Servicer and certain other items, will be
allocated to reduce the total amount of interest otherwise payable to
the holders of the respective classes of interest-bearing
certificates on a proportional basis.
See "Description of the Offered Certificates--Allocation of Realized
Losses and Certain Other Shortfalls and Expenses" and "Servicing of
the Mortgage Loans--Servicing and Other Compensation and Payment of
Expenses" in this prospectus supplement.
Advances........................................ In general, the Master Servicer will be required to make
advances, for distribution to the certificateholders, in the amount
of any delinquent monthly payments (other than balloon
payments) of principal and interest due on the mortgage loans.
The Master Servicer will deduct the monthly payments
attributable to its fees and certain other items from the amount
of the advance. The Master Servicer and, in limited cases, the
Special Servicer will also generally be required to make servicing
advances to cover certain costs and expenses relating to the
servicing and administration of the mortgage loans. If the
Master Servicer or the Special Servicer fails to make any
advance that it is required to make, the Trustee will be required
to make the advance. None of the Master Servicer, the Special
Servicer or the Trustee, however, will be required to make any
advance that it determines, in its good faith and reasonable
judgment, will not be recoverable from proceeds of the related
mortgage loan. As described in this prospectus supplement, any
party that makes an advance will be entitled to be reimbursed for
the advance, together with interest.
See "Description of the Offered Certificates--Advances of Principal
and/or Interest" and "Servicing of the Mortgage Loans--Servicing and
Other Compensation and Payment of Expenses" in this prospectus
supplement and "Description of the Certificates--Advances in Respect
of Delinquencies" and "Description of the Pooling and Servicing
Agreements--Certificate Account" in the prospectus.
Appraisal Reductions............................ If certain adverse events or circumstances, occur or exist with
respect to a mortgage loan or the related mortgaged property,
the Special Servicer will be obligated to obtain a new appraisal
of or, in limited cases, conduct a valuation of the mortgaged
property. The new estimated value may reflect an "appraisal
reduction amount", which will, in general, be equal to any excess
of (i) the principal balance of, and certain other amounts due
</TABLE>
S-24
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<S> <C>
under, the subject mortgage loan over (ii) ____% of the new appraised
value.
If an appraisal reduction amount does exist, the amount otherwise
required to be advanced in respect of interest on the subject
mortgage loan will be reduced generally in the same proportion that
the appraisal reduction amount bears to the principal balance of the
mortgage loans. Due to the payment priorities, this will reduce the
funds available to pay interest on the most subordinate class of
certificates then outstanding. See "Description of the Offered
Certificates--Appraisal Reductions" in this prospectus supplement.
The Mortgage Loans and Mortgaged Properties
The Mortgage Pool............................... The trust assets will primarily consist of the pool of mortgage
loans.
Each mortgage loan constitutes the obligation of one or more persons
to repay a specified sum with interest. Each mortgage loan will be
secured by a first mortgage lien on the ownership and/or leasehold
interest of the related borrower or another person in one or more
commercial or multifamily rental properties.
Mortgage loans representing __% of the initial pool balance are
secured by a first mortgage lien on the ownership and/or leasehold
interests of the related borrower or borrowers in multiple mortgaged
properties.
For more detailed information on the mortgage loans, see the
following sections in this prospectus supplement:
o "Description of the Mortgage Pool"
o "Risk Factors--Risks Related to the Mortgage Loans"
o Exhibit A-1 - Certain Characteristics of the Mortgage
Loans and Mortgaged Properties
o Exhibit A-2 - Mortgage Pool Information
Listed below is certain statistical information regarding the
mortgage loans and the mortgaged properties. In reviewing this
information, as well as the statistical information regarding the
mortgage loans and the mortgaged properties contained
</TABLE>
S-25
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<S> <C>
elsewhere in this prospectus supplement, you should be aware
that--
o All numerical information provided with respect to the
mortgage loans is provided on an approximate basis.
o All weighted average information provided with respect to the
mortgage loans reflects weighting of the mortgage loans by
their cut-off date balances.
o When information with respect to the mortgaged properties is
expressed as a percentage of the initial pool balance, the
percentages are based upon the cut-off date balances of the
related mortgage loans.
[o ______________ mortgage loans representing __% of
the initial pool balance are cross-collateralized and cross-
defaulted with one or more other mortgage loans.
Except where otherwise specifically indicated, each
cross-collateralized mortgage loan is presented as if it
were secured only by a mortgage lien on the
corresponding mortgaged property identified on Exhibit
A-1 to this prospectus supplement. See the notes to the
tables set forth in Exhibit A-1.]
[o __(__) mortgage loans representing __% of the initial
pool balance are secured by multiple mortgaged
properties. For purposes of presenting statistical
information, we have allocated the total amount of the
indebtedness among the related mortgaged properties on
the basis of (i) relative appraised values, (ii) the relative
underwritten net cash flow or (iii) prior allocations
reflected in the related mortgage loans documents.
Except where otherwise specifically indicated, each
allocated portion of the total amount is (i) presented as
if it were a single "mortgage loan" secured only by a
mortgage lien on the corresponding mortgaged property
identified on Exhibit A-1 to this prospectus supplement
and (ii) described as being as cross-collateralized and
cross-defaulted with each other mortgage loan
representing an allocable portion of the related
indebtedness. See the notes to the tables set forth in
Exhibit A-1.
[o ____(___) mortgage loans representing __% of the initial pool
balance are secured by multiple parcels and the parcels are
treated as a single "mortgaged property"
</TABLE>
S-26
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<S> <C>
because of their proximity to each other, the interrelationship
of their operations or for other reasons deemed appropriate by us.
o This prospectus supplement refers to certain properties
specifically by name. The mortgaged properties are identified
by name on Exhibit A-1 to this prospectus supplement.
o Statistical information regarding the mortgage loans may
change prior to the date of issuance of the certificates due
to changes in the composition of the pool of mortgage loans
prior to the closing date.
o Certain capitalized terms used with respect to the mortgage
loans are defined under "Description of the Mortgage Pool" in
this prospectus supplement.
o The cut-off date balances as presented in this prospectus
supplement are based upon the assumption that all scheduled
payments due on the mortgage loans on or before the cut-off
date are timely made and, further, that there are no
unscheduled collection of principal with respect to any
mortgage loan during the period from _____ up to and
including the cut-off date.
A. General Characteristics..................... The pool of mortgage loans will have the following general
characteristics as of the cut-off date:
Initial pool balance(1)................................ $
Number of mortgage loans...............................
Maximum cut-off date balance(2)........................ $
Minimum cut-off date balance........................... $
Average cut-off date balance........................... $
Maximum loan group cut-off date balance(3)............. $
Minimum loan group cut-off date balance................ $
Average loan group cut-off date balance................ $
Maximum mortgage rate.................................. %
Minimum mortgage rate.................................. %
Weighted average mortgage rate......................... %
Maximum original term to maturity
or anticipated repayment date..................... months
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Minimum original term to maturity
or anticipated repayment date..................... months
Weighted average original term to maturity
or anticipated repayment date..................... months
Maximum remaining term to maturity
or anticipated repayment date...................... months
Minimum remaining term to maturity
or anticipated repayment date..................... months
Weighted average remaining term to maturity
or anticipated repayment date..................... months
Maximum underwritten debt
service coverage ratio(4).......................... x
Minimum underwritten debt
service coverage ratio............................. x
Weighted average underwritten
debt service coverage ratio........................ x
Maximum cut-off date loan-to-value ratio(5)............ %
Minimum cut-off date loan-to-value ratio............... %
Weighted average cut-off date
loan-to-value ratio................................ %
Maximum maturity/anticipated repayment date
loan-to-value ratio(6)................................. %
Minimum maturity/anticipated repayment date
loan-to-value ratio.................................... %
Weighted average maturity/anticipated %
repayment date loan-to-value ratio.....................
---------------------
(1) The "initial pool balance" is equal to the total cut-off date
balance of the pool of mortgage loans and is subject to a
permitted variance of plus or minus [5]%.
(2) The "cut-off date balance" of each mortgage loan is equal to
its unpaid principal balance as of the cut-off date, after
application of all payments of principal due in respect of
the mortgage loan on or before that date, whether or not
received. The cut-off date balances of the mortgage loans are
presented without regard to the cross-collateralization of
some mortgage loans.
[(3) The "loan group cut-off date balances" are the cut-off date
balances of the mortgage loans, presenting each group of
cross-collateralized mortgage loans as if it were a single
mortgage loan.]
(4) The "underwritten debt service coverage ratio" for any
mortgage loan (other than a mortgage loan secured by multiple
mortgaged properties) is equal to the underwritten net cash
flow (see "Description of the
</TABLE>
S-28
<PAGE>
<TABLE>
<S> <C>
Mortgage Pool--Additional Mortgage Loans Information" in this
prospectus supplement) generated by the related mortgaged
property, divided by the product of 12 times the monthly
payment of principal and/or interest due in respect of the
mortgage loan on the cut-off date. The underwritten debt
service coverage ratio for any mortgage loan secured by
multiple mortgaged properties is equal to the total
underwritten net cash flow generated by all of the mortgaged
properties securing the mortgage loan (and any and all other
mortgage loans with which it is cross-collateralized),
divided by the product of 12 times the total monthly payments
of principal and/or interest due on the cut-off date in
respect of the mortgage loan (and any and all other mortgage
loans with which it is cross-collateralized).
(5) The "cut-off date loan-to-value ratio" for any mortgage loans
(other than a mortgage loan secured by multiple mortgaged
properties) is equal to its cut-off date balance, divided by
the estimated value of the related mortgaged property as set
forth in the most recent appraisal obtained by or otherwise
in the possession of the mortgage loan seller. The cut-off
date loan-to-value ratio for any mortgage loans is equal to
the entire cut-off date balance of the mortgage loan (and any
and all other mortgage loans with which it is
cross-collateralized), divided by the estimated value of all
of the related mortgaged properties servicing the mortgage
loan (and any and all other mortgage loans with which it is
cross-collateralized) as set forth in the most recent
appraisals obtained by or otherwise in the possession of the
related mortgage loan seller.
(6) The "maturity/anticipated repayment date loan-to-value ratio"
for any mortgage loan (other than a mortgage loan secured by
multiple mortgaged properties) that provides for a balloon
payment or has an anticipated repayment date is equal to the
unpaid principal balance of the mortgage loan that will be
outstanding as of its maturity date or anticipated repayment
date, as applicable, assuming no defaults or prepayments,
divided by the estimated value of the related mortgaged
property as set forth in the most recent appraisal obtained
by or otherwise in the possession of the related mortgage
loan seller. The maturity/anticipated repayment date
loan-to-value ratio for any mortgage loan secured by multiple
mortgaged properties that provides for a balloon payment or
has an anticipated repayment date is equal to the unpaid
principal balance of the mortgage loan (and any and all other
mortgage loans with which it is cross-collateralized) that
will be outstanding as of its (or, if applicable, their)
maturity date or anticipated repayment date, as applicable,
assuming no defaults or prepayments, divided by the estimated
value of all of the related mortgaged properties securing the
mortgage loan (and any and all other mortgage loans with
which it is cross-collateralized) as set forth in the most
recent appraisal obtained by or otherwise in the possession
of the related mortgage loan seller. Maturity/anticipated
repayment date loan-to-value ratios have not been calculated
and are not presented for fully amortizing mortgage loans.
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
B. State Concentration......................... The table below shows the number of, and percentage of the
initial pool balance secured by, mortgaged properties located
in the indicated states:
<CAPTION>
Number of % of Initial
State Mortgaged Properties Pool Balance
----- -------------------- ------------
<S> <C> <C> <C>
%
%
%
%
%
<CAPTION>
<S> <C>
The remaining mortgaged properties are located throughout
______ other states and [the District of Columbia]. No more
than ______% of the initial pool balance is secured by
mortgaged properties located in any of these other jurisdictions.
C. Property Types.............................. The table below shows the number of, and percentage of the
initial pool balance secured by, mortgaged properties operated
for each indicated purpose:
<CAPTION>
Number of % of Initial
Property Type Mortgaged Properties Pool Balance
------------- -------------------- ------------
<S> <C> <C> <C>
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
D. Security for the Mortgage
Loans................................... The table below shows the number and percentage (based on cut-off date balance)
of the mortgage loans that are secured by first mortgage liens on each of the
specified interests in the related mortgaged properties:
<CAPTION>
Encumbered Interest
in the Related Number of % of Initial
Mortgaged Property Mortgaged Properties Pool Balance
------------------- -------------------- ------------
<S> <C> <C> <C>
Ownership* %
Ownership in part/
Leasehold in part %
Leasehold %
<CAPTION>
<S> <C>
* "Ownership" also includes cases where the ownership and
leasehold interests in the same property are both encumbered.
E. Cut-off Date Balances....................... The table below shows the range of cut-off date balances for
the mortgage loans, presented without regard to the cross-
collateralization of those mortgage loans which are secured by
multiple mortgaged properties.
<CAPTION>
Range of Number of % of Initial
Cut-off Date Balances Mortgage Loans Pool Balance
--------------------- -------------- ------------
<S> <C> <C> <C>
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
F. Loan Group Cut-off Date Balances.......... The table below shows the range of cut-off date
balances for the mortgage loans, presenting each group
of cross-collateralized mortgage loans secured by
multiple mortgaged properties as a single mortgage loan.
<CAPTION>
Range of
Loan Group Number of % of Initial
Cut-off Date Balances Mortgage Loans Pool Balance
--------------------- -------------- ------------
<S> <C> <C> <C>
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
$ - $ %
<CAPTION>
<S> <C>
G. Mortgage Rates ............................. The table below shows the range of mortgage rates for the
mortgage loans as of the cut-off date.
<CAPTION>
Range of Cut-off Number of % of Initial
Mortgage Rates Mortgage Loans Pool Balance
--------------- -------------- ------------
<S> <C> <C> <C>
% - % %
% - % %
% - % %
% - % %
% - % %
% - % %
% - % %
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
H. Original Terms to Maturity or
Anticipated Repayment Date............. The table below shows the range of original terms to stated
maturity or anticipated repayment date, as applicable, for the
mortgage loans.
<CAPTION>
Range of Original
Terms to Maturity
or Anticipated Repayment Date
----------------------------- Number of % of Initial
(in Months) Mortgage Loans Pool Balance
----------- -------------- ------------
<S> <C> <C> <C>
- %
- %
- %
- %
<CAPTION>
<S> <C>
I. Remaining Terms to Maturity or
Anticipated Repayment Date.............. The table below shows the range of remaining terms to stated
maturity or anticipated repayment date, as applicable, for the
mortgage loans as of the cut-off date.
<CAPTION>
Range of Remaining
Terms to Maturity
or Anticipated Repayment Date
----------------------------- Number of % of Initial
(in Months) Mortgage Loans Pool Balance
----------- -------------- ------------
<S> <C> <C> <C>
- %
- %
- %
- %
<CAPTION>
<S> <C>
J. Underwritten Debt Service
Coverage Ratios.......................... The table below shows the range of underwritten debt service
coverage ratios for the mortgage loans.
<CAPTION>
Range of
Underwritten
Debt Service Number of % of Initial
Coverage Ratios Mortgage Loans Pool Balance
--------------- -------------- ------------
<S> <C> <C> <C>
x - x %
x - x %
x - x %
x - x %
x - x %
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
K. Cut-off Date Loan-to-Value
Ratios.................................... The table below shows the range of cut-off date loan-to-value
ratios for the mortgage loans.
<CAPTION>
Range of
Cut-off Date Number of % of Initial
Loan-to-Value Ratios Mortgage Loans Pool Balance
-------------------- -------------- ------------
<S> <C> <C> <C>
% - % %
% - % %
% - % %
% - % %
% - % %
% - % %
<CAPTION>
<S> <C>
L. Maturity/Anticipated Repayment Date
Loan-to-Value Ratios.................... The table below shows the range of maturity/anticipated
repayment date loan-to-value ratios for mortgage loans with
either (i) balloon payments or (ii) an anticipated repayment
date as described in this prospectus supplement.
<CAPTION>
Range of
Maturity/Anticipated
Repayment Date Number of % of Initial
Loan-to-Value Ratios(1) Mortgage Loans Pool Balance
----------------------- -------------- ------------
<S> <C> <C> <C>
% - % %
% - % %
% - % %
% - % %
% - % %
% - % %
<CAPTION>
<S> <C>
-------------------
(1) Maturity/anticipated repayment date loan-to-value
ratios have not been calculated and are not presented
for fully amortizing mortgage loans.
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
Significant Mortgage Loans and Groups
<S> <C>
A. _________................................... Set forth below is certain loan and property information in
respect of the _______________ mortgage loan identified in
this prospectus supplement as ________. See "Description of
the Mortgage Pool--Significant Mortgage Loans"--in this
prospectus supplement.
<CAPTION>
U/W Net
No. of Year Built/ Occupancy Rate Cash Appraised
Property Name Property Type Location Sq. Ft. Renovated at Underwriting(1) Flow(1) Value(2)
- ------------- ------------- -------- ------- ---------- ------------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------
(1) As described in this prospectus supplement under "Description of the
Mortgage Pool--Additional Mortgage Loans Information".
(2) appraisal date of __________________.
<CAPTION>
<S> <C> <C>
Cut-off Date Balance............................... $
% of Initial Pool Balance.......................... %
Mortgage Rate...................................... %
Scheduled Principal and Interest Payment........... $
Stated Maturity Date...............................
Anticipated Repayment Date.........................
Underwritten Debt Service Coverage Ratio........... x
Cut-off Date Loan-to-Value Ratio................... %
Maturity/Anticipated Repayment Date %
Loan-to-Value Ratio................................
<CAPTION>
<S> <C>
Payment Terms................................... [Each mortgage loan accrues interest at the annual rate which
is on Exhibit A-1 to this prospectus supplement. The
mortgage rate for each mortgage loan is fixed for the entire
term of each mortgage loan.]
Each mortgage loan provides for scheduled payments of
principal and/or interest to be due on the [first] day of
each month.
_____________ (___) mortgage loans representing __% of the
initial pool balance provide for:
o an amortization schedule that is
significantly longer than its remaining
term to stated maturity and which,
in some cases, begins only after the end of
an initial interest-only period; and
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
o a substantial payment of principal on its maturity date.
[ _________ (__) of these mortgage loans, representing
_____% of the initial pool balance, provide that the
amount of the scheduled payment of principal and
interest but not the related mortgage rate will increase
one time on the date on which an initial interest-only
period ends and the amortization period commences.]
_______________ (__) mortgage loans representing __% of the
initial pool balance provide material incentives to the
related borrower to pay its mortgage loans in full by a
certain date. There can be no assurance, however, that
these incentives will result in any of these types of
mortgage loans being paid in full on or before its
anticipated repayment date. The incentives, which in each
case will become effective as of the related anticipated
repayment date, include:
o The calculation of interest in excess of
the related mortgage rate. Such additional
interest will be deferred and will be
payable only after the outstanding
principal balance of the mortgage loan is
paid in full.
o The application of excess cash flow from
the related mortgaged property to pay the
principal amount of the mortgage loan.
The payment of principal will be in
addition to the principal portion of
the scheduled monthly payment of principal
and interest.
The remaining _______________ (____) mortgage loans
representing __% of the pool balance, have payment
schedules that provide for the payment of the mortgage
loans of principal and interest in full or
substantially in full by their respective maturity
dates.
Delinquency Status.............................. No mortgage loan was more than 30 days delinquent in
respect of any scheduled monthly payment of principal and
interest as of the cut-off date or at any time during the twelve
(12) month period preceding the cut-off date.
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Prepayment Lock-out Periods..................... A prepayment lock-out period is currently in effect for all of
the mortgage loans. Set forth below is information regarding
the remaining lock-out periods for the mortgage loans:
Maximum remaining lock-out period: months
Minimum remaining lock-out period: months
Weighted average remaining lock-out period: months
Defeasance...................................... _____________ (__) mortgage loans representing __% of the
initial pool balance permit the related borrower, no earlier than
the second anniversary of the closing date, to obtain a release
of the related mortgaged property (or, where applicable, one
or more of the related mortgaged properties) from the lien of
the related mortgage or other security instrument by delivering
U.S. Treasury obligations as substitute collateral.
</TABLE>
S-37
<PAGE>
RISK FACTORS
You should consider the following factors (as well as the factors set
forth under "Risk Factors" in the prospectus) in deciding whether to purchase
any offered certificates.
The risks and uncertainties described below are not the only ones
relating to your certificates. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair your
investment.
Any of the following risks, if realized, could materially and adversely
affect your investment.
Risks Related to the Offered Certificates
The Offered Certificates are Supported by Limited Assets. If the assets
of the trust are insufficient to make payments on your certificates, no other
assets will be available to you for payment of the deficiency. See "--Risk
Factors--Limited Assets" in the prospectus.
Risks Associated With Liquidity and Market Value. There is currently no
secondary market for the offered certificates. _________________ has informed us
that it intends to make a secondary market in the offered certificates, but it
is under no obligation to do so. There can be no assurance that a secondary
market for the offered certificates will develop. Even if a secondary market
does develop for the offered certificates, there is no assurance that it will
provide you with liquidity of investment or that the market will continue for
the life of the offered certificates. We will not list the offered certificates
on any securities exchange. Lack of liquidity could result in a significant
reduction in the market value of your certificates. In addition, the market
value of your certificates at any time may be affected by many factors,
including then prevailing interest rates and the then perceived riskiness of
commercial mortgage-backed securities relative to other investments. See "Risk
Factors--Limited Liquidity of Offered Certificates" in the prospectus.
Uncertain Yields to Maturity. The yield on your certificates will
depend on (a) the price you paid for your certificates and (b) the rate, timing
and amount of distributions on your certificates. The rate, timing and amount of
distributions on your certificates will, in turn, depend on:
o the interest rate for your certificates;
o the rate and timing of payments and other collections of
principal on the mortgage loans;
o the rate and timing of defaults, and the severity of losses,
if any, on the mortgage loans;
o the rate, timing, severity and allocation of other shortfalls
and expenses that reduce amounts available for distribution
on your certificates; and
o the collection and distribution of prepayment premiums and
yield maintenance charges with respect to the mortgage loans.
These factors cannot be predicted with any certainty. Accordingly, you
may find it difficult to analyze the effect that these factors might have on the
yield to maturity of your certificates. See
S-38
<PAGE>
"Description of the Mortgage Pool", "Description of the Offered
Certificates--Distributions" and "--Allocation of Realized Losses and Certain
Other Shortfalls and Expenses" and "Yield and Maturity Considerations" in this
prospectus supplement. See also "Yield and Maturity Considerations" in the
prospectus.
Risks Related to the Rate of Prepayment.
If you purchase [Class S certificates], your yield to maturity will be
highly sensitive to the rate and timing of principal payments and losses on the
mortgage loans. Prior to investing in the [Class S certificates], you should
fully consider the associated risks, including the risk that an extremely rapid
rate of amortization, prepayment or other liquidation of the mortgage loans
could result in your failure to recover fully your initial investment. The
ratings on the [Class S certificates] do not address whether a purchaser of
these certificates would be able to recover its initial investment in the
certificates.
The yield on the offered certificates (other than the [Class A-1A]
certificates) could also be adversely affected if mortgage loans with higher
mortgage rates pay principal faster than the mortgage loans with lower mortgage
rates, because those classes bear interest at interest rates based upon or
limited by the weighted average of the net interest rates derived from the
mortgage loans.
See "Yield and Maturity Considerations" in this prospectus supplement
and in the prospectus. See also "Risk Factors--Effect of Prepayments on Yield of
Certificates" in the prospectus.
ERISA Considerations. The regulations that govern pension and other
employee benefit plans subject to ERISA and plans and other retirement
arrangements subject to Section 4975(c) of the U.S. tax code are complex.
Accordingly, if you are using the assets of a plan or arrangement to acquire
offered certificates, you are urged to consult legal counsel regarding
consequences under ERISA and the U.S. tax code of the acquisition, ownership and
disposition of offered certificates. In particular, the purchase or holding of
the [Class A-2, Class A-3, Class A-4, Class B-1 and Class B-2 certificates] by
any plan or arrangement may result in a prohibited transaction or the imposition
of excise taxes or civil penalties. As a result, these certificates should not
be acquired by, on behalf of, or with assets of any plan or arrangement, unless
the purchase and continued holding of the certificate or interest in the
certificate is exempt from the prohibited transaction provisions of Section 406
of ERISA and Section 4975 of the U.S. tax code under Sections I and III of
Prohibited Transaction Class Exemption 95-60. Sections I and III of Prohibited
Transaction Class Exemption 95-60 provide an exemption from the prohibited
transaction rules for certain transactions involving an insurance company
general account. See "Certain ERISA Considerations" in this prospectus
supplement and "ERISA Considerations" in the prospectus.
Risk of Year 2000.
[Each of the Trustee and the Special Servicer has advised us that it is
currently modifying its computer systems and applications and expects that it
will be year 2000 capable prior to December 31, 1999. Each of the Trustee and
the Special Servicer has also advised us that it is assessing the year 2000
capability of key vendors and subcontractors to determine whether key processes
and business activity will be interrupted. To the extent that the computer
systems of the Trustee or the Special Servicer rely on the computer systems of
other companies, there can be no assurance that these other computer systems
will be year 2000 capable or even if they are year 2000 capable that they will
be compatible with the computer systems of the Trustee or the Special Servicer,
as the case may be. The Master Servicer
S-39
<PAGE>
has advised us that, with respect to those computer systems identified as being
mission critical for the performance of its servicing function described in this
prospectus supplement, it is committed to either (i) modifying its respective
existing systems to the extent required to cause them to be year 2000 capable,
or (ii) acquiring new and/or upgraded computer systems that are year 2000
capable, in each case prior to December 31, 1999. The Master Servicer, the
Special Servicer and the Trustee consider their products and services to be
"year 2000 capable" if the product or service will be capable of accurately
processing, providing and receiving date data from, into and between the
twentieth and twenty-first centuries, and will correctly create, store, process
and output information related to or including dates on or after December 31,
1999 as a result of the changing of the date from 1999 to 2000, including leap
year calculations, when used for the purpose for which it was intended, assuming
that all other products, including hardware and software, when used in
combination with the product or service, properly exchange date data. However,
we have not and ______________ has not made any independent investigation of the
computer systems of the Master Servicer, the Special Servicer or the Trustee. In
the event that the computer systems of the Master Servicer, the Special Servicer
or the Trustee are not fully year 2000 capable, or to the extent its computer
systems depend on other companies' computer systems that are not year 2000
capable or are incompatible with its systems, the resulting disruptions in the
collection or distribution of receipts on the mortgage loans could materially
adversely affect your certificates.]
Risks Related to the Mortgage Loans
Repayment of the Mortgage Loans Depends on the Operation of the
Mortgaged Properties. The mortgage loans are secured by first mortgage liens on
ownership and/or leasehold interests in the following types of real property:
[See "_____________________" in this prospectus supplement and
"__________________" in the prospectus.]
Issues Involving Single-Tenant Mortgage Loans. In the case of ____
mortgage loans, representing _____% of the initial pool balance, the related
borrower has leased the related mortgaged property entirely to a single tenant.
[See "________________" in the prospectus.]
S-40
<PAGE>
__________ Properties secure a material concentration of the mortgage
loans. The following property types secure 10% or more of the initial pool
balance:
[See "_____________" in the prospectus.]
[Note--We will list specific risks unique to the foregoing property
types.]
Risks Associated with Related Parties. _______ mortgage loans
representing ___% of the initial pool balance have groups of borrowers that are
under common control. _______ mortgage loans representing ___% of the initial
pool balance which are neither cross-collateralized nor evidenced by a single
note, are made to the same borrower or have related borrowers that are directly
or indirectly affiliated with one another. The following table lists the groups
of mortgage loans which are secured by multiple mortgaged properties that
represent more than ____% or more of the initial pool balance and are made to
the same borrower or to related or affiliated borrowers.
S-41
<PAGE>
<TABLE>
<CAPTION>
% of Initial
Related Party Mortgage Loans Cut-off Date Balance Pool Balance
- ---------------------------- -------------------- ------------
<S> <C> <C>
</TABLE>
In addition, there may be tenants which lease space at more than one
mortgaged property, and there may be tenants that are related to or affiliated
with a borrower. See Exhibit A-1 to this prospectus supplement for a list of the
3 most significant tenants at each of the office properties, the retail
properties and the mortgaged properties used for industrial purposes.
Loan Concentration Entails Risk. Without regard to the
cross-collateralization of mortgage loans secured by multiple mortgaged
properties, the average cut-off date balance of the mortgage loans is ________.
Presenting each group of cross-collateralized mortgage loans secured by multiple
mortgaged properties, as a single mortgage loan, the average loan group cut-off
date balance of the mortgage loans is _______. The following table lists the
cut-off date balances for the five largest individual mortgage loans and groups
of cross-collateralized mortgage loans.
Cut-off Date Balances and Concentration of Mortgage Loans
<TABLE>
<CAPTION>
Individual Mortgage Loans % of Initial
or Group of Mortgage Loans Cut-off Date Balance Pool Balance
- -------------------------- -------------------- ------------
<S> <C> <C>
$ %
$ %
$ %
$ %
$ %
</TABLE>
[Basis of Presentation Affects Certain Information. As described above,
where a single mortgage note is secured by two or more mortgaged properties,
this prospectus supplement reflects an allocation of the indebtedness among
those mortgaged properties and presents each allocated portion as if it were an
individual mortgage loan secured by the mortgaged property for which the
allocation was made. Where multiple mortgage notes are cross-collateralized and
cross-defaulted, this prospectus supplement generally presents the individual
mortgage loans without regard to the cross-collateralization or cross-default
provisions. This basis of presentation affects the information presented in this
prospectus supplement. For example, under this basis of presentation, the
maximum cut-off date balance of the mortgage loans is _______, the minimum
cut-off date balance of the mortgage loans is $_______ and the average cut-off
date balance of the mortgage loans is $_______. However, presenting as a single
mortgage loan each individual mortgage note that is secured by multiple
mortgaged properties and each group of cross-collateralized mortgage loans, the
maximum loan group cut-off date balance of the mortgage loans is $_______, the
minimum loan group cut-off date balance of the mortgage loans is $_______ and
the average loan group cut-off date balance of the mortgage loans is $_______.
The information for groups of mortgage loans presented in this prospectus
supplement reflects the characteristics of all mortgaged properties in the group
relative to the total indebtedness, rather than the information related to a
specific mortgaged property. See the notes to the tables total in Exhibit A-1 to
this prospectus supplement for an identification of each group of mortgage loans
secured by multiple
S-42
<PAGE>
mortgaged properties that together represent a single indebtedness evidenced by
a single note or form a group of cross-collateralized and cross-defaulted
mortgage loans.]
Geographic Concentration Entails Risks.
The mortgaged properties are located in ______ states [and the District
of Columbia]. The mortgaged properties located in each of the following states
secure mortgage loans (or allocated portions of mortgage loans) that represent
_____% or more of the initial pool balance:
<TABLE>
<CAPTION>
Total Cut-off Date Balance
of Mortgage Loans
(or Allocated Portions) % of Initial
State Secured by Mortgaged Properties in the State Pool Balance
----- -------------------------------------------- ------------
<S> <C> <C>
$ %
$ %
$ %
</TABLE>
Risk of Changes in Mortgage Pool Composition. If you purchase any
offered certificates other than the [Class A-1A certificates], you will be more
exposed to any risks associated with changes in concentrations of borrower, loan
or property characteristics than are persons who own offered certificates that
have an earlier assumed final distribution date than your certificates. [See
"__________" in the prospectus.]
Extension and Default Risks. _______ mortgage loans, representing
_____% of the initial pool balance, have balloon payments due at maturity, and
_______ mortgage loans, representing _____% of the initial pool balance, are
mortgage loans with an anticipated repayment date. The ability of a borrower to
make the required balloon payment at maturity, and the ability of a borrower
under to repay the mortgage loan on or before the related anticipated repayment
date, in each case depends upon its ability either to refinance the loan or to
sell the related mortgaged property.
___________ mortgage loans with balloon payments representing _______%
of the initial pool balance have maturity dates, and __________ mortgage loans
representing ______% of the initial pool balance have anticipated repayment
dates, that in each case occur during the _____ month period from _______ to
______. See "Description of the Mortgage Pool--Certain Terms and Conditions of
the Mortgage Loans" and "--Additional Mortgage Loan Information" in this
prospectus supplement and "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans" in the prospectus.
Risks of Subordinate and Other Additional Financing. The following
table identifies those mortgaged properties which are known to us to be
encumbered by secured subordinate debt, the initial principal amount of the debt
and the cut-off date balances of the related mortgage loans. The table also
identifies whether the subordinate lender has entered into an agreement with the
lender under the related mortgage loan to--
o subordinate its rights to receive collections and proceeds
from, and otherwise deal with, the mortgaged property and
the related borrower, and/or
S-43
<PAGE>
o agrees, for so long as the related mortgage loan is
outstanding, not to take any enforcement or other legal action
against the mortgaged property or the related borrower as long
as the lender under the related mortgage loan has not done so.
<TABLE>
<CAPTION>
% of Initial
Pool Balance
Cut-off Date Balance Represented Initial Principal
of Related by Related Amount of Secured
Mortgaged Property Mortgage Loans Mortgage Loans Subordinate Debt(1)
- ------------------ --------------- -------------- -------------------
<S> <C> <C> <C>
$ % $
$ % $
$ % $
$ % $
$ % $
</TABLE>
- ------------------
(1) The subordinate lender has agreed to subordinate its rights and/or to
refrain from taking any action against the mortgaged property or the
borrower.
Borrowers under ___________ other mortgage loans, representing _______%
of the initial pool balance, have unsecured debt of which we are aware. Under
_____ mortgage loans, representing ___% of the initial pool balance, the lender
on the debt is an affiliate of the borrower. The lender on the unsecured debt
has executed and delivered an agreement subordinating its rights and preventing
it from taking any action against the mortgaged property or the borrower in
favor of the lender under the related mortgage loan. __________ mortgage loans
representing ___% of the initial pool balance permit the related borrower to
incur unsecured subordinated debt in the future, subject to delivery of an
agreement subordinating its rights and preventing it from taking any action
against the mortgaged property of the borrower and, in certain cases, provisions
that limit the use of proceeds to refurbishing or renovating the property and/or
acquiring furniture, fixtures and equipment for the property.
The owners of the related borrower under ________ mortgage loans,
representing _______% of the initial pool balance, have pledged their ownership
interests in the borrowers to secure "mezzanine debt".
Limited Recourse. All of the mortgage loans are nonrecourse loans.
(In the event of a default, recourse will be limited to the mortgaged property
or properties securing the defaulted mortgage loans.)
None of the mortgage loans are insured or guaranteed by any governmental entity
or private mortgage insurer.
Environmental Risks. A third-party consultant conducted an
environmental site assessment (or updated a previously conducted assessment)
with respect to all of the mortgaged properties within the ____-month period
preceding the cut-off date. Each environmental site assessment or update
complied with industry-wide standards. In the case of _____ mortgaged properties
representing ___% of the initial pool balance, a "Phase II" environmental
assessment was also performed. If any assessment or update revealed a material
adverse environmental condition or circumstance at any mortgaged property
S-44
<PAGE>
and the consultant recommended action, then, depending on the nature of the
condition or circumstance, the borrower--
o has implemented or agreed to implement an operations and
maintenance plan including, for _____ mortgaged properties
asbestos-containing materials, lead-based paint and/or radon
or periodic monitoring of nearby properties in the manner and
within the time frames specified in the related mortgage loan
documents; or
o established a reserve account with the lender to cover the
estimated cost of fixing the condition or circumstance.
[See "________________" in the prospectus.]
Risks Related to Underground Storage Tanks. ______ mortgaged properties
representing ___% of the initial pool balance are in the vicinity of sites
containing leaking underground storage tanks or other potential sources of soil
or groundwater contamination of which we are aware. Although the owners of those
mortgaged properties and the trust may not have legal liability for
contamination of the mortgaged properties from those off-site sources, the
enforcement of rights against third parties may result in additional costs for
the trust.
Risks Related to Asbestos- Containing Materials. At __ of the mortgaged
properties, asbestos-containing materials have been detected through sampling by
environmental consultants. The asbestos-containing materials found at these
mortgaged properties are not expected to present a significant risk as long as
the related mortgaged property continues to be properly managed. The related
borrowers have agreed to establish and maintain operations and maintenance or
abatement programs. There can be no assurance that the value of a mortgaged
property as collateral for the mortgage loan will not be adversely affected by
the presence of asbestos-containing materials.
Risks Related to Property Condition. Licensed engineers inspected all
of the mortgaged properties during the _____-month period preceding the cut-off
date to assess the structure, exterior walls, roofing, interior construction,
mechanical and electrical systems and general condition of the site, buildings
and other improvements located at each mortgaged property. At ________ mortgaged
properties the inspections identified conditions requiring repairs or
replacements estimated to cost in excess of $_________. In these cases, the
related borrower has required to fund reserves, or deliver letters of credit or
other instruments, to cover these costs. In _____ cases, no reserve was required
because of the creditworthiness of the borrower or a significant tenant
responsible for the costs.
Reserves May Be Insufficient. _______ mortgage loans representing
___% of the initial pool balance require that reserves be funded on a monthly
basis from cash flow generated by the related mortgaged property to cover
ongoing monthly, semi-annual or annual expenses including taxes and insurance.
Most of the mortgage loans also required reserves to be established, or letters
of credit or other instruments to be delivered, upon the closing of the mortgage
loan to fund capital expenditure items, certain leasing costs, environmental
remediation costs or engineering remediation costs when these needs were
identified. The reserves, letters of credit or other instruments may not be
sufficient to cover the actual costs of the items which they are intended to
cover. In addition, cash flow from the mortgaged properties may not be
sufficient to meet the ongoing monthly reserve requirements.
Limitations on Enforceability of Cross-Collateralization. The mortgage
pool includes _____ mortgage loans that are secured by multiple mortgaged
properties. These mortgage loans are identified
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<PAGE>
in the tables contained in Exhibit A-1. The purpose of securing any particular
mortgage loan or group of cross-collateralized mortgage loans with multiple
mortgaged properties is to reduce the risk of default or ultimate loss as a
result of an inability of any mortgaged property to generate sufficient net
operating income to pay debt service. However, _____ of these mortgage loans
permit--
o the release of one or more of the related mortgaged
properties from the related mortgage lien, and/or
o a full or partial termination of the applicable
cross-collateralization,
in each case, upon the satisfaction of the conditions described under
"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans" in this prospectus supplement.
In addition, the amount of the mortgage encumbering any particular
mortgaged property may be less than the full amount of the related mortgage loan
or group of cross-collateralized mortgage loans (in general, to avoid recording
tax). This mortgage amount may equal the appraised value or allocated loan
amount for the mortgaged property and will limit the extent to which proceeds
from the mortgaged property will be available to offset declines in value of the
other mortgaged properties securing the same mortgage loan or group of
cross-collateralized mortgage loans.
________ mortgage loans are, in each case, secured by mortgaged
properties located in two or more states. These mortgage loans represent ___% of
the initial pool balance. Foreclosure actions are brought in state court and the
courts of one state cannot exercise jurisdiction over property in another state.
Upon a default under any mortgage loan, it may not be possible to foreclose on
the related mortgaged properties simultaneously.
________ of the mortgage loans that are secured by multiple mortgaged
properties. (or groups of cross-collateralized mortgage loans that are secured
by multiple mortgaged properties.) involve, in each case, multiple borrowers.
[See "_______________" in the prospectus.]
Limitations on Enforceability and Collectability of Prepayment Premiums
and Yield Maintenance Charges. ___________ mortgage loans, representing ______%
of the initial pool balance, require the related borrowers during some period of
the related loan term to pay an additional amount when they make a voluntary
principal prepayment. In general, the additional amount is calculated either
solely on the basis of a yield maintenance formula or as the higher of a
percentage of the principal amount prepaid and a yield maintenance charge. See
"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" in this prospectus supplement. Any prepayment
premiums or yield maintenance charges collected on the mortgage loans will be
distributed to the persons, in the amounts and in accordance with the priorities
described in this prospectus supplement under "Description of the
Certificates--Distributions--Distributions of Prepayment Premiums and Yield
Maintenance Charges".
Limitations of Appraisals. Appraisals were obtained for all of the
mortgaged properties. Information regarding the appraised value of each
mortgaged property at or about the time of origination of the related mortgage
loan is presented, for illustrative purposes only, on Exhibit A-1 to this
prospectus supplement. Furthermore, in the case of ____ mortgage loans that
constitute acquisition financing, the related borrower may have acquired the
related mortgaged property at a price less than the appraised value on which the
mortgage loan was underwritten.
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<PAGE>
[Risks Associated With Substitution Provisions. ________
cross-collateralized groups of mortgage loans secured by multiple mortgaged
properties, permit the related borrower the opportunity to obtain the release of
one or more of the related mortgaged properties by substituting comparable real
property. See "Description of the Mortgage Pool--Certain Terms and Conditions of
the Mortgage Loans--Substitution" in this prospectus supplement. Although each
related mortgage loan sets forth conditions for substitution that are intended
to avoid a deterioration in the quality of the properties securing the mortgage
loan there is no assurance that any substitute property will be of equal or
better quality as the mortgaged property that it replaces or that the value and
operating results of any substitute property will ultimately equal or exceed
those of the mortgaged property that it replaces.]
[Risks Particular to Ground Leases. ________ mortgage loans,
representing _____% of the initial pool balance are secured by first mortgage
liens on the related borrower's leasehold interest in all or a portion of the
related mortgaged property (but not by the corresponding ownership interest in
the property that is subject to the ground lease). See "Certain Legal Aspects
of Mortgage Loans--Foreclosure--Leasehold Considerations" in the prospectus.]
[Limited Information Causes Uncertainty. __________mortgage loans
constitute acquisition financing. Accordingly, limited or no operating
information is available with respect to the related mortgaged property. As a
result, you may find it difficult to analyze the performance of these mortgaged
properties.]
[Prior Bankruptcies. __________ borrowers or their affiliates have been
parties to, and/or mortgaged properties have been the subject of, prior
bankruptcy proceedings. _________ mortgage loans, representing ______% of the
initial pool balance, funded the related borrower's performance of its plan of
reorganization.]
DESCRIPTION OF THE MORTGAGE POOL
General
The mortgage pool has an initial pool balance of $____________ subject
to a variance of plus or minus _____%. The initial pool balance is equal to the
total cut-off date balance of the mortgage loans. The "cut-off date balance" of
each mortgage loan is equal to its unpaid principal balance as of the cut-off
date, after application of all payments due in respect of the mortgage loan on
or before the date, whether or not the payments were received. Without regard to
the cross-collateralization of mortgage loans secured by multiple properties,
the cut-off date balances of the mortgage loans range from $_____ to $______,
and the average cut-off date balance of the mortgage loans is __________.
Presenting each group of cross-collateralized mortgage loans as a single
mortgage loan, the loan group cut-off date balances of the mortgage loans range
from $_____ to $______, and the average loan group cut-off date balance of the
mortgage loans is $_______.
This section of the prospectus supplement contains certain statistical
information regarding the mortgage loans and the mortgaged properties. In
reviewing this information, as well as the statistical information regarding the
mortgage loans and the mortgaged properties contained elsewhere in this
prospectus supplement, you should be aware that--
S-47
<PAGE>
o All numerical information provided with respect to the
mortgage loans is provided on an approximate basis.
o All weighted average information provided with respect to the
mortgage loans reflects weighting of the mortgage loans by
their cut-off date balances.
o When information with respect to the mortgaged properties is
expressed as a percentage of the initial pool balance, this
percentage is based upon the cut-off date balances of the
related mortgage loans.
[o Some of the mortgage loans are cross-collateralized and
cross-defaulted with one or more other mortgage loans. Unless
an exception is noted, each cross-collateralized mortgage loan
is presented as if it were secured only by the corresponding
mortgaged property identified on Exhibit A-1 to this
prospectus supplement. See the notes to the tables on Exhibit
A-1.]
[o In some cases, multiple mortgaged properties secure a single
amount of mortgage loan indebtedness. For purposes of
presenting statistical information, we have allocated the
total amount of the indebtedness among the related mortgaged
properties on the basis of relative appraised values, the
relative underwritten net cash flow or prior allocations
reflected in the related mortgage loans documents. Except
where indicated, each allocated portion of the total amount
is presented as if it were a single "mortgage loan" secured
only by a mortgage lien on the corresponding mortgaged
property identified on Exhibit A-1 to this prospectus
supplement and is described as being cross-collateralized and
cross-defaulted with each other mortgage loan representing
an allocable portion of the related indebtedness. See the
notes to the tables on Exhibit A-1.]
[o In some cases, multiple parcels of real property securing a
single mortgage loan have been treated as a single mortgaged
property because of their proximity to each other, the
interrelationship of their operations or for other reasons
deemed appropriate by us.]
o This prospectus supplement refers to certain properties
specifically by name. Each reference to a named property is as
a reference to the mortgaged property identified by that name
on Exhibit A-1 to this prospectus supplement.
o Statistical information regarding the mortgage loans may
change prior to the date of issuance of the certificates due
to changes in the composition of the mortgage pool prior to
the closing date.
o Some of the capitalized terms used with respect to the
mortgage loans are defined under "Summary of Prospectus
Supplement--The Mortgage Loans and Mortgaged Properties" in
this prospectus supplement.
o The cut-off date balances as presented in this prospectus
supplement are based upon the assumption that all scheduled
payments due on the mortgage loans on or before the cut-off
date are timely made and further, that there are no
unscheduled collections of principal
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<PAGE>
with respect to any mortgage loan during the period from
__________ up to and including the cut-off date.
Each mortgage loan constitutes an obligation of the related borrower to
repay a specified sum with interest. Each mortgage loan is evidenced by a
promissory note and secured by a mortgage, deed of trust, deed to secure debt or
other similar security instrument that creates a first mortgage lien on the
ownership and/or leasehold interest of the related borrower or another party in
one or more mortgaged properties.
The table below shows the number of, and percentage of the initial pool
balance secured by, mortgaged properties located in the indicated states.
<TABLE>
<CAPTION>
Number of % of Initial
State Mortgaged Properties Pool Balance
----- -------------------- ------------
<S> <C> <C>
%
%
%
%
%
</TABLE>
The remaining mortgaged properties are located throughout ________
other states [and the District of Columbia]. No more than $_________ of the
initial pool balance is secured by mortgaged properties located in any of the
other jurisdictions.
The table below shows the number of, and percentage of the initial pool
balance secured by, mortgaged properties operated for each indicated purpose.
<TABLE>
<CAPTION>
Number of % of Initial
Property Type Mortgaged Properties Pool Balance
- ------------- -------------------- ------------
<S> <C> <C>
</TABLE>
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<PAGE>
[See "________________________, ________________________ and
________________________" in the prospectus. _______ of the multifamily rental
properties representing ___% of the initial pool balance are subject to land use
restrictive covenants or contractual covenants that require all or a portion of
the units to be rented to low income tenants. ________ of the multifamily rental
properties representing ___% of the initial pool balance have concentrations of
student tenants. ________ multifamily rental properties representing ___% of the
initial pool balance consist of all or a majority of the individual units, and
the corresponding interests in the common areas and facilities, of a condominium
property whose homeowners association is controlled by the related borrower.]
The table below shows the number and percentage of mortgage loans that
are secured by first mortgage liens on each of the specified interests in the
related mortgaged properties.
<TABLE>
<CAPTION>
Encumbered Interest
in the Related Number of % of Initial
Mortgaged Property Mortgaged Properties Pool Balance
------------------ -------------------- ------------
<S> <C> <C>
Ownership* %
Ownership in part, Leasehold in part %
Leasehold %
</TABLE>
- -------------
* Ownership also includes cases where the ownership and
leasehold interests in the same property are both encumbered.
The mortgage pool includes ________ mortgage loans which is, by its
terms or through cross- collateralization with other mortgage loans secured by
two or more mortgaged properties. A group of cross-collateralized mortgage loans
consists of two or more mortgage loans that either (i) are cross- collateralized
and cross-defaulted with each other or (ii) represent the allocated portions of
a single amount of mortgage loan indebtedness. However, the amount of the
mortgage encumbering any particular mortgaged property may be less than the full
amount of the related mortgage loan or group of cross-collateralized mortgage
loans (in general, to avoid recording tax). The mortgage amount may equal the
appraised value or allocated loan amount for the mortgaged property, thereby
limiting the extent to which proceeds from the mortgaged property would be
available to offset declines in value of the other mortgaged properties securing
the same mortgage loan or group of cross-collateralized mortgage loans.
________ mortgage loans entitle the related borrower(s) to obtain a
release of one or more of the related mortgaged properties and/or a termination
of the applicable cross-collateralization provisions at the end of a "lock-out
period", subject, in each case, to the fulfillment of one or more of the
following conditions--
o the pay down of the loan(s) in an amount equal to a specified
percentage (generally, 125%) of the portion of the total loan
amount allocated to the mortgaged property to be released;
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<PAGE>
o the satisfaction of certain debt service coverage and
loan-to-value tests for the remaining mortgaged properties;
and/or
o receipt by the lender of confirmation from each rating agency
that the action will not result in a qualification, downgrade
or withdrawal of any of the then-current ratings of the
certificates.
In addition, certain of the mortgage loans secured by multiple
properties also entitle the related borrower to a release of one or more of the
related mortgaged properties under defeasance provisions. See "--Certain Terms
and Conditions of the Mortgage Loans--Defeasance Loans" below.
The table below shows the number of mortgaged properties securing, and
the percentage of the initial pool balance represented by, each mortgage loan
secured by multiple properties and each group of cross-collateralized mortgage
loans secured by multiple properties that has a total cut-off date balance
representing at least ____% of the initial pool balance.
<TABLE>
<CAPTION>
Number of States
Where the
Mortgage Loans and Groups of Number of Mortgaged
Cross-Collateralized Mortgage Loans Secured by Multiple Mortgaged Properties % of Initial
Properties Properties are Located Pool Balance
---------- ---------- ----------- ------------
<S> <C> <C> <C>
%
%
%
%
%
</TABLE>
You should consider each mortgage loan to be a nonrecourse obligation
of the related borrower. In the event of a payment default by the borrower,
recourse will be limited to the related mortgaged property or properties for
satisfaction of the borrower's obligations. In those cases where recourse to a
borrower or guarantor is permitted under the related mortgage loan documents, we
have not undertaken an evaluation of the financial condition of any of these
persons. None of the mortgage loans is insured or guaranteed by any governmental
entity or by any other person.
Certain Terms and Conditions of the Mortgage Loans
Due Dates. All of the mortgage loans provide for scheduled payments of
principal and interest to be due on the [first] day of each month.
Mortgage Rates; Calculations of Interest. [Each mortgage loan bears
interest at a mortgage rate that is fixed until maturity. However, as described
below, each mortgage loan which has an anticipated repayment date will accrue
interest after its anticipated repayment date at a rate that is in excess of its
mortgage rate prior to the anticipated repayment date.]
As used in this prospectus supplement, the term "mortgage rate" does
not include the incremental increase in the rate at which interest may accrue on
any mortgage loan due to a default or on any mortgage loan after its anticipated
repayment date. As of the cut-off date, the mortgage rates for the
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<PAGE>
mortgage loans ranged from _______% per annum to ______% per annum, and the
weighted average mortgage rate for the mortgage loans was _____%.
No mortgage loan provides for negative amortization or, except as
described below with respect to the mortgage loans with anticipated repayment
dates, for the deferral of excess interest.
Each mortgage loan will accrue interest on the basis of one of the
following conventions:
o The actual number of days elapsed during each one-month
accrual period in a year of 360 days.
o A 360-day year consisting of twelve 30-day months.
The table below shows the number of, and percentage of initial pool
balance represented by, mortgage loans that accrue interest based on each of the
foregoing conventions.
<TABLE>
<CAPTION>
Number of % of Initial
Interest Accrual Basis Mortgage Loans Pool Balance
- ---------------------- -------------- ------------
<S> <C> <C>
Actual/360 Basis %
30/360 Basis %
</TABLE>
Anticipated Repayment Date Loans. ________ mortgage loans, representing
____% of the initial pool balance, have anticipated repayment dates.
[A mortgage loan with an anticipated repayment date is characterized by
the following features:
o A maturity date that is approximately 25 to 30 years
following origination.
o The designation of an anticipated repayment date that is
generally _________ following origination. The anticipated
repayment date for each of these mortgage loans is listed on
Exhibit A-1 to this prospectus supplement.
o The ability of the related borrower to prepay the mortgage
loan, without restriction including without any obligation to
pay a prepayment premium or a yield maintenance charge, at any
time on or after a date that is generally three (3) to six (6)
months prior to the related anticipated repayment date.
o Until its anticipated repayment date, the calculation of
interest at its fixed mortgage rate.
o From and after its anticipated repayment date, the accrual of
interest at a revised annual rate that is, in most cases,
equal to the sum of (i) its mortgage rate, plus (ii) a
specified margin that is in some cases not more than two
percentage points.
o The deferral of any interest earned in respect of the mortgage
loan at its revised interest rate from and after the related
anticipated repayment date. Any additional interest earned in
respect of a mortgage loan following its anticipated repayment
date will not be payable until the entire principal balance of
the mortgage loan has been paid in full.
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<PAGE>
o From and after its anticipated repayment date, the accelerated
amortization of the mortgage loan out of any and all monthly
cash flow from the related mortgaged property which remains
after payment of the applicable scheduled payments of
principal and interest and permitted operating expenses and
capital expenditures. The accelerated amortization payments
and additional interest are considered separate from scheduled
payments of principal and interests due in respect of any
mortgage loan with an anticipated repayment date.]
[In general, the borrower under each mortgage loan with an anticipated
repayment date has agreed to enter into a cash management agreement not less
than _______ months prior to the related anticipated repayment date if it has
not already executed a cash management agreement. The borrower or the manager of
the mortgaged property is required under the terms of cash management agreement
to deposit or cause the deposit of all revenue from the related mortgaged
property received after the related anticipated repayment date into a designated
account controlled by the lender under the mortgage loan.]
Balloon Loans. ________ mortgage loans, representing _______% of the
initial pool balance, have balloon payments.
Each of these mortgage loans is characterized by--
o an amortization schedule that is significantly longer than
the actual term of the mortgage loan and which, in case(s),
begins only after the end of an initial interest-only
period, and
o a balloon payment being due in respect of the mortgage loan
on its stated maturity date.
______________ mortgage loans, representing _______% of the initial pool
balance, provide that the amount of the scheduled payment of principal and
interest (but not the related mortgage rate) will increase one time at the date
on which an interest-only period ends and the amortization period commences.
Fully Amortizing Loans. __________ mortgage loans, representing ___%
of the initial pool balance, are fully amortizing loans.
Each of these mortgage loans is characterized by--
o equal scheduled payments of principal and interest throughout
the substantial term of the mortgage loan, and
o an amortization schedule that is approximately equal to the
actual term of the mortgage loan,
such that the mortgage loan will fully or substantially amortize over its term
if the borrower timely makes all scheduled payments of principal and interest.
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<PAGE>
Amortization of Principal. The table below shows (in months) the
original and remaining amortization schedules and terms to maturity (or, in the
case of the mortgage loans with anticipated repayment dates, terms to their
respective anticipated repayment dates) for the mortgage loans (or the specified
sub-groups of mortgage loans) as of the cut-off date.
<TABLE>
<CAPTION>
Loans With
Loans With Anticipated Fully Amortizing
Balloon Payments Repayment Dates Loans All Mortgage Loans
---------------- --------------- ---------------- ------------------
<C> <C> <C> <C> <C>
Original Term to Maturity
Maximum
Minimum
Weighted Average
Remaining Term to Maturity
Maximum
Minimum
Weighted Average
Original Amortization Term
Maximum
Minimum
Weighted Average
Remaining Amortization Term
Maximum
Minimum
Weighted Average
</TABLE>
________________ mortgage loans provide for a recast of the
amortization schedule and an adjustment of the scheduled payments on the
mortgage loan upon application of specified amounts of condemnation proceeds
or insurance proceeds to pay the unpaid principal balance of the mortgage loan.
Voluntary Prepayment Provisions. [In general, as of their respective
dates of origination, the mortgage loans provided for:
o a period during which voluntary principal prepayments are
prohibited, followed by
o a period during which voluntary principal prepayments may be
made without any prepayment consideration.]
[Exceptions to the foregoing include ________ mortgage loans,
representing _______% of the initial pool balance, each of which provides for:
o a lock-out period, followed by
o a period during which any voluntary principal prepayment
must be accompanied by a form of prepayment consideration,
followed by
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<PAGE>
o an open period.]
[Partial prepayments of some mortgage loans are required under
certain circumstances, notwithstanding otherwise applicable lock-out periods.
See "Certain Terms and Conditions of the Mortgage Loans--Other Payment
Provisions" below.]
[The table titled "Characteristics of the Mortgage Loans" on Exhibit
A-1 shows the type of prepayment provision that corresponds to each mortgage
loan as of its respective date of origination. In addition, the table titled
"Prepayment Provisions as of the Cut-off Date" on Exhibit A-2 shows a breakdown
of the mortgage loans based on (i) remaining term to stated maturity (or, in the
case of the mortgage loans with anticipated repayment dates, to their respective
anticipated repayment dates) and (ii) the remaining lock-out period and/or
prepayment consideration period applicable to each. The prepayment restrictions
relating to each mortgage loan generally do not apply to prepayments arising out
of a casualty or condemnation of the related mortgaged property, and prepayments
of this type are generally not required to be accompanied by any prepayment
consideration. The total characteristics of the prepayment provisions of the
mortgage pool will vary over time as lock-out periods expire and mortgage loans
enter periods during which a prepayment consideration may be required in
connection with principal prepayments and, thereafter, enter open periods, and
as mortgage loans are prepaid, repurchased, replaced or liquidated on account of
default or delinquency. The table titled "Mortgage Pool Prepayment Profile" on
Exhibit A-2 shows the percentage of the total stated principal balance of the
mortgage loans scheduled to be outstanding immediately prior to the distribution
date occurring in __________ of each year (through _______) as to which each
type of prepayment provision would be in effect based on the "Maturity
Assumptions" and a _______% CPR.] See "Yield and Maturity Considerations--The
Maturity Assumptions" in this prospectus supplement.
As described below under "--Defeasance Loans", most of the mortgage
loans permit the borrower no earlier than the second anniversary of the closing
date to obtain a release of the related mortgaged property or, where applicable,
one or more of the related mortgaged properties from the lien of the related
mortgage or other security instrument by delivering U.S. government securities
as substitute collateral. The borrower under one of these mortgage loans may
deliver U.S. government securities as substitute collateral during a lock-out
period. [The table titled "Prepayment Type as of the Cut-off Date" on Exhibit
A-2 shows a breakdown of the mortgage loans based on (i) the type of combination
of prepayment and/or defeasance provisions and (ii) the remaining lock-out
period and/or prepayment consideration period applicable to each.]
Lock-out Periods. [All] of the mortgage loans provide for lock-out
periods as of the cut-off date and--
o the maximum remaining lock-out period as of the cut-off date
is _______ months,
o the minimum remaining lock-out period as of the cut-off
date is _______ months, and
o the weighted average remaining lock-out period as of the
cut-off date is _______ months.
Partial prepayments of some mortgage loans are required under limited
circumstances, notwithstanding any lock-out periods. See "--Certain Terms and
Conditions of the Mortgage Loans--Other Prepayment Provisions" below.
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<PAGE>
Prepayment Consideration. In the case of most mortgage loans that
provide for a prepayment consideration period, the applicable prepayment
consideration will equal the greater of a prepayment premium (calculated at
_____% of the amount prepaid) and a yield maintenance charge.
[When applicable with respect to _______ mortgage loans, a yield
maintenance charge will generally equal the sum of the present values on the
date of prepayment of the "monthly interest shortfalls" for the remaining term
of the mortgage loan to its stated maturity date or anticipated repayment date
(as applicable in accordance with the terms of the related loan documents),
discounted at a monthly compounded rate equal to the yield to maturity computed
by a linear interpolation of the on-the-run U.S. Treasury curve of the then
remaining weighted average life of the mortgage loan (calculated in accordance
with the related loan documents). The "monthly interest shortfall" will be
calculated for each applicable due date following the date of prepayment and
will equal 1/12 of the product of--
(a) the principal amount being prepaid, multiplied by
(b) the excess, if any, of (i) the yield derived from compounding
semi-annually the mortgage rate of the mortgage loan, over
(ii) the Treasury yield described above compounded on a
semi-annual basis.]
[When applicable with respect to _______ mortgage loans, a yield
maintenance charge will generally equal the product of--
(a) the principal amount being prepaid expressed as a percentage
of the outstanding principal balance of the mortgage loan,
prior to giving effect to the prepayment, multiplied by
(b) as determined on or shortly before the date of prepayment, the
excess, if any, of:
(i) the present value of all future scheduled payments of
principal and interest (including any balloon
payment) on the mortgage loan through and including
maturity, as determined by discounting at a
semi-annual rate equal to the yield per annum on U.S.
Treasury securities having a maturity closest to the
maturity of the mortgage loan, over
(ii) the outstanding principal balance of the mortgage
loan immediately prior to the prepayment.]
For purposes of calculating a yield maintenance charge in respect of a
mortgage loan with an anticipated repayment date, however, the mortgage loan
will generally be treated as if it has a balloon payment due on its anticipated
repayment date.
Prepayment premiums and yield maintenance charges received on the
mortgage loans will be allocated and distributed to the persons, in the amounts
and in accordance with the priorities described under "Description of the
Offered Certificates--Distributions--Distributions of Prepayment Premiums and
Yield Maintenance Charges" in this prospectus supplement. Limitations may exist
under applicable state law on the enforceability of the provisions of the
mortgage loans that require payment of prepayment premiums or yield maintenance
charges, and we do not and any underwriter does not makes any representation or
warranty as to the collectability of any prepayment premium or yield maintenance
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charge in respect of any mortgage loan. See "Risk Factors--Risks Related to the
Mortgage Loans--Limitations on the Enforceability and Collectability of
Prepayment Premiums and Yield Maintenance Charges" in this prospectus supplement
and "Certain Legal Aspects of Mortgage Loans--Default Interest and Limitations
on Prepayments" in the prospectus.
Open Periods. Where a mortgage loan provides for an open period, the
open period generally begins _____ to ______ months prior to stated maturity
(or, in the case of a mortgage loan with an anticipated repayment date, prior to
the related anticipated repayment date). [However, _______ mortgage loan,
representing _______% of the initial pool balance, provides for an open period
during the last ____ years of its ____-year loan term.]
[Other Prepayment Provisions. __________________ mortgage loans
representing % of the initial pool balance provide for mandatory partial
prepayments, notwithstanding any lock-out period that may otherwise be in
effect:
o In ____________cases, the related borrower established
reserves that will be applied to a partial prepayment of
the respective mortgage loans if certain tenants at the
mortgaged property do not renew their leases or take
possession of leased space or if certain expense
reductions do not occur by a specified date.
o In ____________cases, the related borrower is required (upon
the expiration of six months from the origination date and
subject to certain conditions) to prepay its mortgage loan in
part to the extent (if any) necessary to achieve a specified
debt service coverage ratio (on a pro forma basis) with
respect to the mortgage loan based on post-origination
operating results of the related mortgaged property.
In certain of these cases, the applicable mortgage loan requires the
borrower to pay a prepayment consideration in connection with a mandatory
partial prepayment. Such prepayment consideration may be less than the
prepayment consideration that would be required if the borrower made a voluntary
principal prepayment during any applicable prepayment consideration period for
the subject mortgage loan.]
Defeasance Loans. _______ mortgage loans, representing _______% of
the initial pool balance, permit the borrower to deliver U.S. government
securities as substitute collateral.
Each of these mortgage loans permits, during specified periods and
subject to certain conditions, the related borrower to pledge to the holder of
the mortgage loan the requisite amount of direct, non-callable U.S. government
securities and obtain a release of the related mortgaged property (or, in the
case of a mortgage loan secured by multiple mortgaged properties, one or more of
the related mortgaged properties). In general, the to be delivered in connection
with the defeasance of any mortgage loan must provide for a series of payments
that--
o will be made prior, but as closely as possible, to all
successive due dates through and
including the maturity date, and
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o will, in the case of each due date, be in a total amount equal
to or greater than the scheduled payment of principal and
interest (including, if applicable, any balloon payment) due
on that date (with any excess to be returned to the related
borrower).
For purposes of determining the amount of U.S. government securities
in respect of mortgage loans with an anticipated repayment date, however, the
mortgage loan will be treated as if a balloon payment is due on its
anticipated repayment date.
[If fewer than all of the mortgaged properties securing any mortgage
loan which is secured by multiple mortgaged properties are to be released in
connection with any defeasance, the amount of the U.S. government securities
will be calculated based on the allocated loan amount for the mortgaged
properties to be released and the portion of the scheduled payments attributable
to the allocated loan amount.]
[In connection with any delivery of U.S. government securities, the
related borrower will be required to deliver a security agreement granting the
trust a first priority security interest in the securities, together with an
opinion of counsel confirming the first priority status of the security
interest.]
No delivery of U.S. government securities as substitute collateral for
any mortgage loan will be permitted prior to the second anniversary of the
closing date.
[Substitution. ______________ mortgage loans secured by multiple
mortgaged properties permit the related borrower the opportunity to obtain the
release of one or more of the related mortgaged properties by substituting
comparable real estate property. Any substitution, however, is subject to the
satisfaction of certain conditions, which generally include:
o in some cases, limitations on the number and/or total
appraised value of the mortgaged properties that may be
replaced;
o a requirement that the appraised value of the substitute
property (based on a current appraisal) must not be less than
the greater of (i) the appraised value of the mortgaged
property to be released as of the relevant origination date
and (ii) the current appraised value of the mortgaged
property;
o a requirement that, after giving effect to the substitution,
the debt service coverage ratio of the applicable mortgage
loan (based on all of the mortgaged properties pledged under
the mortgage loan) must not be less than the debt service
coverage ratio for the applicable mortgage loan immediately
prior to the substitution date; and
o a requirement that each rating agency must have confirmed that
the substitution will not result in a qualification, downgrade
or withdrawal of any of its then-current ratings of the
certificates.]
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The mortgage loans
generally contain both a "due-on-sale" clause and a "due-on-encumbrance" clause.
In general, subject to the discussion below, these clauses either permit the
holder of the mortgage to accelerate the maturity of the related mortgage loan
if the borrower sells or otherwise transfers or encumbers the related mortgaged
property
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or prohibit the borrower from doing so without the consent of the holder of the
mortgage. See, however, "Risk Factors--Risks Related to the Mortgage
Loan--Limitations on Enforceability of Other Provisions" in this prospectus
supplement and "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure
and Loss of the Mortgage Loans--Limitations on Enforceability of Due-on-Sale and
Debt-Acceleration Clauses" and "Certain Legal Aspects of Mortgage Loans--Due on
Sale and Due-on-Encumbrance Provisions" in the prospectus. However, ___________
mortgage loans permit one or more of the following:
o transfers of the related mortgaged property if specified
conditions are satisfied which, in general, include
confirmation by each rating agency that the transfer will not
result in a qualification, downgrade or withdrawal of any of
its then current ratings of the certificates or the transfer
is to a person reasonably acceptable to the lender;
o a transfer of the related mortgaged property to a person
that is affiliated with or otherwise related to the borrower;
o certain specified transfers by the borrower of the related
mortgaged property in accordance with the provisions of the
mortgage loan; or
o a transfer of certain ownership interests in the borrower.
In general, the Master Servicer or the Special Servicer, as applicable,
will be required to determine, in a manner consistent with the servicing
standard described in this prospectus supplement under "Servicing of the
Mortgage Loans--General", whether to exercise any right the holder of any
mortgage may have under either a "due-on-sale" or "due-on-encumbrance clause" to
accelerate payment of the related mortgage loan. However, in the case of
____________ mortgage loans, neither the Master Servicer nor the Special
Servicer may waive its rights or grant its consent under any "due-on-sale"
or "due-on-encumbrance" clause unless (i) it has received written confirmation
from each rating agency that this action would not result in the qualification,
downgrade or withdrawal of any of the then-current ratings then assigned by the
rating agency to any class of certificates [and (ii) in the case of a waiver by
the Master Servicer, it has received the consent of the Special Servicer]. With
respect to "due-on-sale" clauses, this requirement will be applicable only if
the outstanding principal balance of the subject mortgage loan (together with
the total outstanding principal balance of all other mortgage loans that are
cross-collateralized with the subject mortgage loan or have been made to the
same borrower or affiliated borrowers) is greater than or equal to a specified
percentage of the then total principal balance of the mortgage pool. In the case
of "due-on-encumbrance" provisions, this requirement will always be applicable.
See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale and
Due-on-Encumbrance" in the prospectus.
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Certain Mortgage Pool Characteristics
General. A detailed presentation of certain characteristics of the
mortgage loans and mortgaged properties, on an individual basis and in tabular
format, is shown on Exhibits A-1 and A-2 to this prospectus supplement. Certain
capitalized terms that appear in those exhibits, as well as elsewhere in this
prospectus supplement, are defined below. Due to rounding, percentages and
amounts in the tables on Exhibits A-1 and A-2 to this prospectus supplement may
not add up to the indicated totals. See the notes to the tables on Exhibit A-1
for an identification of each group of mortgage loans that are collectively
represented by a single mortgage note or form a group of cross-collateralized
mortgage loans.
1. "underwritten net cash flow" means, with respect to any
mortgaged property, an estimate, made at or about the time of origination on
or, in certain cases, in connection with the sale of the mortgage loans to us
of the related mortgage loan, of the total cash flow anticipated to be
available for annual debt service on the mortgage loan, calculated as the
excess of estimated annual revenues over estimated annual operating expenses.
Estimated annual revenues and estimated annual operating expenses are
described below.
(a) The "estimated annual revenues" for any mortgaged property
generally equal the base estimated annual revenues for the mortgaged
property, adjusted upward or downward, as appropriate, to reflect any
revenue modifications made.
The "base estimated annual revenues" for each mortgaged
property were generally assumed to equal--
o in the case of multifamily rental properties and mortgaged
properties that constitute manufactured housing communities,
the annualized amounts of gross potential rents,
o in the case of mortgaged properties primarily used for
commercial purposes, other than hospitality properties,
monthly contractual base rents as reflected in the rent roll
or leases, plus tenant reimbursements, and
o in the case of hospitality properties, estimated average
room sales.
The "revenue modifications" made to the base estimated annual
revenues for any mortgaged property for purposes of establishing its
estimated annual revenues include--
o adjusting the revenues downwards by applying a combined
vacancy and rent loss (including concessions) adjustment that
reflected then current occupancy or, in some cases, an
occupancy that was itself adjusted for historical trends or
market rates of occupancy with consideration to competitive
properties,
o adjusting the revenues upwards to reflect, in the case of some
tenants, increases in base rents scheduled to occur during the
following 12 months,
o adjusting the revenues upwards for percentage rents based on
contractual requirements, sales history and historical trends
and, additionally, for other estimated income consisting
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of, among other items, late fees, laundry income, application
fees, cable television fees, storage charges, electrical pass
throughs, pet charges, janitorial services, furniture rental
and parking fees,
o adjusting the revenues downwards in certain instances where
rental rates were determined to be significantly above market
rates and the subject space was then currently leased to
tenants that did not have long-term leases or were believed to
be unlikely to renew their leases, and
o in the case of hospitality properties, adjusting the revenues
upwards to include estimated revenues from food and beverage,
telephones and other hotel related income.
By way of example, estimated annual revenues generally
include:
o for multifamily rental properties and manufactured housing
properties, rental and other revenues;
o for hospitality properties, room, food and beverage,
telephone and other revenues; and
o for other commercial properties, base rent, percentage rent,
expense reimbursements and other revenues.
In the case of an owner-occupied mortgaged property for which
no leases exist, the estimated annual revenues were determined on the
assumption that the property was "net leased" to a single tenant at
market rents and were derived from rental rate and vacancy information
for the surrounding real estate market.
(b) The "estimated annual operating expenses" for any
mortgaged property generally equal the historical annual operating
expenses for the mortgaged property, adjusted upward or downward, as
appropriate, to reflect any expense modifications made.
The "historical annual operating expenses" for any mortgaged
property generally consist of historical expenses reflected in the
operating statements and/or other financial information provided by the
related borrower. The historical expenses with respect to any mortgaged
property were generally obtained/estimated--
o from operating statements relating to a complete fiscal year
of the borrower ended in 1995, 1996 or 1997 or a trailing
twelve (12) month period ended in 1997 or 1998 [1999?],
o by annualizing the amount of expenses for partial 1996, 1997
or 1998 [1999?] periods for which operating statements were
available, with certain adjustments for certain items deemed
inappropriate for annualization,
o by calculating a stabilized estimate of operating expenses
which takes into consideration historical financial statements
and material changes in the operating position of the related
mortgaged property (such as newly signed leases and market
data), or
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o if the property was recently constructed, by calculating an
estimate of operating expenses based upon the appraisal of the
mortgaged property or market data.
The "expense modifications" made to the historical annual
operating expenses for any mortgaged property for purposes of
calculating its estimated annual operating expenses include--
o assuming that a management fee (in most cases, equal to
approximately 3% to 5% of total revenues) was payable to the
property manager,
o adjusting certain historical expense items upwards or
downwards to reflect inflation and/or industry norms for the
particular type of property,
o including the underwritten recurring replacement reserve
amounts,
o adjusting historical expenses downwards by eliminating certain
items which are considered non-recurring in nature or which
are considered capital improvements, including recurring
capital improvements,
o in the case of hospitality properties, adjusting historical
expenses to reflect reserves for furniture, fixtures and
equipment of between [4% and 5%] of total revenues,
o in the case of hospitality properties and certain multifamily
rental properties, retail properties and mortgaged properties
operated for industrial purposes, adjusting historical
expenses upward or downward to result in an expense-to-room or
expense-to-total revenues ratio that approximates historical
or industry norms, and
o in the case of certain mortgaged properties used primarily for
office, retail and industrial purposes, adjusting historical
expenses to account for stabilized tenant improvements and
leasing commissions at costs consistent with historical trends
or prevailing market conditions. However, for certain tenants
with longer than average lease terms or which were considered
anchor tenants at a particular retail property, or in areas
which were considered not to require these improvements,
adjustments were not made to reflect tenant improvements and
leasing commissions.
The amount of any underwritten recurring replacement reserve
amounts and/or underwritten leasing commissions and tenant improvements
for each mortgaged property is shown in the table titled "Engineering
Reserves and Recurring Replacement Reserves" on Exhibit A-1. The
underwritten recurring replacement reserve amounts shown on Exhibit A-1
are expressed as dollars per unit in the case of multifamily rental
properties and manufactured housing properties, a percentage of total
departmental revenues in the case of hospitality properties and dollars
per leasable square footage in the case of other commercial properties.
By way of example, estimated annual operating expenses
generally include salaries and wages, the costs or fees of utilities,
repairs and maintenance, replacement reserves, marketing, insurance,
management, landscaping, security (if provided at the property) and the
amount of taxes, general and administrative expenses, ground lease
payments and other costs, but without any deductions for debt service,
depreciation and amortization or capital expenditures or reserves
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for any of these items (except as described above). In the case of
mortgaged properties used in whole or in part for retail, office and
industrial purposes, estimated annual operating expenses include both
expenses that may be recovered from tenants and those that are not. In
the case of certain mortgaged properties used in whole or in part for
retail, office and industrial purposes, estimated annual operating
expenses may have included leasing commissions and tenant improvement
costs. In the case of the hospitality properties, estimated annual
operating expenses include departmental expenses, reserves for
furniture, fixtures and equipment, management fees and (where
applicable) franchise fees.
In the case of an owner-occupied mortgaged property for which
no leases exist, estimated annual operating expenses were determined on
the assumption that the property was "net leased" to a single tenant,
and that expenses consisted solely of management fees and replacement
reserves for expense or capital items generally not required to be paid
by a tenant under a net lease.
The management fees and reserves assumed in calculating
underwritten net cash flow differ in many cases from actual management
fees and reserves actually required under the loan documents for the
mortgage loans. In addition, actual conditions at the mortgaged
properties will differ, and may differ substantially, from the
conditions assumed in calculating underwritten net cash flow. In
particular, in the case of mortgaged properties used for retail,
office and industrial purposes, the assumptions regarding tenant
vacancies, tenant improvements and leasing commissions, future rental
rates, future expenses and other conditions used in calculating
underwritten net cash flow may differ substantially from actual
conditions. Furthermore, the underwritten net cash flow for a
mortgaged property does not reflect the effects of future competition
or economic cycles. Accordingly, there can be no assurance that the
underwritten net cash flow for a mortgaged property shown on Exhibit
A-1 to this prospectus supplement will be representative of the actual
future net cash flow for the property.
Underwritten net cash flow and the revenues and expenditures used to
determine underwritten net cash flow for each mortgaged property are derived
from generally unaudited information furnished by the related borrower. However,
in certain cases, an accounting firm performed agreed upon procedures, or
employees of the related originator performed cash flow verification procedures,
that were intended to identify any errors in the information provided by the
related borrower. Audits of information furnished by borrowers could result in
changes to the information. These changes could in turn result in the
underwritten net cash flow shown on Exhibit A-1 to this prospectus supplement
being overstated. Net income for a mortgaged property as determined under
generally accepted accounting principles would not be the same as the
underwritten net cash flow for the mortgaged property shown on Exhibit A-1 to
this prospectus supplement. In addition, underwritten net cash flow is not a
substitute for or comparable to operating income as determined in accordance
with GAAP as a measure of the results of a property's operations nor a
substitute for cash flows from operating activities determined in accordance
with GAAP as a measure of liquidity.
2. "underwritten net operating income" means, with respect to any
mortgaged property, the underwritten net cash flow for the mortgaged property,
increased by any and all of the following items that were included in the
estimated annual operating expenses for purposes of calculating the underwritten
net cash flow for the mortgaged property--
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o underwritten recurring replacement reserve amounts;
o capital improvements, including recurring capital
improvements;
o in the case of hospitality properties, expenses for
furniture, fixtures and equipment; and
o in the case of certain mortgaged properties used primarily
for office, retail and industrial purposes, underwritten
leasing commissions and tenant improvements.
3. "appraised value" means, for any mortgaged property, the "as
is" or, if provided, the "as cured" value estimate reflected in the most recent
appraisal. The appraiser's "cured value", as stated in the appraisal, is
generally calculated as the sum of the "as is" value set forth in the related
appraisal plus the estimated costs as of the date of appraisal of the related
mortgaged property, if any, of implementing any deferred maintenance required to
be undertaken immediately or in the short term under the terms of the mortgage
loan. In general, the amount of costs assumed by the appraiser for these
purposes is based on an estimate by the individual appraiser, an estimate by the
related borrower, the estimate set forth in the property condition assessment
conducted in connection with the origination of the related mortgage loan or a
combination of both estimates.
4. "annual debt service" means, for any mortgage loan, twelve
times the amount of the scheduled payment of principal and interest under the
mortgage loan as of the first due date that follows the cut-off date or, in the
case of any loan with a balloon payment that has an interest-only period
followed by an amortization period, the amount of the scheduled payment of
principal and interest under the mortgage loan as of the commencement of the
amortization period.
[5. "underwritten debt service coverage ratio" means:
(a) with respect to any mortgage loan (other than a
mortgage loan), the ratio of (i) the underwritten net
cash flow for the related mortgaged property, to (ii)
secured by multiple mortgaged properties the annual
debt service for the mortgage loan; and
(b) with respect to any mortgage loan secured by multiple
mortgaged properties, the ratio of (i) the total
underwritten net cash flow for the related mortgaged
properties that secure the mortgage loan (and any and
all other mortgage loans with which it is
cross-collateralized), to (ii) the total annual debt
service with respect to the mortgage loan (and any
and all other mortgage loans with which it is
cross-collateralized.]
6. "cut-off date loan-to-value ratio" or "cut-off date LTV
ratio" means:
(a) with respect to any mortgage loan (other than a
mortgage loan secured by multiple mortgaged
properties), the ratio of (i) the cut-off date
balance of the mortgage loan, to (ii) the appraised
value of the related mortgaged property; and
(b) with respect to any mortgage loan secured by multiple
mortgaged properties, the ratio of (i) the entire
cut-off date balance of the mortgage loan (and any
and all other mortgage loans with which it is
cross-collateralized), to (ii) the total appraised
value for the related mortgaged properties securing
the mortgage loan (and any and all other mortgage
loans with which it is cross-collateralized).
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7. "leasable square footage", "S.F." or "Sq. Ft." means, in the
case of a commercial property other than a hospitality property, the estimated
square footage of the gross leasable area at the property, as reflected in
information provided by the related borrower or in the appraisal on which the
related appraised value is based.
8. "units" means, (a) in the case of a multifamily rental
property, the estimated number of apartments at the property, regardless of
the number or size related mortgaged property to the of the rooms in the
apartments and (b) in the case of a manufactured housing property, the
estimated number of pads at the property upon which a mobile home
related mortgaged property to the can be hooked up, in each case, as reflected
in information provided by the related borrower or in the appraisal on which
the related appraised value is based.
9. "rooms" means, in the case of a hospitality property, the
estimated number of rooms and/or suites, without regard to the size of the
rooms or the number or size of the rooms in the suites, as reflected in
information provided by the related borrower or in the appraisal on which the
related appraised value is based.
10. "occupancy rate at underwriting" or "occupancy rate at U/W"
generally means the percentage of leasable square footage in the case of
commercial properties other than hospitality properties or units in the case of
multifamily rental properties and manufactured housing properties of the subject
mortgaged property that were occupied or leased as of the approximate date of
the original underwriting of the related mortgage loan (as updated, in certain
cases when we considered it appropriate and information was available, with more
current occupancy information), as reflected in information provided by the
related borrower or in the appraisal on which the related appraised value is
based. Information shown in this prospectus supplement with respect to any
weighted average of occupancy rates at underwriting excludes hospitality
properties from the relevant calculations.
11. "major tenant" means one of the top three (3) tenants (based
on the net rentable area of its space) of a commercial property that leases 10%
or more of the net rentable area of the property.
12. "year built" means, with respect to any mortgage loan, the
year when construction of the related mortgaged property was principally
completed, as reflected in information provided by the related borrower or in
the appraisal on which the related appraised value is based. With respect to
mortgage loans secured by multiple properties or by properties built in phases,
the year built may relate to the earliest, latest or average year in which the
properties or phases were built.
13. "year renovated" means, with respect to any mortgage loan,
the year when the most recent substantial renovation of the related mortgaged
property was principally completed, as reflected in information provided by
the related borrower or in the appraisal on which the related appraised value
is based. With respect to mortgage loans secured by multiple properties or by
properties renovated in phases, the year renovated may relate to the earliest,
latest or average year in which the properties or phases were renovated.
[14. "most recent debt service coverage ratio" means:
(a) with respect to any mortgage loan (other than a
mortgage loan secured by multiple mortgaged
properties), the ratio of (i) the most recent net
operating income for the
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related mortgaged property, to (ii) the annual debt
service for the mortgage loan; and
(b) with respect to any mortgage loan secured by multiple
mortgaged properties, the ratio of (i) the total most
recent net operating income for the related mortgaged
properties that secure the mortgage loan (and any and
all other mortgage loans with which it is
cross-collateralized) to (ii) the total annual debt
service with respect to the mortgage loan (and any
and all other mortgage loans with which it is
cross-collateralized).]
15. "most recent operating statement date" means, with respect to
each mortgage loan, the date indicated on Exhibit A-1 as the "most recent
operating statement date" with respect to the mortgage loan. In general, this
date is the end date of the period covered by the latest available annual (or,
in some cases, partial-year) operating statement.
16. "most recent net operating income" means, with respect to any
mortgaged property, the net operating income derived from the property that was
available for debt service, calculated as most recent revenues less most recent
expenses. For purposes of most recent net operating income--
o "most recent revenues" are the revenues received (or
annualized or estimated in certain cases) in respect of a
mortgaged property for the twelve (12) month period ended as
of the most recent operating statement date, based upon the
latest available annual or, in some cases, partial-year
operating statement and other information furnished by the
related borrower.
o "most recent expenses" are the expenses incurred or annualized
or estimated for a mortgaged property for the twelve (12)
month period ended as of the most recent operating statement
end date, based upon the latest available annual or, in some
cases, partial-year operating statement and other information
furnished by the related borrower.
17. "net operating income" means, with respect to any mortgaged
property, the total cash flow available for annual debt service on the related
mortgage loan, generally calculated as the excess of revenues over expenses. For
purposes of this definition:
o "revenues" generally consist of all revenues received in
respect of a mortgaged property, including--
(i) for the multifamily rental properties and
manufactured housing properties, rental and other
revenues;
(ii) for the commercial properties other than hospitality
properties, base rent, percentage rent, expense
reimbursements and other revenues; and
(iii) for the hospitality properties, guest room rates,
food and beverage charges, telephone charges and
other revenues.
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o "expenses" generally consist of all expenses incurred for
a mortgaged property, including salaries and wages, the
costs or fees of utilities, repairs and maintenance,
marketing, insurance, management, landscaping, security (if
provided at the property) and the amount of real estate
taxes, general and administrative expenses, ground lease
payments and other costs but without any deductions for debt
service, depreciation, amortization, capital expenditures,
leasing commissions and tenant improvements or furniture,
fixtures and equipment. In the case of hospitality
properties, expenses also include expenses relating to guest
rooms, food and beverage costs, telephone bills and rental
and other expenses, and such operating expenses as general
administrative expenses, marketing expenses and franchise
fees.
18. "maturity/anticipated repayment date balance" means, with
respect to any mortgage loan, the principal balance of the mortgage loan due at
stated maturity (or, in the case of any mortgage loan with an anticipated
repayment date, on the related anticipated repayment date) according to the
payment schedule for the mortgage loans (and otherwise assuming no prepayments,
defaults or extensions).
[19. "maturity/anticipated repayment date loan-to-value ratio"
means:
(a) with respect to any mortgage loan (other than a mortgage loan
secured by multiple mortgaged properties) that has a balloon
payment or anticipated repayment date, the ratio of (i) the
maturity/anticipated repayment date balance for the mortgage
loan to (ii) the appraised value of the related mortgaged
property; and
(b) with respect to any mortgage loan secured by multiple
mortgaged properties that has a balloon payment or anticipated
repayment date, the ratio of (i) the maturity/anticipated
repayment date balance for the mortgage loan (and any and all
other mortgage loans with which it is cross-collateralized) to
(ii) the total appraised value for the mortgaged properties
securing the mortgage loan (and any and all other mortgage
loans with which it is cross-collateralized).]
Additional Mortgage Loan Information
Delinquencies. No mortgage loan will be as of the cut-off date, or has
been at any time during the ________ month period preceding the cut-off date,
_______ or more delinquent in respect of any scheduled payment of principal and
interest.
Tenant Matters. Described below are special considerations regarding
tenants at the mortgaged properties--
o ________ mortgage loans are secured by a retail property, an
office property or a mortgaged property used for industrial
purposes that is leased to one or more major tenants.
o A number of companies (such as __________) are major tenants
at more than one mortgaged property.
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o There are several cases in which a particular entity is a
tenant at multiple mortgaged properties, and although it may
not be a major tenant at any of these properties, it may be
significant to the success of the properties.
o _______ of the multifamily rental properties, representing
_______% of the initial pool balance, have material
concentrations of student tenants.
[Ground Leases. _______ of the mortgage loans, representing _____ %
of the initial pool balance, are secured, in whole or in material part, by a
mortgage on the borrower's leasehold interest in the related mortgaged
property. In each case, either:
o the ground lessor has subordinated its interest in the
related mortgaged property to the interest of the holder of
the related mortgage loan; or
o the ground lessor has agreed to give the holder of the related
mortgage loan notice of, and the right to cure, any default or
breach by the lessee and the related ground lease (giving
effect to all extension options) expires more than 10 years
after the stated maturity of the related mortgage loan.
See "Certain Legal Aspects of Mortgage Loans--Foreclosure--Leasehold
Considerations" in the prospectus.]
Additional and Other Financing. The following table indicates those
mortgaged properties that are known to us to be encumbered by secured
subordinate debt, the initial principal amount of the debt and the cut-off date
balances of the related mortgage loans. The table also shows, in the case of
each mortgaged property, the initial principal amount of the secured subordinate
debt:
<TABLE>
<CAPTION>
% of Initial
Pool Balance Initial Principal
Cut-off Date balance Represented Amount of
of Related by Related Secured
Mortgaged Property Mortgage Loans Mortgage Loans Subordinate Debt(1)
------------------ --------------- -------------- -------------------
<S> <C> <C> <C> <C>
$ % $
$ % $
$ % $
$ % $
$ % $
$ % $
</TABLE>
- ------------------
(1) The subordinate lender has agreed to either (i) subordinate its debt
and/or (ii) to refrain from taking any action against the borrower or
the mortgaged property.
In addition, borrowers under _______ mortgage loans, representing
________% of the initial pool balance, have unsecured debt of which we are
aware. In some cases, the lender on the debt is an affiliate of the borrower.
In each case, the lender on the unsecured debt has agreed to subordinate its
indebtedness and to refrain from taking any action against the borrower or the
mortgaged property. In
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addition, some of the mortgage loans permit the related borrower to incur
unsecured subordinated debt in the future, subject to conditions such as
limiting the use of proceeds to refurbishing or renovating the property and/or
acquiring furniture, fixtures and equipment for the property. Additional debt,
in any form, may cause a diversion of funds from property maintenance and
increase the likelihood that the borrower will become the subject of a
bankruptcy proceeding.
Except as described above, we have not been able to confirm whether the
respective borrowers under the mortgage loans have any other debt outstanding.
Owners of _______ borrowers under the mortgage loans have incurred
so-called "mezzanine debt" that is secured by their ownership interests in these
borrowers. This type of financing effectively reduces the indirect equity
interest of any owner in the related mortgaged property. With respect to at
least _______ mortgage loans, representing _______ % of the initial pool
balance, owners of the related borrower have pledged their equity interests in
the borrower to secure mezzanine debt. See "Risks Related to the Offered
Certificates--Potential Conflicts of Interest". No mezzanine debt is included in
the mortgage pool.
See "Risk Factors--Risks Related to the Mortgage Loans--Risks of
Subordinate Debt and Other Additional Financing" in this prospectus supplement.
Certain Underwriting Matters
General. In connection with the origination of the respective mortgage
loans, the related originator of the mortgage loan evaluated each mortgaged
property in a manner generally consistent with the standards described below.
See also "Description of the Trust Assets--Mortgage Loans--Default and Loss
Considerations with Respect to the Mortgage Loans" in the prospectus.
Environmental Assessments. In general, a third-party environmental
consultant conducted a "Phase I" environmental site assessment or updated a
previously conducted assessment with respect to each mortgaged property during
the __________-month period before the cut-off date. In ____ cases, additional
environmental testing was conducted. The environmental testing at any particular
mortgaged property did not necessarily cover all potential environmental issues.
For example, tests for radon, lead- based paint and lead in water were performed
only at multifamily rental properties and only when the originator of the
related mortgage loan believed this testing was warranted under the
circumstances.
The above-described environmental testing identified various adverse or
potentially adverse environmental conditions at the respective mortgaged
properties. In many cases, the identified condition related to the presence of
asbestos-containing materials, lead-based paint and/or radon. Where these
substances were present, the environmental consultant generally recommended, and
the related mortgage loans documents required, the establishment of an operation
and maintenance plan to address the issue or, in the case of asbestos-containing
materials and lead-based paint, an abatement or removal program.
In some cases, the cost to remediate or prevent an adverse
environmental condition at a particular mortgaged property was estimated to cost
more than $__________. These cases include--list properties
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There may be other environmental conditions such as asbestos,
lead-based paint or underground storage tanks which did not require the
establishment of significant environmental reserves or remediation at the time
the related loan was made. If any environmental conditions are not properly
addressed by the related borrower, however, it could result in substantial
environmental liability for the trust.
In cases where the environmental consultant recommended specific
remediation of an adverse environmental condition, the related originator of the
mortgage loan generally required the related borrower either: (i) carry out the
specific remedial measures prior to closing; or (ii) carry out the specific
remedial measures post-closing and, to deposit with the lender a cash reserve in
an amount equal to ____% to ___% of the estimated cost to complete the remedial
measures. Some borrowers have not satisfied all post-closing obligations
required by the related mortgage loan documents with respect to environmental
matters. There can be no assurance that recommended operations and maintenance
plans have been or will continue to be implemented.
In several cases, the environmental site assessment for a mortgaged
property identified potential environmental problems at nearby properties. These
assessment indicated however, that the subject mortgaged property had not been
affected or had been minimally affected, the potential for the problem to affect
the subject mortgaged property was limited and/or a person responsible for
remediation had been identified.
The information contained in this prospectus supplement regarding
environmental conditions at the mortgaged properties is based on the
environmental assessments and has not been independently verified by us or the
mortgage loan sellers, any underwriter, the Master Servicer, the Special
Servicer, the Trustee, the REMIC Administrator, or the affiliates of any of
these parties. There can be no assurance that the environmental assessments or
studies, as applicable, identified all environmental conditions and risks, or
that any environmental conditions will not have a material adverse effect on the
value of or cash flow from the related mortgaged property.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a mortgaged property prior to
acquiring title to the property or assuming its operation. This requirement
enforcement of the security for the related mortgage loan until a satisfactory
environmental site assessment is obtained or until any required remedial action
is taken. In addition, there can be no assurance that the requirements of the
Pooling and Servicing Agreement will effectively insulate the trust from
potential liability for a materially adverse environmental condition at any
mortgaged property. See "Servicing of the Mortgage Loans" in this prospectus
supplement and "Description of the Pooling and Servicing 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.
Property Condition Assessments. Third-party engineering firms inspected
all of the mortgaged properties or updated previously conducted inspections
during the __________-month period preceding the cut-off date to assess exterior
walls, roofing, interior construction, mechanical and electrical systems and
general condition of the site, buildings and other improvements located at each
mortgaged property.
The inspections identified various deferred maintenance items and
necessary capital improvements at some of the mortgaged properties. The
resulting inspection reports generally included an estimate of
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cost for any recommended repairs or replacements at a mortgaged property. When
repairs or replacements were recommended, the related borrower was required to
carry out necessary repairs or replacements and, in some instances, to establish
reserves, generally in the amount of 100% to 125% of the cost estimated in the
inspection report, to fund deferred maintenance or replacement items that the
reports characterized as in need of prompt attention. See the table titled
"Engineering Reserves and Recurring Replacement Reserves" on Exhibit A-1 to this
prospectus supplement. There can be no assurance that another inspector would
not have discovered additional maintenance problems or risks, or arrived at
different, and perhaps significantly different, judgments regarding the problems
and risks disclosed by the respective inspection reports and the cost of
corrective action.
Appraisals and Market Studies. An independent appraiser that is
state-certified and/or a member of the appraisal Institute conducted an
appraisal of each mortgaged property during the __________- month period
preceding the cut-off date in order to establish the property value of the
mortgaged property. Such appraisals constitute the basis for the "appraised
values" for the respective mortgaged properties on Exhibit A-1 to this
prospectus supplement.
The appraisals represent the analysis and opinions of the respective
appraisers at or before the origination of the respective mortgage loans. The
appraisals have not been updated following the origination of the respective
mortgage loans and are not guarantees of, and may not be indicative of, the
present or future value of the mortgaged properties. There can be no assurance
that another appraiser would not have arrived at a different valuation of any
particular mortgaged property, even if the appraiser used the same general
approach to, and the same method of, appraising the mortgaged property. We have
not nor has any underwriter confirmed the values of the respective mortgaged
properties in the appraisals.
In general, appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller. However, this amount
could be significantly higher than the amount obtained from the sale of a
mortgaged property under a distress or liquidation sale. Implied in the
appraised values for the mortgaged properties shown on Exhibit A-1 to this
prospectus supplement, is the contemplation of a sale at a specific date and the
passing of ownership from seller to buyer under conditions whereby:
o buyer and seller are motivated;
o both parties are well informed or well advised, and each is
acting in what he considers his own best interests;
o a reasonable time is allowed to show the property in the
open market;
o payment is made in terms of cash in U.S. dollars or in
comparable financial arrangements; and
o the price paid for the property is not adjusted by special or
creative financing or sales concessions granted by anyone
associated with the sale.
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Each appraisal involved a physical inspection of the related mortgaged
property and reflects a correlation of value based on indicated values by the
sales comparison approach, the income approach and/or the cost approach.
o In the "sales comparison approach", the subject property is
compared to similar properties that have been sold recently or
for which listing prices or offering figures are known. Data
for generally comparable properties are used and comparisons
are made to demonstrate a probable price at which the subject
property would sell if offered on the market.
o Under the "income approach", market value is determined by
using the "discounted cash flow" method of valuation or by
the "direct capitalization" method. The discounted cash
flow analysis is used in order to measure the return on a
real estate investment and to determine the present value of
the future income stream expected to be generated by the
property. The future income of the property, as projected
over an anticipated holding period, and the resulting net
operating incomes or cash flows are then discounted to
present value using an appropriate discount rate. The direct
capitalization method generally converts an estimate of a
single year's income expectancy (or, in some cases, a
hypothetical stabilized single years' income expectancy)
into an indication of value by dividing the income estimate
by an appropriate capitalization rate. An applicable
capitalization method and appropriate capitalization rates
are developed for use in computations that lead to an
indication of value. In utilizing the income approach, the
appraiser's method of determination of gross income, gross
expense and net operating income may vary from the method of
determining underwritten net cash flow, resulting in
variances in the related net operating income values.
o Under the "cost approach" of valuing a property, the estimated
value of the land is added to an estimate of the current
replacement cost of the improvements less depreciation from
all sources.
The appraisal for each mortgaged property or a separate letter contains
a statement by the respective appraiser to the effect that the appraisal
guidelines set forth in Title XI of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 were followed in preparing the appraisal. However,
we have not nor has any underwriter, mortgage loan seller or originator
independently verified the accuracy of this statement.
In the case of certain mortgage loans that constitute acquisition
financing, the related borrower may have acquired the related mortgaged property
at a price less than the appraised value on which the mortgage loan was
underwritten.
Zoning and Building Code Compliance. In connection with the origination
of each mortgage loan, the related originator examined whether the use and
operation of the related mortgaged property were in material compliance with
zoning, land-use, environmental, building, fire and health ordinances, rules,
regulations and orders then-applicable to the mortgaged property. Evidence of
this compliance may have been in the form of legal opinions, certifications from
government officials, title insurance endorsements, engineering or consulting
reports and/or representations by the related borrower. In certain instances, a
certificate of occupancy was not available. Where the mortgaged property as
currently operated constituted a permitted nonconforming use and/or structure,
an analysis was generally
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conducted as to (i) the likelihood that a material casualty would occur that
would prevent the mortgaged property from being rebuilt in its current form and
(ii) whether existing replacement cost hazard insurance or, if necessary,
supplemental "law or ordinance coverage" would, in the event of a material
casualty, be sufficient to satisfy the entire mortgage loan or, taking into
account the cost of repair, be sufficient to pay down the mortgage loan to a
level that the remaining collateral would constitute adequate security for the
remaining loan amount.
Hazard, Liability and Other Insurance. Although exceptions exist,
each mortgage generally requires the related borrower to maintain the following
insurance coverage--
o Hazard insurance in an amount that is subject to a customary
deductible, at least equal to the lesser of the outstanding
principal balance of the related mortgage loan and 100% of
the full insurable replacement cost of the improvements
located on the mortgaged property. In general, the standard
form of hazard insurance policy covers physical damage to, or
destruction of, the improvements on a mortgaged property by
fire, lightning, explosion, smoke, windstorm and hail, riot
or strike and civil commotion, subject to the conditions and
exclusions set forth in each policy. In some cases, however,
a borrower or tenant is permitted to self-insure the subject
mortgaged property, provided that the insuring party or an
affiliate maintains a specified net worth.
o If any portion of a mortgaged property was in an area
identified in the federal register by the Flood Emergency
Management Agency as having special flood hazards, flood
insurance meeting the requirements of the Federal Insurance
Administration guidelines was required. The amount of
insurance is required to be in an amount that is equal to the
lesser of: (i) the outstanding principal balance of the
mortgage loan; (ii) except in certain cases, the full
insurable value of the mortgaged property; and (iii) the
maximum amount of insurance available under the National Flood
Insurance Act of 1968.
o Comprehensive general liability insurance against claims for
personal and bodily injury, death or property damage occurring
on, in or about the mortgaged property, in an amount at least
equal to $1 million per occurrence.
o Business interruption or rent loss insurance in an amount not
less than 100% of the projected rental income or revenue from
the mortgaged property for at least six months (or,
alternatively, in a specified dollar amount).
[In general, the mortgaged properties including those located in
California are not insured against earthquake risks. In the case of mortgaged
properties other than those that are manufactured housing communities, located
in California, a third party consultant conducted seismic studies to assess the
"probable maximum loss" for the mortgaged property. In general, when the
resulting reports concluded that a mortgaged property was likely to experience a
"probable maximum loss" in excess of 25% of the estimated replacement cost of
the improvements, the related originator required the borrower to obtain
earthquake insurance or establish reserves to cover the estimated costs of
completing seismic retrofitting recommended by the consultant, unless the
original loan-to-value ratio was relatively low.]
With respect to each mortgaged property including each mortgaged
property securing a mortgage loan being serviced by the Special Servicer, the
Master Servicer is required to cause the maintenance of
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all insurance coverage as is required under the related mortgage to the extent
(i) the trust has an insurable interest and (ii) the Master Servicer can require
maintenance of insurance under applicable law.
Under the terms of several mortgage loans, the related borrower is
required to keep its mortgaged property insured against loss by fire, hazards,
rent loss and other hazards, casualties, liabilities and contingencies as the
lender determines to require and in the amounts and for the periods as the
lender determines to require. In these cases, the Master Servicer will be
required to use reasonable efforts to cause the related borrowers under the
mortgage loans to maintain insurance generally in the amounts, type and scopes
of coverage required under the other mortgage loans.
Various forms of insurance maintained with respect to a mortgaged
property, including casualty insurance, environmental insurance, earthquake
insurance or other insurance, may be provided under a blanket policy that also
covers other mortgaged properties and/or other properties not securing the
mortgage loans. As a result of total limits under any blanket policy, losses at
other properties covered by the blanket insurance policy may reduce the amount
of insurance coverage with respect to a mortgaged property. See "Risk
Factors--Risks Related to the Mortgage Loans--Uninsured Loss; Sufficiency of
Insurance".
With limited exception, the mortgage loans generally provide that
insurance and condemnation proceeds are to be applied either--
o to restore the related mortgaged property; or
o towards payment of the related mortgage loan.
The Special Servicer is required to maintain for each REO property
generally the same types of insurance policies providing coverages in the same
amounts as were previously required under the mortgage that had covered the
property.
The Master Servicer and the Special Servicer may each satisfy its
obligations regarding maintenance of the hazard insurance policies referred to
in this prospectus supplement by maintaining a blanket policy or master force
placed insurance policy insuring against hazard losses on all of the related
mortgage loans. If any blanket or master policy contains a deductible clause,
the Master Servicer or the Special Servicer, as the case may be, will be
required, in the event of a casualty covered by the blanket or master policy, to
deposit or cause to be deposited in the certificate account all sums that would
have been deposited in the account but for the deductible clause and only to the
extent these sums would have been paid if an individual hazard insurance policy
referred to above had been in place. See "Description of the Pooling and
Servicing Agreements--Hazard Insurance Policies" in the prospectus.
The applicable originator and its successors and assigns are the
beneficiaries under separate title insurance policies with respect to each
mortgage loan. Each title insurer will enter into co-insurance and reinsurance
arrangements with respect to the title insurance policy as are customary in the
title insurance industry. Subject to certain exceptions, including standard
exceptions regarding claims made in the context of insolvency proceedings, the
title insurance policy will provide coverage to the Trustee for the benefit of
certificateholders for claims made against the Trustee regarding the priority
and validity of the borrowers' title to the mortgaged properties.
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Cash Management and Certain Escrows and Reserves
Cash Management. In the case of __________ of the mortgage loans,
representing approximately _____% of the initial pool balance, a "cash
management" system has been implemented for the deposit of property revenues
into a separate account.
[In the case of certain mortgage loans, tenants are required to remit
rental payments to an account that is under the sole control of the lender and
the borrower is not authorized to make withdrawals from the account. In the
other cases, the related borrower or the manager of the related mortgaged
property is required to deposit property revenues into an account that is under
the joint control of the related borrower and the Master Servicer. In these
other cases, the borrower is authorized to make withdrawals from the account
from time to time until the occurrence of an event of default under the mortgage
loan, in which case the Master Servicer or the Special Servicer would be
entitled, under preexisting instructions furnished to the depository institution
at which the account is maintained, to direct the depository institution to no
longer honor payment requests made by the borrower. In general, no later than
the related anticipated repayment date, the borrower under each mortgage loan
with an anticipated repayment date will be required if it has not previously
done so, to establish an account which is under the sole control of the Master
Servicer and into which all revenue from the related mortgaged property will be
directly deposited.]
Central Accounts. In the case of most mortgage loans, including all of
the mortgage loans as to which a "cash management" system has been implemented,
central accounts have been established for the purpose of holding amounts
required to be on deposit as reserves for taxes and insurance, capital
improvements, furniture, fixtures and equipment and certain other purposes. As
of the closing date, these accounts will be under the sole control of the Master
Servicer. In the case of most mortgage loans as to which there is this type of
account, account will be funded out of monthly escrow and/or reserve payments by
the related borrower or from funds transferred from another account.
Tax and Insurance Escrows. In the case of __________ mortgage loans,
representing __________% of the initial pool balance, tax and insurance escrows
were established, either as separate accounts or, if applicable, as sub-accounts
of another account, and each related borrower is generally required to deposit
on a monthly basis an amount equal to one-twelfth of the annual real estate
taxes and assessments and one-twelfth of the annual premiums payable on
insurance policies that the borrower is required to maintain. If an escrow was
established, the funds will generally be applied by the Master Servicer to pay
for items such as taxes, assessments and insurance premiums at the related
mortgaged property.
Under certain other mortgage loans, the insurance carried by the
related borrower is in the form of a blanket policy. In these cases, the amount
of the escrow is an estimate of the proportional share of the premium allocable
to the related mortgaged property, or the related borrower pays the premium
directly. Under certain mortgage loans, the related borrower delivered letters
of credit from third parties in lieu of establishing and funding a deposit
account for tax and insurance escrows. Under certain mortgage loans, a tenant at
the related mortgaged property is responsible for paying all or a portion of the
real estate taxes and assessments and/or insurance premiums directly. In these
cases, escrows generally are not required.
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Recurring Replacement Reserves. The table titled "Engineering Reserves
and Recurring Replacement Reserves" on Exhibit A-1 to this prospectus supplement
shows the reserve deposits that borrowers are, in each case, required to make
into a separate account or, if applicable, a sub-account of another account for
capital replacements, repairs and furniture, fixtures and equipment and/or for
leasing commissions and tenant improvements on the related mortgaged property
under the terms of the respective mortgage loans.
The Reserves shown in the table for capital replacements, repairs and
furniture, fixtures and equipment and/or for leasing commissions and tenant
improvements are in each case expressed as dollars per unit for multifamily
rental properties and manufactured housing properties, a percentage of total
departmental revenues for hospitality properties and dollars per leasable square
foot for other commercial properties. The reserves for most of the mortgaged
properties are initial amounts and may vary over time. In these cases, the
related mortgage note and/or other related documents may provide for applicable
reserve deposits to cease upon achieving predetermined maximum amounts in the
related reserve account. In addition, in some cases, reserves for leasing
commissions and tenant improvements were determined for specific tenant spaces,
in which cases, the execution of a lease covering the space could result in the
termination and/or release of the reserve. Under certain mortgage loans, the
related borrowers are permitted to deliver letters of credit from third parties
in lieu of establishing and funding a deposit account for replacement reserves
or reserves for leasing commissions and tenant improvements.
Engineering Reserves. The table titled "Engineering Reserves and
Recurring Replacement Reserves" on Exhibit A-1 to this prospectus supplement
shows the reserves established, either as a separate account or, as a
sub-account, or in some cases in the form of a letter of credit pledged to the
lender, as a result of the inspections of certain mortgaged properties described
above under "--Certain Underwriting Matters--Property Condition Assessments".
The repair/replacement items for which these reserves were established are
generally items identified by the property inspection firm as in need of repair
or replacement in order to restore the mortgaged property to a condition
generally consistent with competitive properties of similar age and quality or
to comply with regulatory requirements. Because the reserve for any mortgaged
property shown in the table reflects only the cost estimate determined by the
respective inspection firm for items that the related originator determined
significant enough to require a reserve, and/or because in some cases items
identified in a report were corrected prior to closing of the mortgage loans,
the Reserve for certain mortgage loans is less than the cost estimate in the
related report.
The reserve established as a result of inspections for several
mortgaged properties was a significant amount and substantially in excess of the
cost estimate set forth in the related inspection report because the related
originator required the borrower to establish reserves for the completion of
major work that had been commenced. No reserve is required to be replenished.
The amounts set forth in this table represent the amounts of the reserves
required at the respective dates of origination of the mortgage loans, and there
can be no assurance that the work for which reserves were required will be
completed in a timely manner or that the reserved amount will be enough.
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Significant Mortgage Loans
This section will include summaries of either (i) all mortgage loans of
$50 million or more or (ii) the 5 largest loans in the pool.]
The Mortgage Loan Sellers and the Originators
General. __________ acquired all of the __________ mortgage loans,
representing __________% of the initial pool balance. [state exceptions.]
[Description of Mortgage Loan Sellers and Originators.]
The information set forth in this prospectus supplement concerning the
mortgage loan sellers and the originators has, in each case, been provided by
the party, and we do not nor does any underwriter make any representation or
warranty as to the accuracy or completeness of this information.
Assignment of the Mortgage Loans
On or before the closing date, the following without recourse transfers
of the mortgage loans will occur.
[Graphic]
In connection with the foregoing transfers, each mortgage loan seller
will be required to deliver the following documents, among others, to the
Trustee and, upon request, to the Master Servicer with respect to its mortgage
loans--
o the original mortgage note, endorsed without recourse to the
order of the Trustee or, if the original mortgage note has
been lost, a copy of the mortgage note, together with a lost
note affidavit);
o the original or a copy of the related mortgage(s), together
with originals or copies of any intervening assignments of the
document(s), in each case unless the particular document has
not been returned from the applicable recording office with
evidence of recording on the mortgage;
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o the original or a copy of any related assignment(s) of leases
and rents, together with originals or copies of any
intervening assignments of the document(s), in each case
unless the particular document has not been returned from the
applicable recording office with evidence of recording on the
document;
o a completed assignment of each related mortgage in favor of
the Trustee, in recordable form or a certified copy of the
assignment as sent for recording;
o a completed assignment of any related assignment(s) of
leases and rents in favor of the Trustee, in recordable form
or a certified copy of the assignment as sent for recording;
o originals or copies of all assumption, modifications and
substitution agreements in those instances where the terms or
provisions of the mortgage or mortgage note have been modified
or the mortgage loan has been assumed;
o an original or copy of the related lender's title insurance
policy or, if a title insurance policy has not yet been
issued, a commitment for title insurance "marked-up" at the
closing of the mortgage loans; and
o in those cases where applicable, the original or a copy of
the related ground lease.
The Trustee either directly or through a custodian is required to hold
all of the documents delivered to it with respect to the mortgage loans in trust
for the benefit of the certificateholders and, within a specified period of time
following the delivery, to conduct a review of these documents. All of the
above-described documents actually delivered to the Trustee in respect of any
mortgage loan will collectively constitute the "mortgage file" for the mortgage
loan. The scope of the Trustee's review of each mortgage file is, in general,
limited solely to confirming that certain of the documents listed above have
been received. None of the Trustee, the Master Servicer, the Special Servicer or
any custodian is under any duty or obligation to inspect, review or examine any
of the documents relating to the mortgage loans to determine whether the
document is valid, effective, enforceable, in recordable form or otherwise
appropriate for the represented purpose.
The Pooling and Servicing Agreement will require the Trustee, within a
specified period following the later of the closing date and the date on which
all recording information necessary to complete the subject document is received
by the Trustee, to cause each of the assignments of recorded loan documents in
its favor described above to be submitted for recording in the real property
records of the jurisdiction in which the related mortgaged property is located.
Because the mortgage loans are, in general, newly originated, many of the
assignments cannot be completed and recorded until the related mortgage and/or
assignment of leases and rents, reflecting the necessary recording information,
is returned from the applicable recording office.
Representations and Warranties
Each of the mortgage loan sellers will make with respect to the
mortgage loans transferred by it to us as of the closing date, certain
representations and warranties generally to the effect listed below, together
with any other representations and warranties as may be required by the rating
agencies. The
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representations and warranties to be made in respect of each mortgage loan by
the mortgage loan sellers will include:
o The information relating to the mortgage loan, substantially
similar to that set forth in the loan schedule attached to the
Pooling and Servicing Agreement, will be accurate and complete
in all material respects as of the cut-off date.
o Immediately prior to its transfer and assignment of the
mortgage loan, the mortgage loan seller had good and
marketable title to, and was the sole owner of, the mortgage
loan.
o The related mortgage constitutes a valid enforceable first
lien upon the related mortgaged property, free and clear of
all liens and encumbrances other than certain permitted liens
and encumbrances.
o The related mortgage has not been satisfied, canceled,
rescinded or subordinated.
o To the knowledge of the mortgage loan seller, there is no
proceeding pending for the total or partial condemnation of
the related mortgaged property.
o The lien of the related mortgage is insured by an American
Land Title Association or equivalent form of lender's title
insurance policy or there exists a marked up title insurance
commitment to issue a policy or a pro forma policy on which
the required premium has been paid insuring the related
originator, its successors and assigns, as to the first
priority lien of the related mortgage in the original
principal amount of the mortgage loan after all advances of
principal, subject only to (i) the lien of current real
property taxes, ground rents, water charges, sewer rents and
assessments not yet due and payable and (ii) the other
exceptions set forth in the policy.
o The proceeds of the mortgage loan have been fully disbursed
except in those cases where the full amount of the mortgage
loan has been made, but a portion of the proceeds is being
held back pending satisfaction of certain leasing criteria,
repairs and other matters with respect to the related
mortgaged property and there is no requirement for future
advances under the ___________.
o If the related mortgage is a deed of trust, a trustee, duly
qualified under applicable law has been properly designated
and currently serves.
o To the knowledge of the mortgage loan seller, the related
mortgaged property is free and clear of any damage that would
materially and adversely affect its value as security for the
mortgage loan.
o Each mortgage note, mortgage and other agreement executed by
or on behalf of the related borrower in connection with the
mortgage loan is the legal, valid and binding obligation of
the related maker of the arguments subject to any non-recourse
provisions contained in any of the agreements and any
applicable state anti-deficiency or market value limit
deficiency legislation, enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or
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other laws affecting the enforcement of creditors' rights
generally, or by general principles of equity.
The representations and warranties made by the mortgage loan sellers as
described above will be assigned by us to the Trustee pursuant to the Pooling
and Servicing Agreement. If there exists a breach of any of the above-described
representations and warranties made by either mortgage loan seller and the
breach materially and adversely affects the value of the subject mortgage loan
or the interests of the certificateholders in the mortgage loan, the breach will
constitute a "material breach" of the representation and warranty. The rights of
the trust against the applicable mortgage loan seller with respect to any
material breach are described under "--Cures, Repurchases and Substitutions"
below.
Cures, Repurchases and Substitutions
If there exists a material breach of any of the representations and
warranties made with respect to any of the mortgage loans, as discussed under
"--Representations and Warranties" above, the related mortgage loan seller will
be required either:
(a) to cure the material breach in all material
respects; or
(b) subject to the discussion below regarding
substitution, to repurchase the mortgage loan at a
price generally equal to the sum of
(i) the unpaid principal balance of the
mortgage loan,
(ii) accrued and unpaid interest at the related
mortgage rate to but not including the due
date occurring in the collection period in
which the repurchase occurs, and
(iii) the amount of any related unreimbursed
servicing advances and, to the extent not
otherwise included in the servicing
advances, the costs and expenses of
enforcing the repurchase obligation.
The time period within which the applicable mortgage loan seller must complete
such cure or repurchase will be limited to ____ days or, if it is diligently
attempting to correct the problem and certain other conditions are satisfied,
_____ days following its receipt of notice of the subject material breach.
If any mortgage loan seller is required to repurchase any mortgage loan
as a result of a material breach of any of its representations and warranties,
as contemplated above, then the mortgage loan seller may, at any time during the
three (3) month period commencing on the closing date or at any time during the
two-year period commencing on the closing date if the affected mortgage loan is
a "defective obligation" within the meaning of Section 860G(a)(4)(B)(ii) of the
U.S. tax code and Treasury Regulation Section 1.860G-2(f), in lieu of
repurchasing the affected mortgage loan:
(a) replace the mortgage loan with one or more substitute
mortgage loans that (i) has certain payment terms comparable to the
mortgage loan to be replaced and (ii) is otherwise acceptable to the
controlling class representative or, if none has been appointed, to the
holder(s) of certificates representing a majority interest in the
controlling class; and
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(b) pay an amount generally equal to the excess of the
applicable purchase price for the mortgage loan to be replaced over the
unpaid principal balance of the applicable replacement mortgage loan(s)
as of the date of substitution, after application of all payments due
on or before this date, whether or not received;
provided that no substitution will be permitted unless, as confirmed in writing
by each rating agency, it would not result in a qualification, downgrade or
withdrawal of the rating then assigned to any class of certificates by either
rating agency.
The mortgage loan sellers are not obligated, however, to replace rather
than repurchase any mortgage loan as to which there is a material breach. Any
substitution will be at the sole discretion of the responsible mortgage loan
seller. Furthermore, the certificateholders of the controlling class and the
controlling class representative, as their representative, will generally have a
disincentive to find any prospective replacement mortgage loan acceptable.
If the applicable mortgage loan seller fails to repurchase or replace
any mortgage loan affected by a material breach, we do not and nor does any
underwriter or, except as described in the next paragraph, any other person have
any obligation to do so.
The mortgage loan sellers may only have limited assets with which to
fulfill any repurchase/substitution obligations that may arise in respect of
breaches of the representations or warranties. There can be no assurance that
the mortgage loan sellers have or will have sufficient assets with which to
fulfill any repurchase/substitution obligations that may arise. Expenses
incurred by the Master Servicer and the Trustee with respect to enforcing any
repurchase/substitution obligation will be borne by the applicable mortgage loan
seller (or, if not, will be reimbursable out of the certificate account).
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 it is expected to be
constituted at the time the offered certificates are issued, with adjustments
for the scheduled principal payments due on the mortgage loans on or before the
cut-off date. Prior to the issuance of the offered certificates, one or more
mortgage loans may be removed from the mortgage pool if we consider the removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the mortgage pool prior to the issuance of the offered certificates,
unless including the mortgage loans would materially alter the characteristics
of the mortgage pool as described in this prospectus supplement. We believe that
the information in this prospectus supplement will be generally representative
of the characteristics of the mortgage pool as it will be constituted at the
time the offered certificates are issued; however, the range of mortgage rates
and maturities, as well as the other characteristics of the mortgage loans
described in this prospectus supplement, may vary, and the actual initial pool
balance may be as much as __________% larger or smaller than the initial pool
balance contained in this prospectus supplement.
A Current Report on Form 8-K will be available to purchasers of the
offered certificates on or shortly after the closing date. The Current Report on
Form 8-K will be filed, together with the Pooling and Servicing Agreement, with
the Securities and Exchange Commission within fifteen days after the
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initial issuance of the offered certificates. In the event mortgage loans are
removed from or added to the mortgage pool, the removal or addition will be
noted in the Current Report on Form 8-K.
SERVICING OF THE MORTGAGE LOANS
General
The servicing of the mortgage loans and any REO properties will be
governed by the Pooling and Servicing Agreement. The following summaries
describe certain provisions of the Pooling and Servicing Agreement relating to
the servicing and administration of the mortgage loans and any REO properties.
You should also refer to the prospectus, in particular the section captioned
"Description of the Pooling and Servicing Agreements", for additional important
information regarding the terms and conditions of the Pooling and Servicing
Agreement as these terms and conditions relate to the rights and obligations of
the Master Servicer and the Special Servicer.
The Pooling and Servicing Agreement provides that the Master Servicer
and the Special Servicer must each service and administer the mortgage loans and
any REO properties for which it is responsible, directly or through
sub-servicers, for the benefit of the certificateholders, in accordance with any
and all applicable laws and the express terms of the Pooling and Servicing
Agreement and the respective mortgage loans. To the extent consistent with the
foregoing, the Master Servicer and the Special Servicer must each service and
administer the mortgage loans and any REO properties for which it is responsible
in accordance with the following standard:
o with the same care, skill and diligence as is normal and usual
in its general mortgage servicing and asset management
activities with respect to comparable mortgage loans that
either are part of other third party portfolios (giving due
consideration to customary and usual standards of practice of
prudent institutional commercial mortgage lenders) or are held
as part of its own portfolio, whichever servicing procedures
are a higher standard;
o with a view to the timely collection of all scheduled payments
of principal and interest under the mortgage loans, the full
collection of all prepayment premiums and yield maintenance
charges that may become payable under the mortgage loans and,
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
these mortgage loans to certificateholders on a present value
basis; and
o without regard to:
(i) any known relationship that the Master Servicer or
the Special Servicer, as the case may be, or any of
its affiliates may have with any related borrower;
(ii) the ownership of any certificate by the Master
Servicer or the Special Servicer, as the case may be,
or by any of its affiliates;
(iii) the obligation of the Master Servicer or the Special
Servicer, as the case may be, to make advances;
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(iv) the right of the Master Servicer or the Special
Servicer, as the case may be, or any of its
affiliates to receive compensation for its services
or reimbursement of its costs under the Pooling and
Servicing Agreement generally or with respect to any
particular transaction;
(v) the ownership, servicing or management of other
mortgage loans or properties not included in or
securing the trust assets;
(vi) any subordinate or additional financing that the
Master Servicer or the Special Servicer, as the case
may be, or any of its affiliates, has extended to any
related borrower; or
(vii) any obligation of the Master Servicer or the Special
Servicer, as the case may be, or any of its
affiliates, as a mortgage loan seller.
In general, the Master Servicer will be responsible for the servicing
and administration of--
o all mortgage loans as to which no servicing transfer event
has occurred, and
o all corrected mortgage loans.
The Special Servicer, on the other hand, will be responsible for the
servicing and administration of--
o each mortgage loan other than a corrected mortgage loan as
to which a servicing transfer event has occurred, and
o each mortgaged property that has been acquired by the trust in
respect of a defaulted mortgage loan through foreclosure,
deed-in-lieu of foreclosure or otherwise. Each defaulted
mortgage loan acquired by the trust, is an "REO property".
Corrected mortgage loans and mortgage loans as to which no servicing
transfer event has occurred are referred to in this prospectus supplement as
"performing mortgage loans". Specially serviced mortgage loans and REO
properties are collectively referred to in this prospectus supplement as
"specially serviced assets". Performing mortgage loans will include mortgage
loans which may be delinquent, but not to the point of resulting in a servicing
transfer event.
Despite the foregoing, the Pooling and Servicing Agreement will require
the Master Servicer to continue to collect information and prepare all reports
to the Trustee required to be collected or prepared by the Master Servicer with
respect to any specially serviced assets and, otherwise, to render certain
incidental services with respect to any specially serviced assets and REO
properties. Neither the Master Servicer nor the Special Servicer will have
responsibility for the performance by the other of its respective obligations
and duties under the Pooling and Servicing Agreement.
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A mortgage loan will become a specially serviced mortgage loan (if it
has not already done so) upon the occurrence of a servicing transfer event. Each
of the following events will constitute a "servicing transfer event" in respect
of any mortgage loan:
(1) any scheduled payment including a balloon payment due
under the related mortgage note or the related mortgage,
is delinquent for 60 days;
(2) if the Master Servicer is required to make an advance
because of the failure of a borrower in which the Master
Services owns a material economic interest, to make any
scheduled payment;
(3) the Master Servicer that a default in the making of a
scheduled payment including a balloon payment, is likely
to occur within 30 days and either (a) the default is
likely to remain unremedied for at least 60 days or (b)
the related borrower has requested a material
modification of the related mortgage loan;
(4) the Master Servicer determines that a non-payment
default has occurred that may materially impair the value
of the related mortgaged property as security for the
mortgage loan and the 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;
(5) certain events of bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar
proceedings in respect of the related borrower or
mortgaged property, and certain actions by or on behalf
of the related borrower indicating its bankruptcy,
insolvency or inability to pay its obligations; or
(6) the Master Servicer shall have received notice of the
commencement of foreclosure or similar proceedings with
respect to the related mortgaged property or properties.
So long as no other servicing transfer event then exists, 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, if and when:
(a) with respect to the circumstances described in clauses
(1) and (2) of the preceding paragraph, the related
borrower has made three consecutive full and timely
scheduled payments under the terms of the mortgage loan
(as those terms may be changed or modified in connection
with a bankruptcy or similar proceeding involving the
related borrower or by reason of a modification,
waiver or amendment granted or agreed to by the Master
Servicer or the Special Servicer);
(b) with respect to the circumstances described in clauses
(3) and (5) above, these circumstances cease to exist in
the judgment of the Special Servicer;
(c) with respect to the circumstances described in clause (4)
above, the default is cured; and
(d) with respect to the circumstances described in clause (6)
above, the proceedings are terminated.
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If any mortgage loan which is secured by multiple mortgaged properties
becomes a specially serviced mortgage loan, then all other mortgage loans that
are cross-collateralized with it must also become specially serviced mortgage
loans.
The Master Servicer and the Special Servicer
[The Master Servicer. __________, a __________corporation __________,
will act as Master Servicer with respect to the pool of mortgage loans.
__________ principal servicing offices are located at __________.]
[The information set forth in this prospectus supplement concerning
__________ has been provided by it. We do not nor does any underwriter make
any representation or warranty as to the accuracy or completeness of this
information.]
[The Special Servicer. __________ __________, a __________ will be
the Special Servicer with respect to the pool of mortgage loans. The principal
offices of __________ are located at __________.
[The information concerning __________ set forth in this prospectus
supplement has been provided by it. We do not nor does any underwriter make
any representation or warranty as to the accuracy of this information.]
Servicing and Other Compensation and Payment of Expenses
The Master Servicing Fee. The principal compensation to be paid to the
Master Servicer in respect of its master servicing activities will be the master
servicing fee.
The "master servicing fee"--
o will be earned in respect of each and every mortgage loan
including specially serviced mortgage loans and each
mortgage loan as to which the related mortgaged property
has become an REO property,
o will be computed on a 30/360 basis and accrue at __________%
per annum on the same principal amount as interest accrues
or is deemed to accrue from time to time in respect of
each and every mortgage loan, and
o will be payable monthly from amounts received in respect
of interest on each mortgage loan.
[Additional Master Servicing Compensation. As additional servicing
compensation, the Master Servicer will be entitled to receive--
o All prepayment interest excesses, if any, collected in
respect of the entire mortgage pool. If a borrower prepays
its mortgage loan, in whole or in part, after the related
due date during any collection period, the amount of
interest less the amount of related master servicing fees
payable and any default interest and additional interest
included will, to the extent actually collected,
constitute a "prepayment interest excess".
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o All modification fees, assumption fees, assumption
application fees and other comparable transaction fees and
charges, if any, collected in respect of performing
mortgage loans.
o All late payment charges and default interest, if any,
collected in respect of any mortgage loan that accrued
while the mortgage loan was a performing mortgage loan
(but only to the extent that any late payment charges and
default interest have not otherwise been applied to pay
the Master Servicer, the Special Servicer or the Trustee,
as applicable, interest on advances made with respect to
the related mortgage loan. "Default interest" is any
interest that (i) accrues on a defaulted mortgage loan
solely by reason of the default and (ii) is in excess of
all interest at the related mortgage rate and any
additional interest accrued on the mortgage loan.]
The Master Servicer will be authorized to invest or direct the
investment of funds held in any and all accounts maintained by it that
constitute part of the certificate account, or in any and all accounts
maintained by it that constitute escrow and/or reserve accounts, in certain
government securities and other investment grade obligations specified in the
Pooling and Servicing Agreement. The Master Servicer will be entitled to retain
any interest or other income earned on these funds and will be required to cover
any losses of principal from its own funds. The Master Servicer will not be
obligated, however, to cover any losses resulting from the bankruptcy or
insolvency of any depository institution or trust company holding any account
required to be maintained under the Pooling and Servicing Agreement.
Prepayment Interest Shortfalls. If a borrower prepays a mortgage loan,
in whole or in part, prior to the related due date during any collection period
and does not pay interest on the prepayment through the due date, then the
shortfall in a full month's interest less the amount of related master servicing
fees and, if applicable, exclusive of any related default interest or additional
interest on the prepayment will constitute a "prepayment interest shortfall".
The Pooling and Servicing Agreement provides that, if any prepayment
interest shortfalls are incurred with respect to the mortgage pool during any
collection period, the Master Servicer must make a non-reimbursable payment with
respect to the related distribution date in an amount equal to the lesser of:
(a) the total of all prepayment interest shortfalls incurred
with respect to the mortgage pool during the collection
period, and
(b) the total of all master servicing fees and prepayment
interest excesses, if any, collected with respect to
the mortgage pool during the collection period.
Any payment of prepayment interest shortfalls made by the Master
Servicer with respect to any distribution date will be included among the
amounts distributable as principal and interest on the certificates on the
distribution date as described under "Description of the Offered
Certificates--Distributions" in this prospectus supplement. If the amount of the
payment of prepayment interest shortfalls made by the Master Servicer with
respect to any distribution date is less than the total of all prepayment
interest shortfalls incurred with respect to the mortgage pool during the
related collection period, the shortfall will be allocated among the respective
classes of REMIC regular certificates, in reduction of the interest payable on
these certificates, as and to the extent described under
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"Description of the Offered Certificates--Allocation of Realized Losses and
Certain Other Shortfalls and Expenses" in this prospectus supplement.
[None of the additional servicing fees will be available to make any
payment of prepayment interest shortfalls.]
Principal Special Servicing Compensation. The principal compensation
to be paid to the Special Servicer in respect of its special servicing
activities will be--
o the special servicing fee,
o the workout fee, and
o the liquidation fee.
The "special servicing fee" will be--
o earned in respect of each specially serviced mortgage loan,
and each REO property,
o computed on a 30/360 basis and accrue at % per annum on the
stated principal balance outstanding from time to time in
respect of each specially serviced mortgage loan, and each
REO property, and
o payable monthly from general collections on all the mortgage
loans and any REO properties on deposit in the certificate
account from time to time.
The Workout Fee. The Special Servicer will, in general, be entitled to
receive a workout fee with respect to each corrected mortgage loan. The "workout
fee" will be payable out of, and will be calculated by application of a workout
fee rate for each corrected mortgage loan. The "workout fee rate" will be equal
to ___% of each collection of interest (other than default interest and
additional interest) and principal (including scheduled payments, prepayments
and balloon payments at maturity) received on the mortgage loan for so long as
it remains a corrected mortgage loan (net of any portion of the collection
payable or reimbursable to the Master Servicer, the Special Servicer or the
Trustee for master servicing fees and advances). The workout fee with respect to
any corrected mortgage loan will cease to be payable if the loan again becomes a
specially serviced mortgage loan or if the related mortgaged property becomes an
REO property. However, a new workout fee would become payable if the mortgage
loans again became 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 with respect to mortgage loans that became
corrected mortgage loans during the period that it acted as Special Servicer and
remained corrected mortgage loans at the time of its termination or resignation.
The successor Special Servicer will not be entitled to any portion of those
workout fees. Although workout fees are intended to provide the Special Servicer
with an incentive to better perform its duties, the payment of any workout fee
will reduce amounts distributable to certificateholders.
The Liquidation Fee. The Special Servicer will be entitled to receive
a liquidation fee with respect to each specially serviced mortgage loan for
which the Special Servicer obtains a full or discounted payoff from the related
borrower. The Special Servicer will also be entitled to receive a liquidation
fee with respect to any specially serviced mortgage loan or REO property as to
which the Special Servicer receives any liquidation proceeds, condemnation
proceeds or insurance proceeds, except as described
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below. As to each specially serviced mortgage loan and REO property, the
"liquidation fee" will be payable from, and will be calculated by application of
a "liquidation fee rate" of _____% to, the related payment or proceeds (other
than any portion that represents a recovery of default interest or additional
interest, and net of any portion thereof payable or reimbursable to the Master
Servicer, the Special Servicer or the Trustee for master servicing fees and
advances).
Despite anything to the contrary described above, no liquidation fee
will be payable based on, or out of, liquidation proceeds received in connection
with:
o the repurchase or replacement of any mortgage loan for a
breach of representation or warranty (see "Description of
the Mortgage Pool--Cures, Repurchases and Substitutions"
in this prospectus supplement);
o the purchase of any defaulted mortgage loan or REO property
by the Master Servicer, the Special Servicer or any holder
or holders of certificates evidencing a majority interest
in the controlling class (see "--Sale of Defaulted Mortgage
Loans" below); or
o the purchase of all of the mortgage loans and REO properties
by the Master Servicer, the Special Servicer or any holder
or holders of certificates evidencing a majority interest
in the controlling class in connection with the termination
of the trust (see "Description of the Offered
Certificates--Termination"in this prospectus supplement).
Although liquidation fees are intended to provide the Special Servicer
with an incentive to better perform its duties, the payment of any liquidation
fee will reduce amounts distributable to certificateholders.
Additional Special Servicing Compensation. As additional special
servicing compensation, the Special Servicer will be entitled to receive--
o all modification fees, assumption fees, assumption
application fees and other comparable transaction fees
and charges, if any, collected in respect of the specially
serviced mortgage loans, and
o all late payment charges and default interest, if any,
collected in respect of any mortgage loan that accrued while
the mortgage loan was a specially serviced mortgage loan
(but only to the extent that the late payment charges and
default interest have not otherwise been applied to pay
the Master Servicer, Special Servicer or the Trustee, as
applicable, interest on advances made the Master Servicer,
Special Servicer or Trustee with respect to the related
mortgage loan as described in this prospectus supplement).
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. The
Special Servicer will be entitled to retain any interest or other income earned
on the funds and will be required to cover any losses of principal from its own
funds without any right to reimbursement. The Special Servicer will not be
obligated, however, to cover any losses resulting from the bankruptcy or
insolvency of any depository institution or trust company holding any account
required to be maintained under the Pooling and Servicing Agreement.
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Sub-Servicing Compensation. The Master Servicer and the Special
Servicer will each be responsible for all compensation payable to the
sub-servicers they retain. The sub-servicers may, in some cases, be entitled to
a significant portion of the servicing compensation described above as being
payable to Master Servicer or the Special Servicer, as applicable.
Payment of Expenses; Servicing Advances. Each of the Master Servicer
and the Special Servicer will be required to pay its overhead and any general
and administrative expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement. The Master Servicer and
the Special Servicer will not be entitled to reimbursement for these expenses
except as expressly provided in the Pooling and Servicing Agreement.
Any and all customary, reasonable and necessary "out of pocket" costs
and expenses incurred by the Master Servicer or the 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 will be
reimbursable from future payments and other collections, including insurance
proceeds, condemnation proceeds and liquidation proceeds, in connection with the
related mortgage loan or REO property. In addition, the Special Servicer may
once per calendar month require the Master Servicer to reimburse the Special
Servicer for any servicing advances made by it. Upon reimbursing the Special
Servicer for any servicing advance, the Master Servicer will be deemed to have
been made the advance.
The Special Servicer may request the Master Servicer to make servicing
advances in respect of a specially serviced mortgage loan or REO property. The
Special Servicer must make the request in writing, in a timely manner that does
not adversely affect the interests of any certificateholder (and, in any event,
to the extent reasonably practicable, at least __________ business days in
advance of the date on which the servicing advance is required to be made). The
Master Servicer must make the requested servicing advance within ten days of the
Master Servicer's receipt of the request. If the request is timely and properly
made, the Special Servicer will be relieved of any obligations with respect to
an advance that it requests the Master Servicer to make regardless of whether or
not the Master Servicer actually makes that advance.
If the Master Servicer or the Special Servicer is required under the
Pooling and Servicing Agreement to make a servicing advance, but neither does so
within __________ after the servicing advance is required to be made, then the
Trustee will be required: (a) if it has actual knowledge of the failure, to give
the defaulting party notice of its failure; and (b) if the failure continues for
three more business days, to make the servicing advance.
Despite the foregoing discussion or anything else to the contrary in
this prospectus supplement, none of the Master Servicer, the Special Servicer or
the Trustee will be obligated to make servicing advances that, in the judgment
of the Master Servicer, the Special Servicer or the Trustee, as the case may be,
would not be ultimately recoverable from related proceeds. If the Master
Servicer, the Special Servicer or the Trustee makes any servicing advance that
it subsequently determines, in its judgment, is a nonrecoverable servicing
advance, it may obtain reimbursement for the servicing advance (together with
interest accrued on the nonrecoverable servicing advance) out of general
collections on the mortgage loans and any REO properties on deposit in the
certificate account from time to time.
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The Master Servicer will be permitted to pay, and the Special Servicer
may 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 (including in connection with
the remediation of any adverse environmental circumstance or condition at a
mortgaged property or an REO property). In addition, the Pooling and Servicing
Agreement will require the Master Servicer (at the direction of the Special
Servicer if a specially serviced asset is involved) to pay directly out of the
certificate account any servicing expense that, if paid by the Master Servicer
or the Special Servicer, would constitute a nonrecoverable servicing advance,
provided that the Master Servicer (or the Special Servicer, if a specially
serviced mortgage is involved) has determined in accordance with the servicing
standard that making the payment is in the best interests of the
certificateholders.
The Master Servicer, the Special Servicer and the Trustee will each be
entitled to receive interest on servicing advances made by them. The interest
will accrue on the amount of each servicing advance, and compound monthly, for
so long as the servicing advance is outstanding at a rate per annum equal to the
"prime rate" as published in the "Money Rates" section of The Wall Street
Journal, as that "prime rate" may change from time to time. Interest accrued
with respect to any servicing advance will be payable--
o first, out of default interest and late payment charges
collected on the related mortgage loan, and
o then, if and to the extent that (i) the servicing advance
has been or is being reimbursed and (ii) the default
interest and late charges collected on the related mortgage
loan while the servicing advance was outstanding were
insufficient to cover the advance interest, out of any
amounts then on deposit in the certificate account.
Evidence as to Compliance
On or before __________ of each year, beginning _________, 2000,
each of the Master Servicer and the Special Servicer must--
o at its expense, cause a firm of independent public
accountants, that is a member of the American Institute of
Certified Public Accountants to furnish a statement to the
Trustee, among others, to the effect that the firm has
obtained a letter of representation regarding certain
matters from the management of the Master Servicer or
Special Servicer, as applicable, which includes an
assertion that the Master Servicer or Special Servicer, as
applicable, has complied with certain minimum servicing
standards identified in the Uniform Single Attestation
program established by the Mortgage Bankers Association of
America, with respect to the servicing of commercial and
multifamily mortgage loans during the most recently
completed calendar year. In rendering its report the firm
may rely, as to matters relating to the direct servicing
of commercial and multifamily mortgage loans by
sub-servicers, upon comparable reports of firms of
independent certified public accountants rendered on the
basis of examinations conducted in accordance with the same
standards (rendered within one year of the report) with
respect to those sub-servicers; and
o deliver to the Trustee, among others, a statement signed by
one or more officers of the Master Servicer and the Special
Servicer, as the case may be, to the effect that, to the
best
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knowledge of the officer or officers, the Master Servicer or
Special Servicer, as the case may be, has fulfilled its
obligations under the Pooling and Servicing Agreement in all
material respects throughout the preceding calendar year and
has received no notice regarding or challenging the status
of any REMIC or grantor trust from the IRS or any other
governmental body or if it has received any notice, the
statement must specify the details of the notice.
Modifications, Waivers, Amendments and Consents
The Special Servicer (with respect to specially serviced mortgage loans) and the
Master Servicer (with respect to performing mortgage loans, to the limited
extent described below) each may agree to:
o any modification, waiver or amendment of any term of any
mortgage loan;
o extend the maturity of any mortgage loan;
o forgive interest on, including without limitation,
default interest and additional interest, and principal
of any mortgage loan;
o forgive prepayment premiums, yield maintenance charges and
late payment charges on any mortgage loan;
o defer the payment of interest on any mortgage loan;
o permit the release, addition or substitution of collateral
servicing and mortgage loan; and/or
o permit the release, addition or substitution of the
borrower or any guarantor of any mortgage loan,
subject, however, to discussion under "Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage Loans--"Due-on-Sale" and
"Due-on-Encumbrance" Provisions" in this prospectus supplement and under "--The
Controlling Class Representative--Certain Rights and Powers of the Controlling
Class Representative" below, and, further, to each of the following limitations,
conditions and restrictions:
o With limited exception (including with respect to additional
interest (as described below) and with respect to certain
routine matters), the Master 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 loans without the consent of the Special Servicer,
provided that the consent--
(i) is to be withheld or granted by the special
servicer in accordance with the servicing
standard, and
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(ii) will be deemed to have been granted if not
expressly denied within 10 business days
following the Special Servicer's receipt from
the Master Servicer of all information
reasonably requested by it in order to
make an informed decision.
o With limited exception (including as described below with
respect to additional interest), the Special Servicer may
not, in the case of specially serviced mortgage loans,
agree to (or, in the case of performing mortgage loans,
consent to the Master Servicer's agreeing to):
(i) any modification, waiver or amendment of any
term of any mortgage loan, or;
(ii) in the case of specially serviced mortgage loans,
take (or, in the case of performing mortgage
loans, consent to the Master Servicer's taking)
any of the other above-referenced actions with
respect to, any mortgage loan;
(iii) if that action would affect the amount or timing
of any related payment of principal, interest
or other amount payable under the related
mortgage loans;
(iv) or, in the Special Servicer's reasonable, good
faith judgment, would materially impair the
security for the mortgage loan or reduce the
likelihood of timely payment of amounts due
thereon, unless a material default on the
mortgage loan has occurred or, in the Special
Servicer's reasonable, good faith judgment, a
default in respect of payment on the mortgage
loan is reasonably foreseeable, and the
modification, waiver, amendment or other action
is reasonably likely to produce a greater
recovery to certificateholders on a present
value basis than would liquidation.
o The Special Servicer may not, in the case of specially
serviced mortgage loans, extend (or, in the case of
performing mortgage loans, consent to the Master Servicer's
extending) the date on which any balloon payment is
scheduled to be due on any mortgage loans to a date beyond
the earliest of--
(i) the fifth anniversary of the mortgage loan's
original stated maturity date,
(ii) two years prior to the rated final distribution
date, and
(iii) if the mortgage loan is secured by a mortgage
solely or primarily on the related borrower's
leasehold interest in the related mortgaged
property, ten years prior to the end of the
then current term of the related ground lease.
o Neither the Master Servicer nor the Special Servicer may
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
cause any of REMIC I, REMIC II or REMIC III to fail to
qualify as a REMIC under the U.S. tax code, result in the
imposition of any tax on "prohibited transactions" or
"contributions" after the startup date of any REMIC under
the REMIC provisions (as defined in the prospectus) or
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adversely affect the status of either grantor trust as a grantor
trust under the U.S. tax code;
o The Special Servicer may not, in the case of specially
serviced mortgage loans, permit (or, in the case of
performing mortgage loans, consent to the Master Servicer's
permitting) any borrower to add or substitute any
collateral for its mortgage loans, unless the Special
Servicer has first--
(i) determined, in its reasonable, good faith
judgment, based upon an environmental assessment
prepared by an independent person who regularly
conducts environmental assessments, at the
expense of the borrower, that:
(a) the additional or substitute
collateral is in compliance with
applicable environmental laws and
regulations, and
(b) that there are no circumstances or
conditions present with respect to
the 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
(ii) received confirmation from each rating agency
that the addition or substitution of collateral
will not result in a qualification, downgrade
or withdrawal of any rating then assigned by
the rating agency to a class of certificates.
o Subject to limited exceptions, the Special Servicer may not,
in the case of specially serviced mortgage loans, release
(or, in the case of performing mortgage loans, consent to
the Master Servicer's releasing) any collateral securing an
outstanding mortgage loan (other than in accordance with the
terms of, or upon satisfaction of, a mortgage loan).
The limitations, conditions and restrictions described above will not
apply to any of the acts referenced in this "--Modifications, Waivers,
Amendments and Consents" section with respect to any mortgage loan that is
required under the terms of the mortgage loan in effect on the closing date (or,
in the case of a replacement mortgage loan, on the related date of substitution)
or that is solely within the control of the related borrower. Also, 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
borrower if, in its good faith judgment, opposition would not ultimately prevent
the confirmation of the plan or one substantially similar, despite the
discussion above.
[The Master Servicer will be permitted, in the case of certain
mortgage loans with anticipated repayment dates, in its discretion, after the
related anticipated repayment date, to waive any or all of the accrued
additional interest in respect of the mortgage loan, if, prior to the related
maturity date, the related borrower has requested the right to prepay mortgage
loan in full, together with all payments required by the related loan documents
in connection with the prepayment except for the accrued additional interest.
However, the Master Servicer's determination to waive the trust's right to
receive the accrued additional interest must be reasonably likely to produce a
greater payment to certificateholders on a present value basis than a refusal to
waive the right to the additional interest. The Master Servicer
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will not have any liability to the trust, the certificateholders or any other
person for this type of determination that is made in accordance with the
servicing standard. The Pooling and Servicing Agreement will also limit the
Master Servicer's and the Special Servicer's ability to institute an enforcement
action solely for the collection of additional interest.]
All modifications, waivers and amendments entered into in respect of
the mortgage loans are to be in writing. Each of the Master Servicer and the
Special Servicer must deliver to the Trustee for deposit in the related mortgage
file, an original counterpart of the agreement relating to each modification,
waiver or amendment agreed to by it, promptly following its execution.
Collection Account
General. The Master Servicer will be required to establish and
maintain one or more separate accounts for purposes of holding payments and
other collections in respect of the mortgage loans. The collection account must
be established in the manner specified in the Pooling and Servicing Agreement.
The funds held in the collection account may be held as cash or invested in
permitted investments.
Any interest or other income earned on funds in the collection account
will be paid to the Master Servicer as additional compensation subject to the
limitations set forth in the Pooling and Servicing Agreement.
Deposits. Under the Pooling and Servicing Agreement, the Master
Servicer must deposit or cause to be deposited in the collection account within
one business day following receipt (in the case of payments and other
collections on the mortgage loans) or as otherwise required under the Pooling
and Servicing Agreement, the following payments and collections received or made
by or on behalf of the Master Servicer subsequent to the closing date:
(i) all payments on account of principal on the mortgage
loans, including principal prepayments;
(ii) all payments on account of interest on the mortgage loans,
including default interest and additional interest;
(iii) all prepayment premiums, yield maintenance charges and
late payment charges collected in respect of the mortgage
loans;
(iv) (A) all proceeds received under any hazard, flood, title
or other insurance policy that provides coverage with
respect to a mortgaged Property or the related mortgage
loan appropriate person, (B) all proceeds received in
connection with the condemnation or the taking by right
of eminent domain of a mortgaged property and (C) all
other amounts received and retained in connection with
the liquidation of defaulted mortgage loans by
foreclosure or otherwise;
(vi) any amounts required to be deposited by the Master
Servicer in connection with losses incurred with respect
to permitted investments of funds held in the collection
account;
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(vii) all payments required to be deposited by the Master
Servicer or the Special Servicer in the collection
account with respect to any deductible clause in any
blanket insurance policy;
(viii) any amount required to be transferred from any REO
account (is established); and
(ix) any other amounts required to be so deposited under the
Pooling and Servicing Agreement.
Upon receipt of any of the amounts described in clauses (i) through
(iv) above with respect to any specially serviced mortgage loan, the Special
Servicer is generally required to promptly remit these amounts to the Master
Servicer for deposit in the collection account.
Withdrawals. The Master Servicer may make withdrawals from the
collection account for any of the following purposes (which are not listed in an
order of priority):
(i) to remit to the Trustee for deposit in the distribution
account, all amounts on deposit in the collection account
remaining after all necessary deductions as provided in
the Pooling and Servicing Agreement;
(iii) to reimburse itself, the Trustee or any fiscal agent as
applicable, for unreimbursed advances of principal and
interest made, with its own funds;
(iv) to pay itself earned and unpaid master servicing fees in
respect of each mortgage loan, with the payment being
limited to amounts received on or in respect of any
mortgage loan that are allocable as interest;
(v) to pay the Special Servicer, out of general collections
on the mortgage loans and any REO properties, special
servicing fees in respect of each specially serviced
mortgage loan and each REO properties;
(vi) to pay the Special Servicer (or, if applicable, any
predecessor) earned and unpaid workout fees and
liquidation fees to which it is entitled;
(vii) to reimburse itself, the Special Servicer, the Trustee
and any fiscal agent, as applicable, for any
unreimbursed servicing advances made, with its own funds;
(viii) to reimburse itself, the Special Servicer, the Trustee
or any fiscal agent, as applicable, out of general
collections on the mortgage loans and REO properties,
for any unreimbursed advances made, with its own funds
that have been determined not to be ultimately
recoverable;
(ix) to pay itself, the Special Servicer, the Trustee or any
fiscal agent, as applicable, unpaid interest on any
advance made. The payment is to be made out of default
interest and late payment charges received in respect
of the mortgage loan as to which the advance was made;
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(x) following the time as it reimburses itself, the Special
Servicer, the Trustee or any fiscal agent, as applicable,
for any unreimbursed advance as described in clause
(iii), (vii) or (viii) above, to pay itself, the
Special Servicer, the Trustee or any fiscal agent, as
the case may be, out of general collections on the
mortgage loans and any REO properties, any interest
accrued and payable on the advance and not otherwise
payable pursuant to clause (ix) above;
(xi) to reimburse the Trustee for the reasonable out-of-pocket
expenses of providing certain notices to
certificateholders;
(xii) to pay itself, any items of additional master servicing
compensation;
(xiii) to pay the Special Servicer, any items of additional
special servicing compensation;
(xiv) to pay, any unpaid liquidation expenses incurred with
respect to any mortgage loan or REO property;
(xv) to pay, out of general collections on the mortgage loans
and any REO properties, any servicing expenses that
would, if advanced, be nonrecoverable servicing advances;
(xvi) to pay, out of general collections on the mortgage loans
and any REO properties, for certain costs and expenses
incurred by the trust assets in connection with the
realization upon a defaulted mortgage loan;
(xvii) to pay itself, the Special Servicer, the REMIC
Administrator, us, the Trustee, any fiscal agent or any
of their respective directors, officers, employees and
agents, as the case may be, out of general collections
on the mortgage loans and any REO properties amounts
payable to any person as provided in the Pooling and
Servicing Agreement;
(xvii) to pay, out of general collections on the mortgage loans
and any REO properties, for the costs of certain opinions
of counsel, the cost of recording the Pooling and
Servicing Agreement, certain expenses incurred by the
REMIC Administrator in connection with providing advice
to the Special Servicer and any expense incurred by the
Trustee in connection with obtaining information from
The Depository Trust Company regarding any book-entry
certificate;
(xix) to pay itself, the Special Servicer, the Trustee, any
fiscal agent, the REMIC Administrator or us, as the
case may be, any other amount required to be paid to
the particular party at the expense of the trust assets
under the Pooling and Servicing Agreement;
(xx) with respect to each mortgage loan purchased pursuant
to or as contemplated by the Pooling and Servicing
Agreement, to pay to the purchaser of the mortgage loan
all amounts received on the mortgage loan subsequent to
the date of purchase; and
(xxi) to clear and terminate the collection account upon the
termination of the Pooling and Servicing Agreement.
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The Controlling Class Representative
Election, Resignation and Removal. The holders (or, in the case of
certificates held in book-entry form, the beneficial owners) of certificates
representing greater than 50% of the total certificate principal balance of the
controlling class will be entitled to select a representative having certain
rights and powers described below or replace an existing controlling class
representative.
The Trustee will be required to promptly notify all the holders (and,
in the case of certificates held in book-entry form, to the extent actually
known to certain designated officers of the Trustee, all the beneficial owners)
of certificates of the controlling class that they may select a controlling
class representative upon:
(i) the receipt by the Trustee of written requests for the
selection of a controlling class representative from the
holders (or, in the case of certificates held in
book-entry form, the beneficial owners) of certificates
representing greater than 50% of the total certificate
principal balance of the controlling class;
(ii) the resignation or removal of the person acting as
controlling class representative; or
(iii) a determination by the Trustee that the controlling
class has changed.
The notice will explain the process established by the Trustee in
order to select a controlling class representative. The process may include the
designation of the controlling class representative by any holder of
certificates representing a majority interest in the controlling class by a
writing delivered to the Trustee. The appointment of any person as a controlling
class representative will not be effective until the person provides the Trustee
with written confirmation of its acceptance of its appointment, an address and
telecopy number for the delivery of notices and other correspondence and a list
of officers or employees of the person with whom the parties to the Pooling and
Servicing Agreement may deal (including their names, titles, work addresses and
telecopy numbers).
Controlling Class. As of any date of determination, the "controlling
class" will be the most subordinate class of principal balance certificates then
outstanding (the [Class A-1A and Class A-1B certificates] being treated as a
single class for this purpose) that has at the date of determination, at a total
certificate principal balance that is not less than [25%] of the class' total
certificate principal balance as of the closing date; provided that, if no class
of principal balance certificates has a total certificate principal balance that
satisfies this requirement, then the "controlling class" will be the class of
principal balance certificates with the largest total certificate principal
balance outstanding at the date of determination.
No actual reduction in the class principal balances of the total
balance certificates will occur in connection with this allocation.
Resignation and Removal of the Controlling Class Representative. The
controlling class representative may at any time resign by giving written notice
to the Trustee and to each holder (or, in the case of certificates held in
book-entry form, each beneficial owner) of certificates of the controlling
class. The holders (or, in the case of certificates held in book-entry form, the
beneficial owners) of certificates representing greater than 50% of the total
certificate principal balance of the controlling class will be
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entitled to remove any existing controlling class representative by giving
written notice to the Trustee and to the existing controlling class
representative.
Certain Rights and Powers of the Controlling Class Representative. No
later than __________days after a servicing transfer event for a specially
serviced mortgage loan, the Special Servicer must deliver to the Trustee, each
rating agency, the Master Servicer and the controlling class representative a
report with respect to the mortgage loan and the related mortgaged property. The
report should include the following information to the extent reasonably
determinable:
(i) a summary of the status of the specially serviced
mortgage loan;
(ii) a discussion of the legal and environmental considerations
reasonably known to the Special Servicer, consistent with
the servicing standard, that are applicable to the
exercise of remedies and to the enforcement of any
related guaranties or other collateral for the specially
serviced mortgage loan and whether outside legal counsel
has been retained;
(iii) the most current rent roll and income or operating
statement available for the related mortgaged property;
(iv) the appraised value of the related mortgaged property,
together with the assumptions used in the calculation of
the appraised value;
(v) a summary of the Special Servicer's recommended action
with respect to the specially serviced mortgage loan; and
(vi) any other information as the Special Servicer considers
relevant in light of the servicing standard.
If the controlling class representative does not disapprove of the
report in writing within ____ business days of receiving it, the Special
Servicer will implement the recommended action outlined in its report. The
Special Servicer may not take any action that is contrary to of applicable law
or the terms of the applicable loan documents. If the controlling class
representative disapproves of the report, the Special Servicer must revise it
and deliver to the Trustee, the controlling class representative, the rating
agencies and the Master Servicer a new report as soon as practicable, but in no
event later than __________ after notice of the disapproval.
The Special Servicer must revise its report as described above until
the earliest of:
o the failure of the controlling class representative to
disapprove of the revised report in writing
within ______ business days of receiving it;
o a determination by the Special Servicer as described
below; or
o the passage of ___ days from the date of preparation of
the first report.
The Special Servicer may, from time to time, modify any report it has
previously delivered and implement the new action in the revised report so long
as the revised report has been prepared, reviewed
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and not rejected as described above. However, the Special Servicer may take any
action described in a report before the expiration of the __________ business
day period during which the controlling class representative may reject the
report if the special servicer has reasonably determined that failure to take
the relevant action would materially and adversely affect the interests of the
certificateholders and it has made a reasonable effort to contact the
controlling class representative.
In addition, the Special Servicer may determine whether any affirmative
disapproval of its report by the controlling class representative is not in the
best interest of all the certificateholders. Upon making the determination
referred to in the prior sentence, the Special Servicer must notify the Trustee
of the determination and deliver to the Trustee a proposed notice to
certificateholders which is to include a copy of the its report. The Trustee
must promptly send the notice to all certificateholders. If the holders of
certificates representing a majority of the voting rights fail, within
__________ business days of the Trustee's sending the notice, to reject the
report, the Special Servicer will implement the report. If the report is
rejected by the holders of certificates representing a majority of the voting
rights within the __________ business day period, the Special Servicer must
revise its report as described above. The Trustee will be entitled to
reimbursement from the trust for the reasonable expenses of providing the
notices.
The Special Servicer may not take any action inconsistent with its
report that has been adopted as described above, unless the action would be
required in order to act in accordance with the servicing standard.
The controlling class representative may not direct the Special
Servicer to act in any manner (and the Special Servicer is to ignore any
direction) that would--
o require or cause the Special Servicer to violate the terms
of a specially serviced mortgage loan, applicable law or any
provision of the Pooling and Servicing Agreement, including
the Special Servicer's obligation to act in accordance with
the servicing standard, or
o result in the imposition of a "prohibited transaction" or
"contributions" tax under the REMIC provisions on any of
REMIC I, REMIC II and REMIC III, or
o expose the Master Servicer, the Special Servicer, us, any
mortgage loan seller, the trust, the Trustee or their
affiliates, officers, directors, employees or agents to any
claim, suit or liability, or
o materially expand the scope of the Trustee's, the Special
Servicer's or the Master Servicer's responsibilities under
the Pooling and Servicing Agreement.
The Special Servicer must provide the controlling class representative
with all information regarding the specially serviced mortgage loan and REO
properties in the Special Servicer's possession or reasonably available to it,
as requested by the controlling class representative from time to time.
Liability to borrowers. In general, any and all expenses of the
controlling class representative are to be borne by the holders (or, if
applicable, the beneficial owners) of the certificates of the controlling class,
in proportion to their respective percentage interests in the class, and not by
the trust. However, if a claim is made against the controlling class
representative by a borrower with respect to the Pooling and
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Servicing Agreement or any particular mortgage loan, the controlling class
representative is to immediately notify the Trustee, the Master Servicer and the
Special Servicer. If (a) the Special Servicer or the trust are also named
parties to the same action, and (b) in the sole judgment of the Special
Servicer, (i) the controlling class representative acted in good faith, without
negligence or willful misfeasance, with regard to the particular matter at
issue, and (ii) there is no potential for the Special Servicer or the trust to
be an adverse party in the action as regards the controlling class
representative, then the Special Servicer on behalf of the trust will, subject
to the discussion under "Description of the Pooling and Servicing
Agreements--Certain Matters Regarding the Master Servicer, the Special Servicer,
the REMIC Administrator, the Manager and the Depositor" in the prospectus,
assume the defense of the claim against the controlling class representative.
Liability to the trust and certificateholders. The controlling class
representative may have special relationships and interests that conflict with
those of the holders of one or more classes of certificates. In addition, the
controlling class representative does not have any duties to the holders of any
class of certificates other than the controlling class. It may act solely in the
interests of the certificateholders of the controlling class and will have no
liability to any other certificateholders for having done so. No
certificateholder may take any action against the controlling class
representative for having acted solely in the interests of the
certificateholders of the controlling class.
Replacement of the Special Servicer
The holders (or, in the case of certificates held in book-entry form,
the beneficial owners) of certificates representing more than 50% of the total
certificate principal balance of the controlling class may terminate an existing
Special Servicer and appoint a successor. Any appointment of a successor special
servicer will be subject to, among other things, receipt by the Trustee of--
(i) written confirmation from each rating agency that
the appointment will not result in a
qualification, downgrade or withdrawal of any of
the ratings then assigned thereby to the
certificates, and
(ii) the written agreement of the proposed Special
Servicer to be bound by the terms and conditions
of the Pooling and Servicing Agreement, together
with an opinion of counsel regarding, among other
things, the enforceability of the Pooling and
Servicing Agreement against the proposed Special
Servicer.
Subject to the foregoing, any holder (or, in the case of certificates
held in book-entry form, any beneficial owner) of a certificate or any of their
affiliates may be appointed as Special Servicer.
If the termination of an existing Special Servicer is without cause,
the reasonable "out-of-pocket" costs and expenses of any related transfer of
servicing duties are to be paid by the successor Special Servicer or the holders
(or, if applicable, the beneficial owners) of certificates of the controlling
class that voted to remove the terminated Special Servicer, as the parties may
agree. The terminated Special Servicer will be entitled to: payment out of the
certificate account for all accrued and unpaid special servicing fees; and
reimbursement by the successor Special Servicer for any outstanding servicing
advances made by the terminated Special Servicer, together with interest. Upon
reimbursement, any advance will be treated as if it were made by the successor
Special Servicer.
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Realization Upon Defaulted Mortgage Loans
The Pooling and Servicing Agreement grants to the Master Servicer, the
Special Servicer and the holder or holders of certificates evidencing a majority
interest in the controlling class a right to purchase from the trust certain
defaulted mortgage loans in the priority described below.
If the Special Servicer has determined, in its reasonable, good faith
judgment, that the sale of any defaulted mortgage loans under the circumstances
described below is in accordance with the servicing standard, the Special
Servicer must give prompt written notice of its determination to the Trustee and
the Master Servicer. The Trustee will then be required, within __________ days
after receipt of the notice, to provide a similar notice to all holders of
certificates of the controlling class. Any single holder or group of holders of
certificates evidencing a majority interest in the controlling class may (at its
or their option) purchase from the trust, at a cash price equal to the
applicable purchase price, any defaulted mortgage loan. If the
certificateholders have not purchased the defaulted mortgage loan within
__________ of their having received the relevant notice, either the Special
Servicer or the Master Servicer, in that order of priority, may at its option
purchase the defaulted mortgage loan from the trust at a cash price equal to the
applicable purchase price. Each of the Master Servicer and the Special Servicer
may designate an affiliate to effect the purchase.
The Special Servicer may offer to sell any defaulted mortgage loan not
otherwise purchased as described in the preceding paragraph, if and when the
Special Servicer determines, consistent with the servicing standard, that a sale
would be in the best economic interests of the certificateholders (as a
collective whole) subject to the discussion under "--The Controlling Class
Representative--Certain Rights and Powers of the Controlling Class
Representative", above. Any offer must be made in a commercially reasonable
manner for a period of not less than ten days. Subject to the discussion in the
next paragraph, the Special Servicer will be required to accept the highest cash
bid received from any person that constitutes a "fair price" (determined in
accordance with the Pooling and Servicing Agreement) for the mortgage loan.
The Special Servicer will not be obligated to accept the highest cash
bid if the Special Servicer determines, in accordance with the servicing
standard, that rejection of the highest cash bid would be in the best interests
of the certificateholders (as a collective whole). Furthermore, the Special
Servicer may accept a lower cash bid (from any person or entity other than
itself or an affiliate) if it determines, in accordance with the servicing
standard, that acceptance of the bid would be in the best interests of the
certificateholders (as a collective whole) (for example, if the prospective
buyer making the lower bid is more likely to perform its obligations or the
terms (other than the price) offered by the prospective buyer making the lower
bid are more favorable).
Neither the Trustee, in its individual capacity, nor any of its
affiliates may bid for or purchase any defaulted mortgage loan or any REO
property.
In connection with the sale of any defaulted mortgage loan, the
Special Servicer may charge prospective bidders, and retain, fees that
approximate the Special Servicer's actual costs in the preparation and delivery
of information pertaining to the sales or evaluating bids without obligation to
deposit the amounts into the certificate account.
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If a defaulted mortgage loan is neither sold as described above nor
modified as contemplated under "--Modifications, Waivers, Amendments and
Consents" above, the Special Servicer is to proceed with respect to the
defaulted mortgage loan in accordance with the following.
In the event that 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, is permitted to, in addition to the actions
described above, take any of the following actions:
o to institute foreclosure proceedings;
o to exercise any power of sale contained in the related
mortgage;
o to obtain a deed in lieu of foreclosure; or
o to otherwise acquire title to the related mortgaged
property, by operation of law or otherwise.
The Special Servicer may not, except as described below, 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
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 the mortgaged property within the meaning of certain federal environmental
laws. The Special Servicer may acquire title to any mortgaged property, appoint
a receiver of rents or take any other action if 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) and either:
(i) the 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 the report,
determines that taking the actions 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 those actions.
If a trust fund as to which the REMIC administrator made a REMIC
election acquires title to any mortgaged property, the special servicer, on
behalf of the trust fund, has to sell the mortgaged property prior to the close
of the third taxable year following the taxable year in which the trust fund
acquires the mortgaged property, unless--
o the IRS grants an extension of time to sell such property,
or
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o the trustee receives an opinion of independent counsel to
the effect that the holding of the property by the trust
fund 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
U.S. tax code.
Subject to tax-related limitations, the special servicer generally
must sell any mortgaged property acquired on the same terms and conditions it
would if it were the owner. If a trust fund as to which the REMIC administrator
made a REMIC election acquires title to any mortgaged property, the special
servicer must ensure that the mortgaged property is administered so that it
constitutes "foreclosure property" within the meaning of Section 860G(a)(8) of
the U.S. tax code 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 the property. The
retention of an independent contractor, however, will not relieve the special
servicer of its obligation to manage the mortgaged property as required under
the Pooling and Servicing 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 on the certificates.
If liquidation proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan (including interest accrued on and reimbursable expenses incurred by the
Special Servicer and/or the Master Servicer in connection with the defaulted
mortgage loan), then, to the extent that the shortfall is not covered by any
credit support, the trust will realize a loss in the amount of the 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 the liquidation proceeds to
certificateholders, for 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, amounts
otherwise distributable on the certificates may be further reduced by interest
payable to the Master Servicer and/or Special Servicer on the servicing expenses
and advances.
If any mortgaged property suffers sufficient damage 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 the restoration unless it
determines--
o that the 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
o that the 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.
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REO Properties
If title to any mortgaged property is acquired by the Special Servicer
on behalf of the trust assets, the Special Servicer will be required to sell the
mortgaged property not later than the end of the third calendar year following
the year of acquisition, unless--
o the IRS grants an extension of time to sell the property, or
o the Special Servicer obtains an opinion of independent
counsel generally to the effect that the holding of the
property subsequent to the end of the third calendar year
following the year in which the acquisition occurred will
not result in the imposition of a tax on the trust assets
or cause any REMIC created under the Indenture to fail to
qualify as a REMIC under the U.S. tax code.
Subject to the foregoing, the Special Servicer will generally be
required to solicit cash offers for any REO property in a manner that will be
reasonably likely to realize a fair price for the property. The Special Servicer
may retain an independent contractor to operate and manage any REO property. The
retention of an independent contractor will not relieve the Special Servicer of
its obligations with respect to the REO property. Regardless of whether the
Special Servicer applies for or is granted the accordance with the servicing
standard to liquidate an REO property or a timely basis. If an extension is
granted or opinion given, the Special Servicer must sell the REO property within
the period specified in the extension or opinion.
In general, the Special Servicer or an independent contractor employed
by the Special Servicer at the expense of the trust assets will be obligated to
operate and manage any mortgaged property acquired as REO property in a manner
that:
(i) maintains its status as "foreclosure property" under the
REMIC Provisions (as defined in the prospectus),
(ii) would, to the extent commercially reasonable and consistent
with the foregoing clause (i), maximize the trust's net
after-tax proceeds from the property, and
(iii) is in accordance with the servicing standard and the
Pooling and Servicing Agreement.
After the Special Servicer reviews the operation of the relevant property and
consults with the Trustee (or any person appointed by the Trustee to act as
REMIC Administrator) to determine the trust asset's federal income tax reporting
position with respect to the income it is anticipated that the trust assets
would derive from the property, the Special Servicer could determine
(particularly in the case of an REO Property that is a hotel or residential
health-care facility) that it would not be commercially reasonable to manage and
operate the property in a manner that would avoid the imposition of a tax on
"net income from foreclosure property", within the meaning of Section
857(b)(4)(B) of the U.S. tax code, or a tax on
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"prohibited transactions" under Section 860F of the U.S. tax code. To the
extent that income the trust receives from an REO property is subject to--
o a tax on "net income from foreclosure
property", this income would be subject to
federal tax at the highest marginal
corporate tax rate (currently 35%),
o a tax on "prohibited transactions", or
o this 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 a 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
the 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 the 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 "prohibited transactions". Any tax imposed on the
trust's income from an REO property would reduce the amount available for
payment to certificateholders. See "Federal Income Tax Consequences" in this
prospectus supplement and "Federal Income Tax Considerations" in the prospectus.
The reasonable "out-of-pocket" costs and expenses of obtaining professional tax
advice in connection with the foregoing will be payable out of the collection
account.
The Special Servicer will be required to segregate and hold all funds
collected and received in connection with any REO property separate and apart
from its own funds and general assets. If an REO property is acquired, the
Special Servicer will be required to establish and maintain one or more accounts
(collectively, the "REO account'), to be held on behalf of the Trustee in trust
for the benefit of the certificateholders, for the retention of revenues and
other proceeds derived from each REO property. The Special Servicer will be
required to deposit, or cause to be deposited, in this REO account, upon
receipt, all net income, insurance proceeds, condemnation proceeds and
liquidation proceeds received in respect of an REO property. The funds held in
this REO account may be held as cash or invested in permitted investments. Any
interest or other income earned on funds in the account will be payable to the
Special Servicer, subject to the limitations described in the Pooling and
Servicing Agreement.
The Special Servicer will be required to withdraw from the REO account
funds necessary for the proper operation, management, leasing, maintenance and
disposition of any REO property, but only to the extent of amounts on deposit in
the account relating to that particular REO property. Promptly following the end
of each collection period, the Special Servicer will be required to withdraw
from the REO account and deposit, or deliver to the Master Servicer for deposit,
into the collection account the total of all amounts received in respect of each
REO property during the collection period, net of (i) any withdrawals made out
of these amounts as described in the preceding sentence and (ii) any portion of
these amounts that may be retained as reserves as described in the next
sentence. The Special Servicer may, subject to certain limitations described in
the Pooling and Servicing Agreement, retain in the account the portion of the
proceeds and collections as may be necessary to maintain a reserve of sufficient
funds for the proper operation, management, leasing, maintenance and disposition
of the related
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REO property (including the creation of a reasonable reserve for repairs,
replacements, necessary capital improvements and other related expenses).
The Special Servicer shall keep and maintain separate records, on a
property-by-property basis, for the purpose of accounting for all deposits to,
and withdrawals from, the REO account.
Inspections; Collection of Operating Information
The Special Servicer will be required, at the expense of the trust, to
inspect or cause an inspection of the related mortgaged property as soon as
practicable after any mortgage loan becomes a specially serviced mortgage loan.
Beginning in __________, the Master Servicer also will be required, at its own
expense, to inspect or cause an inspection of each mortgaged property at least
once per calendar year (or, in the case of each mortgage loan with an unpaid
principal balance of under __________, once every two years), if the Special
Servicer has not already undertaken an inspection in that period as described in
the preceding sentence. The Master Servicer and the Special Servicer will each
be required to prepare a written report of each inspection performed by it that
generally describes the condition of the mortgaged property and that specifies
(i) any sale, transfer or abandonment of the property of which the Master
Servicer or the Special Servicer, as applicable, is aware or (ii) any change in
the property's condition, occupancy or value that the Master Servicer or the
Special Servicer, as applicable, considers to be material.
The Special Servicer, in the case of each specially serviced mortgage
loan, and the Master Servicer, in the case of each performing mortgage loan,
will each be required to use reasonable efforts to collect from the related
borrower and review the following items (to the extent that they are required to
be delivered pursuant to the related loan documents):
(i) the annual operating statements, budgets and rent rolls
of the related mortgaged property; and
(ii) the financial statements of the borrower.
The Special Servicer will also be required to cause quarterly and
annual operating statements, budgets and rent rolls to be prepared for each REO
property. However, there can be no assurance that any operating statements
required to be delivered by a borrower will in fact be delivered, nor is the
Master Servicer or the Special Servicer likely to have any practical means of
compelling delivery.
Maintenance of Insurance
The Pooling and Servicing Agreement will require the Master Servicer
(with respect to mortgage loans other than specially serviced mortgaged loans)
and the Special Servicer (with respect to specially serviced mortgage loans) to
use reasonable efforts, consistent with the servicing standard, to cause to be
maintained for each mortgaged property all insurance coverage as is required
under the related mortgage. The Pooling and Servicing Agreement will further
provide that--
o if and to the extent that any mortgage permits its holder
any discretion (by way of consent, approval or otherwise)
as to the insurance coverage that the related borrower is
required
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to maintain, the Master Servicer or the Special Servicer, as
the case may be, must exercise the discretion in a manner
consistent with the servicing standard; and
o if permitted under the mortgage, the Master Servicer or the
Special Servicer, as the case may be, must use reasonable
efforts to cause the related borrower to obtain the required
insurance coverage from insurance companies or security or
bonding companies qualified to write the related insurance
policy in the relevant jurisdiction ("qualified insurers")
that have a "claims paying ability" or "financial strength"
rating meeting the requirements of the Pooling and Servicing
Agreement.
[The controlling class representative may request that earthquake insurance be
secured for one or more mortgaged properties at its expense, to the extent
earthquake insurance may reasonably be obtained.]
The Special Servicer will be required, consistent with the servicing
standard, to cause to be maintained for each REO property no less insurance
coverage than was previously required of the applicable borrower under the
related mortgage.
If either the Master Servicer or the Special Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the mortgage
loans and/or REO properties that it is required to service and administer, then,
to the extent the policy:
(i) is obtained from a qualified insurer having a
"claims-paying ability" or "financial strength" rating
that meets (or the obligations of which are guaranteed by
an entity having these ratings that meets) the requirements
of the Pooling and Servicing Agreement , and
(ii) provides protection equivalent to the individual policies
otherwise required,
(iii) the Master Servicer or the Special Servicer, as the case
may be, will be deemed to have satisfied its obligation
to cause hazard insurance to be maintained on the related
mortgaged properties and/or REO properties. The blanket
policy may contain a customary deductible clause.
However, if there has not been maintained on the related
mortgaged property or REO property an individual hazard
insurance policy complying with the requirements described
in the preceding two paragraphs, and there occur one or
more losses that would have been covered by an individual
policy, then the Master Servicer or Special Servicer, as
appropriate, must promptly deposit into the collection
account from its own funds the amount of the losses that
would have been covered by an individual policy but are
not covered under the blanket policy because of a
deductible clause.
[Certain Matters Regarding the Issuer, the Master Servicer and the Special
Servicer
Any entity serving as Master Servicer or Special Servicer under the
Pooling and Servicing Agreement may have other normal business relationships
with us or our affiliates. The Pooling and Servicing Agreement will permit each
of the Master Servicer and the Special Servicer to resign from its obligations
under the agreement upon a determination that its 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. Unless otherwise
required by applicable law, no resignation will become effective until the
Trustee
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or other successor has assumed the obligations and duties of the resigning
Master Servicer or Special Servicer, as the case may be, under the Pooling and
Servicing Agreement. The Master Servicer and the Special Servicer will each also
have the right to resign at any other time provided that--
(i) a willing successor has been found,
(ii) each of the rating agencies confirms in writing that the
successor's appointment will not result in a
qualification, downgrade or withdrawal of any rating or
ratings then assigned to any class of certificates,
(iii) the resigning party pays all costs and expenses in
connection with the transfer, and
(iv) the successor accepts appointment prior to the
effectiveness of the resignation.
The Master Servicer and Special Servicer will each 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 Pooling and Servicing
Agreement, unless their long-term debt obligations satisfy the ratings criteria
specified in the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will provide that we are not and
none of the Master Servicer or the Special Servicer will be under any liability
to the trust, the Trustee, or the certificateholders for any action taken, or
not taken, in good faith pursuant to the Pooling and Servicing Agreement or for
errors in judgment, except that no entity will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of obligations or duties thereunder. The
Pooling and Servicing Agreement will further provide that the Issuer, the Master
Servicer, the Special Servicer and any director, officer, employee or agent of
any of them will be entitled to indemnification by the trust against any loss,
liability or reasonable expense incurred in connection with the Pooling and
Servicing Agreement or the certificates, other than any loss, liability or
expense --
(i) that satisfies the criteria of a servicing advance (and
which will be reimbursable out of related proceeds);
(ii) that constitutes allocable overhead;
(iii) that, under generally accepted servicing practices in the
commercial real estate loan servicing industry,
constitutes a normal and customary servicing expense
with respect to non-defaulted mortgage loans;
(iv) specifically required to be borne by the relevant party,
without right of reimbursement, pursuant to the terms of
the Pooling and Servicing Agreement;
(iii) incurred in connection with any breach of a
representation, warranty or covenant made in the Pooling
and Servicing Agreement; or
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(iv) incurred by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties
under the Pooling and Servicing Agreement.
In addition, the Pooling and Servicing Agreement will provide that we are not
and none of the Master Servicer or the Special Servicer will be under an
obligation to appear in, prosecute or defend any legal action unless (a) the
action is related to its respective responsibilities under the Pooling and
Servicing Agreement and (b) either (i) it is specifically required to bear the
expense of the action or (ii) the action will not, in its opinion, involve it in
any ultimate expense or liability for which it would not be reimbursed under the
Pooling and Servicing Agreement. However, we will as well as each of the Master
Servicer and the Special Servicer, be permitted, in the exercise of our
discretion, to undertake any 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 and Servicing Agreement and the interests of the
certificateholders. In this event, the legal expenses and costs of the action,
and any liability resulting from the action, will be expenses, costs and
liabilities of the trust, and us, the Master Servicer or the Special Servicer,
as the case may be, will be entitled to charge the collection account for that
amount.]
[Any person into which we, the Master Servicer or the Special Servicer
may be merged or consolidated, or any person resulting from any merger or
consolidation to which we are a party or the Master Servicer or the Special
Servicer is a party, or any person succeeding to the business (which may, in the
case of the Master Servicer or Special Servicer, be limited to the commercial
loan servicing business) of us, the Master Servicer or the Special Servicer,
will be the successor of us, the Master Servicer or the Special Servicer, as the
case may be, under the indenture and the Pooling and Servicing Agreement, as
applicable; except that no successor or surviving person will succeed to the
rights of the Master Servicer or the Special Servicer unless, among other
things, the succession will not result in any qualification, downgrade or
withdrawal of the rating then assigned by any rating agency to any class of
certificates (as confirmed in writing).]
Events of Default
The "events of default" under the Pooling and Servicing Agreement will
include each of the following events, circumstances and conditions (and may
include others):
o any failure by the Master Servicer or the Special Servicer
to deposit, or to remit to the appropriate party for
deposit, into the collection account or REO property
account, as applicable, any amount required to be so
deposited, which failure is not remedied within one
business day following the date on which the deposit or
remittance was required to be made;
o any failure by the Master Servicer to remit the Trustee for
deposit in the distribution account any amount required to
be so remitted, which continues unremedied for the time
specified in the Pooling and Servicing Agreement;
o any failure by the Master Servicer or the Special Servicer
to timely make any servicing advance required to be made
by it under the Pooling and Servicing Agreement, which
advance remains unmade for a period o three business days
following the date on which the notice has been given to
the Master Servicer or the Special Servicer, as the case
may be, by the Trustee;
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o any failure by the Master Servicer or the Special Servicer
to observe or perform in any material respect any of its
other covenants or agreements under the Pooling and
Servicing Agreement, which failure continues unremedied
for 30 days after written notice of the failure, has been
given to the Master Servicer or the Special Servicer, as
the case may be, by any other party to the Pooling and
Servicing Agreement or to the Master Servicer or the
Special Servicer, as the case may be, by certificateholders
entitled to not less than 25% of the voting rights;
o any breach by the Master Servicer or the Special Servicer
of any of its representations or warranties contained in
the Pooling and Servicing Agreement that materially and
adversely affects the interests of any class of
certificateholders and that continues unremedied for 60
days after written notice of the breach, requiring the
same to be remedied, has been given to the Master Servicer
or the Special Servicer, as the case may be, by any other
party to the Pooling and Servicing Agreement, or to the
Master Servicer or the Special Servicer, as the case may
be, by certificateholders entitled to not less than 25%
of the voting rights;
o a decree or order of a court having jurisdiction in an
involuntary case for the appointment of a receiver,
liquidator, trustee or similar official in any bankruptcy,
insolvency, readjustment of debt marshalling of assets and
liabilities or similar proceedings shall have been entered
against the Master Servicer or the Special Servicer and the
decree or order remains in force for a period of 60 days;
o the Master Servicer or Special Servicer shall consent to the
appoint of a receiver, liquidator, trustee or similar
official relating to it or of or relating to all or
substantially all of its property;
o the Master Servicer or Special Servicer shall admit in
writing its inability to pay its debts or take certain
other actions indicating its insolvency or inability to
pay its obligations;
o one or more ratings assigned by any rating agency to the
certificates has been qualified, downgraded or withdrawn
which the rating agency has determined solely a result of
the Master Servicer or Special Servicer, as the case may
be, acting in that capacity; and
o the receipt by the Trustee of notice from any rating
agency to the effect that the Master Servicer or the
Special Servicer, as the case may be, fails to maintain a
certain rating or is no longer "approved" by the rating
agency to act in that capacity for pools or mortgage loans
similar to the mortgage loans with ratings similar to that
of the certificates and the failure to be so rated or
"approved" continues unremedied for 30 days.
When a single entity acts as Master Servicer and Special Servicer, an
event of default in one capacity will constitute an event of default in the
other capacity.
Rights Upon Event of Default
If an event of default described above under "--Events of Default"
occurs with respect to the Master Servicer or the Special Servicer and remains
unremedied, the Trustee will be authorized, and at the direction of
certificateholders entitled to not less than 25% of the voting rights, the
Trustee will be
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required, to terminate all of the rights and obligations of the defaulting party
under the Pooling and Servicing Agreement and in and to the trust assets other
than any rights the Master Servicer or Special Servicer as the case may be, may
have as a certificateholder. Upon any termination, subject to the right of the
controlling class certificateholders described in the following paragraph, the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer or Special Servicer, as the case may be, under the Pooling
and Servicing Agreement. If the Trustee is unwilling to so act, it may (or, at
the written request of certificateholders entitled to a majority of the voting
rights, or if the Trustee is unable, or is not approved by each rating agency,
to act as a master servicer or special servicer, as the case may be, the Trustee
will be required to) appoint, or petition a court of competent jurisdiction to
appoint, an established mortgage loan servicing institution to act as successor
Master Servicer or Special Servicer. The appointment of a successor Special
Servicer by the Trustee is subject to the rights of the holders of certificates
evidencing a majority interest in the controlling class to designate a successor
Special Servicer.
Certificateholders entitled to at least 662/3% of the voting rights
allocated to each class of certificates affected by any event of default may
waive the event of default. However, any event of default described in clauses
1, 2, 9 and 10 under "--Events of Default" above may only be waived by all of
the certificateholders of the affected classes. Upon any waiver of an event of
default, the event of default will cease to exist and will be deemed to have
been remedied for every purpose under the Pooling and Servicing Agreement.
Sale of Master Servicing Rights
If the Master Servicer is terminated as a result of certain events of
default, then subject to certain conditions, the Trustee will solicit bids for
the Master Servicer's servicing rights under the Pooling and Servicing Agreement
and will deliver the net proceeds of any resulting sale to the Master Servicer.
An attempted sale is to occur during the [30-day period] following termination,
during which [30-day period] the Trustee will act as successor Master Servicer.
See "--Events of Default" and "--Rights Upon Event of Default" in the prospectus
supplement.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The certificates will be issued, on or about the closing date,
pursuant to the Pooling and Servicing Agreement. They will represent the entire
beneficial ownership interest in the trust assets. The trust assets will
include:
o the mortgage loans;
o any and all payments under and proceeds of the mortgage
loans received after the cut-off date (exclusive of payments
of principal, interest and other amounts due on those
payments and proceeds on or before the cut-off date or, in
the case of a replacement mortgage loan, on or before the
related date of substitution);
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o the mortgage files for the mortgage loans;
o any REO properties;
o the funds or assets as from time to time are deposited in
the certificate account (see "Description of the Pooling and
Servicing Agreements--Certificate Account" in the
prospectus) or the interest reserve account; and
o certain rights incidental to the representations and
warranties made by ________ and ________ as described under
"Description of the Mortgage Pool--Representations and
Warranties" and "--Cures, Repurchases and Substitutions" in
this prospectus supplement.
The certificates will include __________ separate classes, __________
of which are classes of offered certificates and __________ of which are classes
of private certificates. The tables below describe the class designation, the
approximate initial total certificate principal balance or certificate notional
amount and the initial pass-through rate for each class of certificates.
The Offered Certificates
<TABLE>
<CAPTION>
Initial
Aggregate
Principal Balance
or Approx. % of Initial
Class Designation Notional Amount(1) initial pool balance Pass-Through Rate(3)
- ----------------- ------------------ -------------------- --------------------
<S> <C> <C> <C>
Class S $ (2) N/A %
Class A-1A $ % %
Class A-1B $ % %
Class A-2 $ % %
Class A-3 $ % %
Class A-4 $ % %
Class B-1 $ % %
Class B-2 $ % %
</TABLE>
- ---------------
(1) The actual initial total certificate principal balance or certificate
notional amount of any class of offered certificates at the date of issuance
may be larger or smaller than the amount shown above, depending on the
actual size of the initial pool balance. The actual size of the initial pool
balance may be as much as __________% larger or smaller than the amount
presented in this prospectus supplement.
(2) Total certificate notional amount. The [Class S certificates] will not have
certificate principal balances.
(3) The pass-through rates for the [Class A-1A, Class A-1B and Class A-2
certificates] will be fixed. The pass-through rate for each other class of
offered certificates will be variable or otherwise subject to change and
will be calculated pursuant to a formula described under
"--Distributions--Calculation of Pass-Through Rates" below.
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<TABLE>
<CAPTION>
The Private Certificates
Initial
Aggregate Approx. % of
Class Designation Principal Balance(1) Initial Pool Balance Pass-Through Rate
- ----------------- -------------------- -------------------- -----------------
<S> <C> <C> <C>
[Class B-3 $ % %
Class B-4 $ % %
Class B-5 $ % %
Class B-6 $ % %
Class B-7 $ % %
Class B-8 $ % %
Class C $ % %
Class D-1 N/A(2) N/A(2) N/A(2)
Class D-2 N/A(2) N/A(2) N/A(2)
Class R-I N/A(2) N/A(2) N/A(2)
Class R-II N/A(2) N/A(2) N/A(2)
Class R-III] N/A(2) N/A(2) N/A(2)
</TABLE>
- ---------------
(1) The initial total certificate principal balance of any class of private
certificates may be as much as ____% larger or smaller than the total
principal balance shown above.
(2) The [Class D-1, Class D-2, Class R-I, Class R-II and Class R-III
certificates] do not have certificate principal balances, certificate
notional amounts or pass-through rates.
The "certificate principal balance" of any principal balance
certificate will represent the total distributions of principal to which the
holder of the certificate is entitled over time out of payments (or advances in
lieu thereof) and other collections on the assets of the trust. The total
certificate principal balance of an entire class of principal balance
certificates is referred to in this prospectus supplement as the "class
principal balance" of the class. On each distribution date, the class principal
balance of each class of principal balance certificates will be permanently
reduced by any distributions of principal actually made with respect to that
class of certificates on the distribution date. On any particular distribution
date, the class principal balance of a class of principal balance certificates
may also be permanently reduced, as and to the extent described under
"--Allocations of Realized Losses and Certain Other Shortfalls and Expenses"
below, in connection with realized losses and additional trust asset expenses.
The [Class S certificates] will not have certificate principal
balances. The holders of the [Class S certificates] will not be entitled to
receive distributions of principal. The "certificate notional amount" of any
[Class S certificate] will represent the principal amount on which interest will
accrue in respect of the certificate from time to time.
The notional amount of all [Class S certificates] will equal the total
of the class principal balances of the respective classes of principal balance
certificates outstanding from time to time. Each class principal balance will
constitute a separate component of the notional amount of all [Class S
certificates] (the component to have the same alphabetical and/or numerical
designation as the alphabetical and/or numerical class designation for the
related class of principal balance certificates (e.g., the class principal
balance of the [Class A-1A certificates] outstanding from time to time will
constitute [component A-1A] of the notional amount of the [Class S
certificates])).
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For purposes of determining the certificate principal balance or
certificate notional amount of any of your certificates from time to time, you
can multiply the original certificate principal balance or certificate notional
amount of the certificate as of the closing date, by the then applicable
certificate factor for the relevant class. The "certificate factor" for any
class of offered certificates, as of any date of determination, will be a
fraction (expressed as a percentage), the numerator of which will be the
outstanding class principal balance or class notional amount, as applicable, of
the class as of the date of determination, and the denominator of which will be
the original class principal balance or class notional amount, as applicable, of
the class as of the closing date. Certificate factors will be reported monthly
in the Trustee's report.
A class of offered certificates will be considered to be outstanding
until its class principal balance or class notional amount, as the case may be,
is reduced to zero. Under very limited circumstances, however, the prior holders
of a retired class of principal balance certificates may thereafter be entitled
to certain payments in reimbursement of any reductions made in the class
principal balance, if any, of the class of certificates, as described under
"--Allocations of Realized Losses and Certain Other Shortfalls and Expenses" in
this prospectus supplement, in connection with realized losses and additional
trust expenses.
As described under "Federal Income Tax Consequences" in this prospectus
supplement, the [Class R-I, Class R-II and Class R-III certificates] will
constitute REMIC residual interests. The principal balance certificates and the
[Class S certificates] will evidence REMIC regular interests. The [Class D-1 and
Class D-2 certificates] will evidence undivided interests in the grantor trusts.
We are only offering the offered certificates pursuant to this
prospectus supplement and the accompanying prospectus. The private certificates
have not been registered under the Securities Act and are not being offered to
you. Accordingly, to the extent that this prospectus supplement contains
information regarding the terms of the private certificates, we have provided
this information because of its potential relevance to you as a prospective
purchaser of offered certificates.
Registration and Denominations
The offered certificates will be issued in book-entry form in original
denominations of:
o in the case of the [Class S certificates], $10,000 initial
certificate notional amount and in any whole dollar
denomination in excess of $10,000;
o in the case of the [Class A-1A and Class A-1B certificates],
$10,000 initial certificate principal balance and in any whole
dollar denomination in excess of $10,000; and
o in the case of the other offered certificates, $100,000
initial certificate principal balance and in any whole dollar
denomination in excess of $100,000.
Each class of offered certificates will initially be represented by one
or more certificates registered in the name of Cede & Co., as nominee of The
Depository Trust Company.
Delivery, Form and Denomination
The offered certificates will initially be represented by one or more
global certificates for each class registered in the name of the nominee of The
Depository Trust Company, Cede & Co. You will not
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be entitled to receive a certificate issued in fully registered, certificated
form representing your interest in these classes, except under the limited
circumstances described in the prospectus under "Description of the
certificates--Book-Entry Registration and Definitive Certificates". Unless and
until definitive certificates are issued, all references to actions by holders
of the offered certificates will refer to actions taken by The Depository Trust
Company upon instructions received from beneficial owners of offered
certificates through its participating organizations and all references in this
prospectus supplement to payments, notices, reports, statements and other
information to holders of offered certificates will refer to payments, notices,
reports and statements to The Depository Trust Company or Cede & Co., as the
registered holder of the offered certificates, for distribution to beneficial
owners of offered certificates through its participating organizations in
accordance with The Depository Trust Company's procedures.
You will hold your certificates through The Depository Trust Company if
you are a participating organization of this system, or indirectly through
organizations that are participants in the systems. The Depository Trust Company
is a limited purpose trust company organized under the New York Banking Law, a
"banking organization" 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 Section 17A of the Securities Exchange Act of 1934. The Depository Trust
Company was created to hold securities for its participating organizations and
to facilitate the clearance and settlement of securities transactions between
participating organizations through electronic computerized book-entries,
thereby eliminating the need for physical movement of certificates.
Participating organizations include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participating
organization, either directly or indirectly.
Transfers between participating organizations will occur in accordance
with The Depository Trust Company's rules.
The beneficial owners of offered certificates that are not
participating organizations but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, offered certificates may do so only through
participating organizations and indirect participants. In addition, holders of
offered certificates will receive all distributions of principal and interest
from the Trustee through the participating organizations who in turn will
receive them from The Depository Trust Company. Similarly, reports distributed
to certificateholders pursuant to the Pooling and Servicing Agreement and
requests for the consent of certificateholders will be delivered to beneficial
owners only through The Depository Trust Company and its participating
organizations. Under a book-entry format, holders of offered certificates may
experience some delay in their receipt of payments, reports and notices, since
these payments, reports and notices will be forwarded by the Trustee to Cede &
Co., as nominee for The Depository Trust Company. The Depository Trust Company
will forward the payments, reports and notices to its participating
organizations, which thereafter will forward them to indirect participants
organizations or holders of offered certificates, as applicable.
Under the rules, regulations and procedures creating and affecting The
Depository Trust Company and its operations, The Depository Trust Company is
required to make book-entry transfers of offered certificates among
participating organizations on whose behalf it acts with respect to the offered
certificates and to receive and transmit distributions of principal of, and
interest on, the offered certificates. Participating organizations and indirect
participants with which the beneficial owners of offered certificates have
accounts with respect to the offered certificates similarly are required to make
book-entry transfers and receive and transmit the payments on behalf of their
respective holders of
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offered certificates. Accordingly, although the beneficial owners of offered
certificates will not possess the offered certificates, the rules provide a
mechanism that participating organizations will receive payments on offered
certificates and will be able to transfer their interest.
Because The Depository Trust Company can only act on behalf of
participating organizations, who in turn act on behalf of indirect participants
and certain banks, the ability of a holder of offered certificates to pledge the
certificates to persons or entities that do not participate in The Depository
Trust Company system, or to otherwise act with respect to the certificates, may
be limited due to the lack of a physical certificate for the certificates.
The Depository Trust Company has advised us that it will take any
action permitted to be taken by a holder of an offered certificate under the
Pooling and Servicing Agreement only at that direction of one or more
participating organizations to whose accounts with The Depository Trust Company
the offered certificates are credited. The Depository Trust Company may take
conflicting actions with respect to other undivided interests to the extent that
these actions are taken on behalf of participating organizations whose holdings
include undivided interests.
The Trustee will initially serve as registrar for purposes of providing
for the registration of the offered certificates and, if and to the extent
definitive certificates are issued in respect of the offered certificates, the
registration of transfers and exchanges of the offered certificates.
Seniority
The following chart sets forth the relative seniority of the respective
classes of certificates for purposes of--
o making distributions of interest and, if and when applicable,
distributions of principal, and
o allocating realized losses and additional trust assets
expenses.
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Each identified class of certificates will, for the above-specified
purposes, be subordinate to each other class of certificates, if any, listed
above it in the following chart.
Expanded Seniority Chart
Most Senior [Class A-1A, Class A-1B and Class S] Most Senior
|
[Class A-2]
|
[Class A-3]
|
[Class A-4]
|
[Class B-1]
|
[Class B-2]
|
[Class B-3]
|
[Class B-4]
|
[Class B-5]
|
[Class B-6]
|
[Class B-7]
|
[Class B-8]
|
[Class C]
|
Most Subordinate Classes of REMIC Residual certificates Most Subordinate
The only form of credit support for any class of offered certificates
will be the above-referenced subordination of the other classes of certificates
listed below it in the chart, including all of the private certificates (other
than the [Class D certificates]). The REMIC residual certificates do not have
any material economic value and do not constitute true credit support.
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Holders of [Class D-1 certificates] will be entitled only to those
amounts, if any, applied as additional interest in respect of the ___________
mortgage loans that have anticipated repayment dates; and the holders of Class
D-2 certificates] will be entitled only to those amounts, if any, applied as
additional interest in respect of the _________ mortgage loans that have
anticipated repayment dates. Accordingly, the [Class D certificates] are not
necessarily senior or subordinate to any other class of certificates (except to
the extent that amounts received on any particular mortgage loans with an
anticipated repayment date are applied first to pay amounts other than
additional interest).]
Certain Relevant Characteristics of the Mortgage Loans
The following characteristics of the mortgage loans are, in addition to
those described elsewhere in this prospectus supplement, relevant to the
following discussions in this "Description of the Offered Certificates" section:
Mortgage Pass-Through Rate. The "mortgage pass-through rate" in
respect of any mortgage loan for any distribution date will, in general, equal--
o in the case of each 30/360 mortgage loan, an annual rate equal
to (a) the mortgage rate for the mortgage loan as of the
cut-off date, minus (b) __________% per annum, and
o in the case of each Actual/360 mortgage loan, an annual rate
generally equal to (a) a fraction (expressed as a percentage),
the numerator of which is twelve (12) times the total amount
of interest accrued (or, in the event of prepayments or
liquidations, that would have accrued) in respect of the
mortgage loan during the calendar month immediately preceding
the month in which the distribution date occurs, and the
denominator of which is the stated principal balance of the
mortgage loan immediately prior to the distribution date,
minus (b) __________% per annum; provided that the numerator
of the fraction described in clause (a) above will, when the
accrual of interest occurs during the calendar months of
December (except in a year preceding a leap year) and January,
be decreased by the amount of any interest reserve amount
transferred from the certificate account to the interest
reserve account in respect of the mortgage loan in the
following calendar month and will, when the accrual of
interest occurs during the calendar month of February, be
increased by the interest reserve amounts to be transferred
from the interest reserve account to the certificate account
in respect of the mortgage loans in the following calendar
month. See "--Distributions--Interest Reserve Account" below.
The mortgage pass-through rate for each mortgage loan will be
unaffected by any change in the mortgage rate for the mortgage loans, including
in connection with any bankruptcy or insolvency of the related borrower or any
modification of the mortgage loan agreed to by the Master Servicer or the
Special Servicer.
Stated Principal Balance. The "stated principal balance" of each
mortgage loan will initially equal its cut-off date balance (or, in the case of
a replacement mortgage loan, the unpaid principal balance as of the related date
of substitution, after application of all payments of principal due on the
replacement mortgage loan on or before that date, whether or not received) and
will permanently be reduced on each subsequent distribution date (to not less
than zero) by--
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o that portion, if any, of the principal distribution amount for
the distribution date that is attributable to the mortgage
loan (see "--Distributions--Calculation of the Principal
Distribution Amount" below), and
o the principal portion of any realized loss incurred in respect
of the mortgage loan during the related collection period (see
"--Allocation of Realized Losses and Certain Other Shortfalls
and Expenses" below).
However, the stated principal balance of a mortgage loan will, in all
cases, be zero as of the distribution date following the collection period in
which it is determined that all amounts ultimately collectible with respect to
the mortgage loan or any related REO property have been received.
Distributions
General. The Trustee will, in general, and subject to available funds,
make all distributions required to be made on the certificates on each
distribution date to the certificateholders of record as of the close of
business on the related record date. The final distribution of principal and/or
interest on any REMIC regular certificate will be made only upon presentation
and surrender of the certificate at the location that will be specified in a
notice of the pendency of the final distribution.
A certificateholder must provide the Trustee with written wiring
instructions no less than __________ business days prior to the related record
date in order to receive its distributions by wire transfer. Otherwise, the
certificateholder will receive its distributions by check mailed to it.
Cede & Co. will be the registered holder of your certificates, and you
will receive distributions on your certificates through The Depository Trust
Company and participating organizations until definitive certificates are
issued. See "--Registration and Denominations" above.
The Available Distribution Amount. The total amount available to make
distributions of interest and principal on the certificates on each distribution
date is referred to in this prospectus supplement as the "available distribution
amount". The available distribution amount for any distribution date will
include--
(1) all payments and other collections on the mortgage loans and
any REO properties that are on deposit in the certificate
account (see "Description of the Pooling and Servicing
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:
o scheduled payments of principal and/or interest due
on a due date subsequent to the end of the related
collection period;
o prepayment premiums, yield maintenance charges and
additional interest (which are separately
distributable on the certificates as described below
in this prospectus supplement);
o amounts that are payable or reimbursable to any
person other than the certificateholders, including
(i) amounts payable to the Master Servicer, the
Special Servicer, any Sub-Servicers or the Trustee as
compensation (including the
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Trustee's fees, servicing fees, workout fees,
liquidation fees, assumption fees, modification fees
and, to the extent not otherwise applied to cover
interest on advances, default interest and late
payment charges), (ii) amounts payable in
reimbursement of outstanding advances, together with
interest thereon, and (iii) amounts payable in
respect of other expenses of the trust;
o if the distribution date occurs during February of
any year or during January of any year that is not a
leap year, the interest reserve amounts that are to
be transferred with respect to the Actual/360
mortgage loans from the certificate account to the
interest reserve account during the month and held
for future distribution; and
o amounts deposited in the certificate account in
error;
(2) any advances of principal and/or interest and compensating
interest payments made with respect to the distribution date;
and
(3) if the distribution date occurs during March of any year, the
interest reserve amounts that are to be transferred with
respect to the Actual/360 mortgage loans from the interest
reserve account to the certificate account during the month.
See "--Interest Reserve Account" and "--Allocations of Losses and
Certain Other Shortfalls and Expenses" below and "Description of the Pooling and
Servicing Agreements--Certificate Account" in the prospectus.
Interest Reserve Account. The Trustee will establish and maintain an
"interest reserve account" in its name for the benefit of the
certificateholders. During January (except in a leap year) and February of each
calendar year, beginning in 2000, the Trustee will, on or before the
distribution date in the month, withdraw from those accounts constituting part
of the certificate account that are maintained by it and deposit in the interest
reserve account the interest reserve amount with respect to each Actual/360
mortgage loan for which the scheduled payment of principal and/or interest due
in the month was either received or advanced. The "interest reserve amount"
will, in general, equal one day's interest accrued at the related mortgage rate
on the stated principal balance of the actual/360 mortgage loan outstanding
immediately following the distribution date in the preceding calendar month.
During March of each calendar year, beginning in 2000, the Trustee will, on or
before the distribution date in the month, withdraw from the interest reserve
account and deposit in those accounts constituting part of the certificate
account maintained by it any and all interest reserve amounts with respect to
the Actual/360 mortgage loans then on deposit in the interest reserve account.
All interest reserve amounts that are so transferred from the interest reserve
account to the certificate account will be included in the available
distribution amount for the distribution date during the month of transfer.
Calculation of Interest. Each class of REMIC Regular certificates will
bear interest and the interest to accrue during each interest accrual period
based upon--
o The pass-through rate for the class for the related
distribution date.
o The class principal balance or class notional amount, as the
case may be, of the class outstanding immediately prior to the
related distribution date.
o The assumption that each year consists of twelve 30-day
months.
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The total amount of interest accrued from time to time with respect to
each class of REMIC regular certificates is referred to in this prospectus
supplement as "accrued certificate interest". However, less than the full amount
of accrued certificate interest in respect of any class of REMIC regular
certificates for any interest accrual period may be distributable thereon as a
result of the allocation of any net aggregate prepayment interest shortfall for
the related distribution date.
The portion of the accrued certificate interest that is actually
distributable on any class of REMIC regular certificates for any interest
accrual period is referred to in this prospectus supplement as the
"distributable certificate interest" for the class. The distributable
certificate interest in respect of any class of REMIC regular certificates for
any interest accrual period will equal the accrued certificate interest in
respect of the class for the interest accrual period, reduced (to not less than
zero) by any portion of the net aggregate prepayment interest shortfall for the
related distribution date that has been allocated to the class as described
under "--Allocation of Realized Losses and Certain Other Shortfalls and
Expenses" below.
Calculation of Pass-Through Rates. [The pass-through rates for the
[Class A-1A, Class A-1B and Class A-2 certificates] will be fixed at
__________%, __________% and __________% per annum. The pass-through rate for
the [Class A-3 certificates] for any distribution date will equal the lesser of
__________% per annum and the weighted average pass-through rate for the
distribution date. The pass-through rates for the [Class ___ and ____
certificates] for any distribution date will, equal the weighted average
pass-through rate for the distribution date.]
[The pass-through rate applicable to the [Class S certificates for each
distribution date will equal the weighted average of the then applicable [Class
S strip rates] for the respective components of the class notional amount of the
[Class S certificates] (weighted on the basis of the relative sizes of the
components immediately prior to the distribution date). The "[Class S strip
rate]" in respect of any component of the class notional amount of the [Class S
certificates] for any distribution date will equal the excess, if any, of (i)
the weighted average pass-through rate for the distribution date, over (ii) the
pass-through rate then applicable to the class of principal balance certificates
whose class principal balance constitutes the component. The [Class S strip
rates] for [components __________] of the class notional amount of the [Class S
certificates] will at all times with respect to both the components be
__________% per annum.]
[The pass-through rates for the [Class B-3, Class B-4 and Class B-5
certificates] will be fixed at ____% per annum. The pass-through rates for the
[Class B-6, Class B-8 and Class C certificates] will be fixed at ____% per
annum.]
[The [Class D certificates] and the REMIC residual certificates will
not have pass-through rates.]
The "weighted average mortgage pass-through rate" for each distribution
date will, in general, equal the weighted average of the pass-through rates in
effect for all the mortgage loans for the distribution date (weighted on the
basis of the mortgage loans' respective stated principal balances immediately
prior to the distribution date).
Calculation of the Principal Distribution Amount. The "principal
distribution amount" for any distribution date represents the maximum amount of
principal distributable in respect of the principal balance certificates for the
distribution date. The principal distribution amount for any distribution date
will, in general, equal the total (without duplication) of the following:
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(a) all payments of principal (other than voluntary principal
prepayments) received on the mortgage loans during the related
collection period, in each case net of any portion of the particular
payment that represents a late collection of principal for which an
advance of principal and/or interest was previously made for a prior
distribution date or that represents the principal portion of a
scheduled payment of principal and/or interest due on or before the
cut-off date or on a due date subsequent to the end of the related
collection period;
(b) the principal portions of all scheduled payments of
principal and/or interest due in respect of the mortgage loans for
their respective due dates occurring during the related collection
period, that were received prior to the related collection period;
(c) all voluntary principal prepayments received on the
mortgage loans during the related collection period;
(d) all 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 the
particular collection that represents a late collection of principal
due on or before the cut-off date or for which an advance of principal
and/or interest was previously made for a prior distribution date; and
(e) the principal portions of all advances of principal and/or
interest made in respect of the mortgage loans for the distribution
date.
Priority of Payments.
General. Distributions of interest and principal are to be made to the
holders of the various classes of REMIC regular certificates sequentially based
on their relative seniority as depicted in the expanded seniority chart under
"--Seniority" above. Accordingly, the Trustee will make distributions of
interest and principal on the [Class ___ certificates] prior to making
distributions in respect of any other class of REMIC regular certificates.
Distributions of Interest and Principal on the Senior Certificates. On
each distribution date, the Trustee will apply the available distribution amount
for the date for the following purposes and in the following order of priority:
(1) to pay interest to the holders of the respective classes
of senior certificates, up to an amount equal to, and proportional as
among the classes in accordance with, all unpaid distributable
certificate interest accrued in respect of each class of certificates
through the end of the related interest accrual period,
(2) to pay principal to the holders of the [Class A-1A and
Class A-1B certificates] (allocable between the [two] classes of
certificateholders as described below), up to an amount equal to the
lesser of (a) the total of the then outstanding class principal
balances of the Class A-1A and Class A-1B certificates and (b) the
principal distribution amount for the distribution date, and
(3) if applicable, to reimburse the holders of the [Class A-1A
and Class A-1B certificates], up to an amount equal to, and
proportional as between the [two] classes of
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certificateholders in accordance with, the total of all unreimbursed
reductions, if any, made to the class principal balance of each of the
Class A-1A and Class A-1B certificates as described under "--Allocation
of Realized Losses and Certain Other Shortfalls and Expenses" below in
connection with realized losses and additional trust asset expenses.
In general, all distributions of principal on the [Class A-1A and Class
A-1B certificates] on any distribution date will be distributable, first, to the
holders of the [Class A-1A certificates], until the class principal balance of
the [Class A-1A certificates] is reduced to zero, and following that, to the
holders of the [Class A-1A and Class A-1B certificates]. However, if (1) the
total certificate principal balance of the [Class A-1A and Class A-1B
certificates] outstanding immediately prior to any distribution date equals or
exceeds (2) the sum of (a) the total stated principal balance of the mortgage
pool expected to be outstanding immediately following the distribution date,
plus (b) the lesser of (i) the principal distribution amount for the
distribution date and (ii) the portion of the available distribution amount for
the distribution date that will remain after all required distributions of
interest on the senior certificates have been made, then (assuming the [Class
A-1A certificates] still remain outstanding) all distributions of principal in
respect of the [Class A-1A and Class A-1B certificates] on the distribution date
and on each distribution date thereafter will be made on a proportional basis in
accordance with the respective class principal balances of the certificates.
Similarly, all distributions of principal, if any, in respect of the [Class A-1A
and Class A-1B certificates] on the final distribution date in connection with a
termination of the trust (see "--Termination" below) will be made on the same
proportional basis.
All certificates, other than the senior certificates, collectively
constitute the "subordinate certificates". The portion, if any, of the available
distribution amount for any distribution date that remains after the foregoing
distributions on the senior certificates is referred to in this prospectus
supplement as the "subordinate available distribution amount". The subordinate
available distribution amount for each distribution date will be applied to make
distributions on the subordinate certificates as described below.
[Distributions of Interest and Principal on the Subordinate
Certificates. On each distribution date, the Trustee will apply the subordinate
available distribution amount for the date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the [Class A-2
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class A-2 certificates
through the end of the related interest accrual period;
(2) if the class principal balances of all more senior classes
of principal balance certificates have been reduced to zero, to pay
principal to the holders of the [Class A-2 certificates], 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 remaining portion of
the principal distribution amount for the distribution date;
(3) if applicable, to reimburse the holders of the [Class A-2
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
A-2 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
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(4) to pay interest to the holders of the [Class A-3
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class A-3 certificates
through the end of the related interest accrual period;
(5) if the class principal balances of all more senior classes
of principal balance certificates have been reduced to zero, to pay
principal to the holders of the [Class A-3 certificates], 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 remaining portion of
the principal distribution amount for the distribution date;
(6) if applicable, to reimburse the holders of the [Class A-3
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
A-3 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(7) to pay interest to the holders of the [Class A-4
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class A-4 certificates
through the end of the related interest accrual period;
(8) if the class principal balances of all more senior classes
of principal balance certificates have been reduced to zero, to pay
principal to the holders of the [Class A-4 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class A-4 certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(9) if applicable, to reimburse the holders of the [Class A-4
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
A-4 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(10) to pay interest to the holders of the [Class B-1
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-1 certificates
through the end of the related interest accrual period;
(11) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-1 certificates], 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 remaining portion of
the principal distribution amount for the distribution date;
(12) if applicable, to reimburse the holders of the [Class B-1
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-1 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
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(13) to pay interest to the holders of the [Class B-2
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-2 certificates
through the end of the related interest accrual period;
(14) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-2 certificates], 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 remaining portion of
the principal distribution amount for the distribution date;
(15) if applicable, to reimburse the holders of the [Class B-2
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-2 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(16) to pay interest to the holders of the [Class B-3
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-3 certificates
through the end of the related interest accrual period;
(17) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-3 certificates], 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 remaining portion of
the principal distribution amount for the distribution date;
(18) if applicable, to reimburse the holders of the [Class B-3
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-3 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust assets expenses;
(19) to pay interest to the holders of the [Class B-4
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-4 certificates
through the end of the related interest accrual period;
(20) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-4 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class B-4 of certificates and (b) the remaining portion
of the principal distribution amount for the distribution date;
(21) if applicable, to reimburse the holders of the [Class B-4
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-4 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
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(22) to pay interest to the holders of the [Class B-5
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-5 certificates
through the end of the related interest accrual period;
(23) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-5 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class B-5 certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(24) if applicable, to reimburse the holders of the [Class B-5
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-5 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(25) to pay interest to the holders of the [Class B-6
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-6 certificates
through the end of the related interest accrual period;
(26) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-6 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class B-6 certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(27) if applicable, to reimburse the holders of the [Class B-6
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-6 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(28) to pay interest to the holders of the [Class B-7
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-7 certificates
through the end of the related interest accrual period;
(29) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-7 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class B-7 certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(30) if applicable, to reimburse the holders of the [Class B-7
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-7 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
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(31) to pay interest to the holders of the [Class B-8
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class B-8 certificates
through the end of the related interest accrual period;
(32) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class B-8 certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class B-8 certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(33) if applicable, to reimburse the holders of the [Class B-8
certificates] up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class
B-8 certificates as described under "--Allocation of Realized Losses
and Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses;
(34) to pay interest to the holders of the [Class C
certificates], up to an amount equal to all unpaid distributable
certificate interest accrued in respect of the Class C certificates
through the end of the related interest accrual period;
(35) if the class principal balances of all more senior
classes of principal balance certificates have been reduced to zero, to
pay principal to the holders of the [Class C certificates], up to an
amount equal to the lesser of (a) the then outstanding class principal
balance of the Class C certificates and (b) the remaining portion of
the principal distribution amount for the distribution date;
(36) if applicable, to reimburse the holders of the [Class C
certificates], up to an amount equal to the total of all unreimbursed
reductions, if any, made to the class principal balance of the Class C
certificates as described under "--Allocation of Realized Losses and
Certain Other Shortfalls and Expenses" below in connection with
realized losses and additional trust expenses; and
(37) to pay to the holders of the REMIC residual certificates,
the balance, if any, of the subordinate available distribution amount
for the distribution date;
provided that, on the final distribution date in connection with a termination
of the trust, the distributions of principal to be made under clauses [(2), (5),
(8), (11), (14), (17), (20), (23), (26), (29), (32) and (35)] above shall, in
each case, subject to the then remaining portion of the subordinate available
distribution amount for that date, be made to the holders of the relevant class
of principal balance certificates otherwise entitled to distributions of
principal pursuant to the relevant clause in an amount equal to the entire then
remaining class principal balance of the class of certificates outstanding
immediately prior to the final distribution date (and without regard to the
principal distribution amount for that distribution date).]
Distributions of Prepayment Premiums and Yield Maintenance Charges. If
any prepayment premium is collected during any particular collection period in
respect of any mortgage loans that provides for prepayment consideration equal
to the greater of a specified prepayment premium and a yield maintenance charge,
then the prepayment premium will be distributed as additional interest on the
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distribution date corresponding to the particular collection period to the
holders of the [Class S certificates].
If any yield maintenance charge is collected with respect to any
mortgage loans during any particular collection period (including a yield
maintenance charge collected in respect of a mortgage loan that provides for
prepayment consideration equal to the greater of a specified prepayment premium
and a yield maintenance charge), then the yield maintenance charge will be
distributed as additional interest on the distribution date corresponding to the
particular collection period as follows:
o The holders of the class (or classes) of principal balance
certificates then entitled to distributions of principal on
the distribution date will be entitled to an amount (allocable
among those classes, if more than one, as described below)
equal to the product of (1) the amount of the yield
maintenance charge, multiplied by (2) a fraction (not greater
than one or less than zero), the numerator of which is equal
to the excess, if any, of the pass- through rate applicable to
the class of principal balance certificates for the
distribution date (or, if two or more classes are involved,
the pass-through rate applicable to whichever of those Classes
has the most senior right of payment or, in the case of the
[Class A-1A and Class A-1B certificates], the earlier assumed
final distribution date), over the relevant discount rate, and
the denominator of which is equal to the excess, if any, of
the mortgage rate for the prepaid mortgage loans, over the
relevant discount rate. If more than one class of principal
balance certificates is entitled to distributions of principal
on the distribution date, the total amount described in the
preceding sentence will be allocated among those classes on a
proportional basis in accordance with the relative amounts of
the distributions of principal.
o Any portion of the yield maintenance charge that may remain
after the distributions on the principal balance certificates
will be distributed to the holders of the [Class S
certificates].
For purposes of the foregoing, the relevant "discount rate" will be the
rate which, when compounded monthly, is equivalent to the treasury rate when
compounded semi-annually (e.g., a __________% per annum treasury rate would
equate to a __________% per annum discount rate). The "treasury rate" is the
yield calculated by the linear interpolation of the yields, as reported in
Federal Reserve Statistical Release H.15--Selected Interest Rates under the
heading "U.S. Government Securities/Treasury Constant Maturities" for the week
ending prior to the date of the relevant principal prepayment, of U.S. Treasury
constant maturities with a maturity date (one longer and one shorter) most
nearly approximating [(a) in the case of any ______ mortgage loans, the weighted
average life (calculated in accordance with the related loan documents) of the
prepaid mortgage loans immediately prior to the prepayment and (b) in the case
of any _______ mortgage loans, the stated maturity (or, in the case of any
______ mortgage loan that has an anticipated repayment date, the anticipated
repayment date) of the prepaid mortgage loans.] If Release H.15 is no longer
published, the Master Servicer will select a comparable publication to determine
the treasury rate.
We do not nor does either underwriter make any representation as to the
enforceability of the provision of any mortgage note requiring the payment of a
prepayment premium or yield maintenance charge or as to the collectability of
any prepayment premium or yield maintenance charge. See "Description of the
Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" and "Risk Factors--Risks Related to the Mortgage Loans--Limitations
on Enforceability and Collectability of Prepayment Premiums and Yield
Maintenance Charges" in this prospectus supplement.
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[Distributions of Additional Interest. It is anticipated that the
[Class D-1 certificates] will be delivered to and retained by ____________. The
[Class D-1 certificates] will entitle the holders to all amounts, if any,
applied as additional interest on the ______ mortgage loans that have an
anticipated repayment date.
It is anticipated that the [Class D-2 certificates] will be delivered
to and retained by __________ . The [Class D-2 certificates] will entitle the
holders to all amounts, if any, applied as additional interest on the _______
mortgage loans that have an anticipated repayment date.
Treatment of REO Properties. Notwithstanding that any mortgaged
property may be acquired as part of the trust assets through foreclosure, deed
in lieu of foreclosure or otherwise, the related mortgage loans will be treated
as having remained outstanding until the REO property is liquidated for purposes
of determining--
o distributions on the certificates,
o allocations of realized losses and additional trust assets
expenses to the certificates, and
o the amount of all fees payable under the Pooling and
Servicing Agreement.
The mortgage loans will be taken into account when determining the weighted
average mortgage pass-through rate and the principal distribution amount for
each distribution date. Operating revenues and other proceeds derived from a REO
property (after application thereof to pay, or to reimburse the Master Servicer,
the Special Servicer and/or the Trustee for the payment of, certain costs and
expenses incurred in connection with the operation and disposition of the REO
property) will be "applied" by the Master Servicer as principal, interest and
other amounts "due" on the mortgage loans. To the extent described
under"--Advance of Principal and/or Interest" below, the Master Servicer and the
Trustee will be required to make advances of principal and/or interest in
respect of the mortgage loans, in all cases as if the mortgage loans had
remained outstanding.
Allocation of Realized Losses and Certain Other Shortfalls and Expenses
As a result of realized losses and additional trust assets expenses,
the total stated principal balance of the mortgage pool may decline below the
total certificate principal balance of the principal balance certificates,
resulting in a mortgage pool deficit equal to the difference. If a mortgage pool
deficit exists following the distributions made to certificateholders on any
distribution date, then the respective class principal balances of the various
classes of principal balance certificates are to be successively reduced in
reverse order of seniority as depicted on the expanded seniority chart under
"--Seniority" above, until the mortgage pool deficit is eliminated. The first
class principal balance to be reduced would be that of the most subordinate
class of principal balance certificates then outstanding. No reduction of this
type will be made to the class principal balance of any class of principal
balance certificates until the class principal balance of each more subordinate
class of principal balance certificates, if any, is reduced to zero. If it is
necessary to make any reductions of this type in the class principal balances of
the [Class A-1A and Class A-1B certificates] at a time when both classes are
outstanding, the reductions will be made on a proportional basis in accordance
with relative sizes of the class principal balances.
The reductions in the class principal balances of the respective
classes of the principal balance certificates, as described in the previous
paragraph, will effectively constitute an allocation of the realized losses
and/or additional trust assets expenses that caused the particular mortgage pool
deficit. A reduction of this type in the class principal balance of a class of
principal balance certificates will result in a corresponding reduction in the
notional amount of the [Class S certificates].
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Any "realized losses" are losses on or in respect of the mortgage loans
arising from the inability of the Master Servicer and/or the Special Servicer to
collect all amounts due and owing under the mortgage loans, including by reason
of the fraud or bankruptcy of a borrower or, to the extent not covered by
insurance, a casualty of any nature at a mortgaged property. The realized loss
in respect of a liquidated mortgage loan (or related REO property) is an amount
generally equal to the excess, if any, of (a) the outstanding principal balance
of the mortgage loans as of the date of liquidation, together with (i) all
accrued and unpaid interest on the mortgage loan to but not including the due
date in the collection period in which the liquidation occurred (exclusive,
however, of any accrued and unpaid interest that constitutes default interest or
additional interest) and (ii) all related unreimbursed servicing advances and
unpaid liquidation expenses, over (b) the total amount of liquidation proceeds,
if any, recovered in connection with the liquidation. If any portion of the debt
due under a mortgage loan is forgiven, whether in connection with a
modification, waiver or amendment granted or agreed to by the Master Servicer or
the Special Servicer or in connection with the bankruptcy or similar proceeding
involving the related borrower, the amount forgiven (other than default interest
and additional interest) also will be treated as a realized loss.
An "additional trust asset expense" is, in general, an expense of the
trust that arises out of a default on a mortgage loan or an otherwise
unanticipated event and that is not covered by an servicing advance or a
corresponding collection from the related borrower. Some examples of additional
trust asset expenses are:
o any special servicing fees, workout fees and liquidation fees
paid to the special servicer;
o any interest paid to the Master Servicer, the Special Servicer
and/or the Trustee in respect of unreimbursed advances (to the
extent not covered out of late payment charges and default
interest actually collected on the related mortgage loans);
o the cost of various opinions of counsel required or permitted
to be obtained in connection with the servicing of the
mortgage loans and the administration of the trust assets;
o certain unanticipated, non-mortgage loans specific expenses of
the trust, including certain reimbursements and
indemnifications to the Trustee as described under
"Description of the Pooling and Servicing Agreements--Certain
Matters Regarding the Trustee" in the prospectus, certain
reimbursements to the Master Servicer, the Special Servicer,
the REMIC Administrator and us as described under "Description
of the Pooling and Servicing Agreements--Certain Matters
Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" in the prospectus and certain
federal, state and local taxes, and certain tax-related
expenses, payable out of the trust assets as described under
"Federal Income Tax Consequences--Possible Taxes on Income
From Foreclosure Property and Other Taxes" in this prospectus
supplement and "Federal Income Tax Consequences--Taxation of
Owners of REMIC Regular certificates--Prohibited Transactions
Tax and Other Taxes" in the prospectus; and
o any amounts expended on behalf of the trust to remediate an
adverse environmental condition at any mortgaged property
securing a defaulted mortgage loans (see "Description of the
Pooling and Servicing Agreements--Realization Upon Defaulted
mortgage loans" in the prospectus).
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The net aggregate prepayment interest shortfall, if any, for each
distribution date will be allocated on the distribution date among the
respective classes of REMIC regular certificates, up to, and on a proportional
basis, in accordance with, the respective amounts of accrued certificate
interest for each of the REMIC regular certificates for the related interest
accrual period.
Advances of Principal and/or Interest
The Master Servicer will be required to make for each distribution date
(either out of its own funds or, subject to the replacement thereof as and to
the extent provided in the Pooling and Servicing Agreement, funds held in the
certificate account that are not required to be part of the available
distribution amount for the distribution date) an aggregate amount of advances
of principal and/or interest generally equal to all scheduled payments of
principal and/or interest (other than balloon payments) and any assumed payments
of principal and/or interest, in each case net of related master servicing fees
and/or workout fees, that (a) were due or deemed due, as the case may be, in
respect of the mortgage loans during the related collection period and (b) were
not paid by or on behalf of the respective borrowers or otherwise collected as
of the close of business on the last day of the related collection period.
Notwithstanding the foregoing, if it is determined that an appraisal reduction
amount (as defined below) exists with respect to any required appraisal loan,
then the Master Servicer will reduce the interest portion (but not the principal
portion) of each advances of principal and/or interest that it must make in
respect of the required appraisal loan, during the period that the appraisal
reduction amount exists. The interest portion of any advances of principal
and/or interest required to be made in respect of a required appraisal loan as
to which there exists an appraisal reduction amount, will equal the product of
(i) the amount of the interest portion of the advances of principal and/or
interest that would otherwise be required to be made for the distribution date
without regard to this sentence and the prior sentence, multiplied by (ii) a
fraction, the numerator of which is equal to the stated principal balance of the
mortgage loans, net of the appraisal reduction amount, and the denominator of
which is equal to the stated principal balance of the mortgage loans. See
"--Appraisal Reductions" below.
If the Master Servicer fails to make a required advances of principal
and/or interest, the trustee will be obligated to make the relevant advance. See
"--The Trustee" below.
The Master Servicer and the Trustee will each be entitled to recover
any advances of principal and/or interest made by it (out of its own funds) from
related proceeds. Neither the Master Servicer nor the Trustee will be obligated
to make any advances of principal and/or interest that, in its reasonable, good
faith judgment, would not ultimately be recoverable out of related proceeds (any
advances of principal and/or interest not so recoverable, is a "nonrecoverable
advance"). If the Master Servicer or the Trustee makes any advances of principal
and/or interest that it subsequently determines, in its reasonable, good faith
judgment, is a nonrecoverable advances of principal and/or interest, it may
obtain reimbursement for the advances of principal and/or interest (together
with interest accrued on the advance as described below) out of general
collections on the mortgage loans and any REO properties on deposit in the
certificate account from time to time. See "Description of the
certificates--Advances in Respect of Delinquencies" and "Description of the
Pooling and Servicing Agreements--Certificate Account" in the prospectus.
The Master Servicer and the Trustee will each be entitled to receive
interest on advances of principal and/or interest made thereby. The interest
will accrue on the amount of each advances of principal and/or interest, and
compounded monthly, for so long as the advances of principal and/or interest is
outstanding at a rate per annum equal to the "prime rate" as published in the
"Money Rates"
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section of The Wall Street Journal, as the "prime rate" may change from time to
time. Interest accrued with respect to any advances of principal and/or
interest will be payable--
o first, out of default interest and late payment charges
collected on the related mortgage loans, and
o then, if and to the extent that (i) if the advances of
principal and/or interest has been or is being reimbursed and
(ii) the default interest and late charges collected on the
related mortgage loans while the servicing advance was
outstanding were insufficient to cover the advance interest,
out of any amounts then on deposit in the certificate account.
Any delay between a Sub-Servicer's receipt of a late collection of a
scheduled payment of principal and/or interest as to which a advances of
principal and/or interest was made and the forwarding of the late collection to
the Master Servicer will increase the amount of interest accrued and payable to
the Master Servicer or the Trustee, as the case may be, on the advances of
principal and/or interest. To the extent not offset by default interest and/or
late payment charges accrued and actually collected, interest accrued on
outstanding advances of principal and/or interest will result in a reduction in
amounts payable on the certificates.
An "assumed payment of principal and/or interest" is an amount of
principal and/or interest deemed due in respect of:
o each mortgage loan that is delinquent in respect of its
balloon payment beyond the first determination date that
follows its most recent maturity date and as to which no
arrangements have been agreed to for collection of the
delinquent amounts, including an extension of maturity; and
o each mortgage loan as to which the related mortgaged property
has become an REO property.
The assumed payment deemed due on any mortgage loans described in the definition
of assumed payment of principal and/or interest, above, that is delinquent as to
its balloon payment, for its stated maturity date and for each successive due
date that it remains outstanding, will equal the scheduled payment of principal
and/or interest of principal and/or interest that would have been due on the
mortgage loans on the relevant date if the related balloon payment had not come
due (but instead the mortgage loans had continued to amortize and accrue
interest according to its terms in effect prior to the maturity date). The
assumed payment deemed due on any of this type of mortgage loan as to which the
related mortgaged property has become an REO property, for each due date that
the REO property remains part of the trust assets, will equal the scheduled
payment of principal and/or interest (or, in the case of a mortgage loan
delinquent in respect of its balloon payment, the assumed payment) due (or
deemed due) on the last due date prior to the acquisition of that REO property.
Assumed payments for mortgage loans with anticipated repayment dates do not
include additional interest or accelerated amortization payments.
Appraisal Reductions
Promptly following the occurrence of any of the following events with
respect to any mortgage loans, the Special Servicer must obtain (and deliver to
the Trustee and Master Servicer a copy of) an appraisal of the related mortgaged
property from an independent appraiser meeting certain specified qualifications,
unless an appraisal had previously been obtained within the prior twelve
months--
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o The mortgage loan becomes a modified mortgage loan.
o The related borrower fails to make any scheduled payment of
principal and/or interest with respect to the mortgage loan
and the failure continues for _________ (or, in certain cases,
---------).
o A receiver is appointed and continues in the capacity of
receiver in respect of the mortgaged property securing the
mortgage loan.
o The related borrower becomes the subject of bankruptcy,
insolvency or similar proceedings.
o The mortgaged property securing the mortgage loan becomes an
REO property.
As a result of 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
later of the date on which the relevant appraisal is or was obtained and the
first relevant appraisal trigger event occurred) equal to the excess, if any, of
"x" over "y" where--
o "x" is equal to the sum of:
(i) the stated principal balance of the required
appraisal loan;
(ii) to the extent not previously advanced by or on behalf
of the Master Servicer or the Trustee, all unpaid
interest (less related servicing fees and excluding
default interest and, in the case of a mortgage loan
with an anticipated repayment date, after its
anticipated repayment date, additional interest)
accrued on the required appraisal loan through the
most recent due date prior to the determination date;
(iii) all accrued but unpaid servicing fees in respect of
the 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 the required appraisal
loan, together with interest thereon; 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 (net of any escrow reserves held by the
Master Servicer or the Special Servicer which covers
the particular item); and
o "y" is equal to 90% of the resulting appraised value of the
related mortgaged property or REO property (as the appraised
value may be reduced (to not less than zero) by the amount of
any obligations secured by liens on the property that are
prior to the lien of the required appraisal loan).
appraisal reduction amounts are relevant to the determination of the
amount of any advances of principal and/or interest required to be made in
respect of the related required appraisal loan. See "--advances of principal
and/or interest"" above.
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If, however, any required appraisal is not obtained within _________ of
an appraisal trigger event (and no comparable appraisal had been obtained during
the _______ month period prior to the appraisal trigger event), then until the
required appraisal is obtained the "appraisal reduction amount" for the subject
required appraisal loan will be deemed to equal ______% of the stated principal
balance of the required appraisal loan. After receipt of the required appraisal,
the appraisal reduction amount, if any, for the required appraisal loan will be
calculated as described above.
For so long as any mortgage loan remains a required appraisal loan, the
Special Servicer is required, within ____ days of each annual anniversary of the
mortgage loan's becoming a required appraisal loan, to order (and deliver to the
Trustee and the Master Servicer a copy of) an update of the prior appraisal.
Based upon the update, the Special Servicer is to redetermine and report to the
Trustee and the Master Servicer the new appraisal reduction amount, if any, with
respect to the mortgage loan. A mortgage loan will cease to be a required
appraisal loan if and when the mortgage loan has become a corrected mortgage
loan and has remained current for at least twelve consecutive scheduled payments
of principal and/or interest, and no other servicing transfer event has occurred
during the preceding twelve months.
The cost of each required appraisal (and any update thereof) will be
advanced by the Master Servicer and will be reimbursable to the Master Servicer
as a servicing advance.
At any time that an appraisal reduction amount exists with respect to
any required appraisal loan, the representative of the controlling class will be
entitled, at its own expense, to obtain and deliver to the Master Servicer, the
Special Servicer and the Trustee an appraisal that satisfies the criteria for a
required appraisal. In addition, at any time that is not less than _________
months following the initial establishment of the appraisal reduction amount
(and on one occasion at least _________ months after the first occasion), the
holders of any then outstanding class of certificates that is subordinate to the
controlling class will be entitled to obtain and deliver to the Master Servicer,
the Special Servicer and the Trustee an appraisal that satisfies the criteria
for a required appraisal. The Special Servicer will be required to recalculate
the appraisal reduction amount in respect of the required appraisal loan, upon
the written request of the representative of the controlling class or the
relevant holders, based on the appraisal delivered by the party and notify the
trustee, the Master Servicer and the representative of the controlling class of
the recalculated appraisal reduction amount.
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 scheduled payments of principal and/or interest with
respect to the 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 the mortgage loan
or reduces the likelihood of timely payment of amounts due
thereon.
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Reports to Certificateholders; Certain Available Information
Trustee Reports. Based solely 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 provide or make available
electronically (or, upon request, by first class mail) on each distribution date
to each certificateholder a reporting statement substantially in the form of,
and containing the information set forth in, Exhibit B to this prospectus
supplement, detailing the distributions on the distribution date and the
performance, both in the aggregate and individually to the extent available, of
the mortgage loans and mortgaged properties.
Book-Entry Certificates. If you hold your certificates in book-entry
from through The Depository Trust Company, you may obtain direct access to the
reports of the Trustee as if you were a certificateholder, provided that you
deliver a written certification to the Trustee confirming your beneficial
ownership in the offered certificates. Otherwise, until definitive certificates
are issued in respect of your certificates, the information contained in the
Trustee's Reports will be available to you only to the extent that it is made
available through The Depository Trust Company and The Depository Trust Company
participants or is available on the Trustee's internet website. Conveyance of
notices and other communications by The Depository Trust Company to The
Depository Trust Company participants, and by The Depository Trust Company
participants to beneficial owners of the 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. We are together with the Master Servicer,
the Special Servicer, the Trustee, the REMIC Administrator and the Certificate
Registrar required to recognize as certificateholders only those persons in
whose names the certificates are registered on the books and records of the
Certificate Registrar.
Information Available Electronically. The Trustee will make available
each month, to any interested party, the Trustee's reports via the Trustee's
internet website, electronic bulletin board and fax- on-demand service. In
addition, the trustee will also make certain mortgage loan information as
presented in the standard Commercial Real Estate Secondary Market and
Securitization Association loan setup file and loan periodic update file formats
available to any holder or beneficial owner of a certificate held in book-entry
form, via the Trustee's internet website. The Trustee's internet website will
initially be located at "_________ ".
The Trustee's electronic bulletin board may be accessed by calling
_________ , and its fax-on- demand service may be accessed by calling ________.
For assistance with regard to the services described above, investors may call
_________ .
The Trustee will make no representations or warranties as to the
accuracy or completeness of the documents and will assume no responsibility
therefor. In addition, the Trustee may disclaim responsibility for any
information made available by the Trustee for which it is not the original
source.
The Trustee may require registration and the acceptance of a disclaimer
in connection with providing access to its electronic bulletin board and
internet website. The Trustee shall not be liable for the dissemination of
information made in accordance with the Pooling and Servicing Agreement.
Other Information. The Pooling and Servicing Agreement will obligate
the Trustee to make available at its offices, during normal business hours, upon
reasonable advance written notice, for review by any holder or beneficial owner
of an offered certificate or any person identified to the Trustee by any holder
or beneficial owner as a prospective transferee of an offered certificate or any
interest in an offered
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certificate, subject to the discussion in the following paragraph, originals or
copies of, among other things, the following items:
o the Pooling and Servicing Agreement and any amendments to the
Pooling and Servicing Agreement;
o all reports of the Trustee delivered to certificateholders
since the closing date;
o all officer's certificates delivered to the Trustee by the
Master Servicer and/or the Special Servicer since the closing
date as described under "Servicing of the Mortgage
Loans--Evidence as to Compliance" in this prospectus
supplement;
o all accountant's reports delivered to the Trustee in respect
of the Master Servicer and/or the Special Servicer since the
closing date as described under "Servicing of the Mortgage
Loans--Evidence as to Compliance" in this prospectus
supplement;
o the most recent inspection report in respect of each mortgaged
property prepared by the Master Servicer or the Special
Servicer and delivered to the Trustee as described under
"Servicing of the Mortgage Loans--Inspections; Collection of
Operating Information" in this prospectus supplement;
o the most recent appraisal, if any, with respect to each
mortgaged property obtained by the Master Servicer or the
Special Servicer and delivered to the Trustee (see
"--Appraisal Reductions" above);
o the most recent quarterly and annual operating statement and
rent roll for each mortgaged property and financial statements
of the related borrower collected by the Master Servicer or
the Special Servicer and delivered to the Trustee as described
under "Servicing of the Mortgage Loans--Inspections;
Collection of Operating Information" in this prospectus
supplement; and
o the mortgage files, including all documents (e.g.,
modifications, waivers and amendments of the mortgage loans)
that are to be added to the mortgage files from time to time.
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 the copies.
In connection with providing access to or copies of the items described
above, the Trustee may require:
o in the case of a beneficial owner of a certificate held in
book-entry form, a written confirmation executed by the
requesting person or entity, in a form reasonably acceptable
to the Trustee, generally to the effect that the person or
entity is a beneficial owner of offered certificates and will
keep the information confidential; and
o in the case of a prospective purchaser of certificates or
interests therein, confirmation executed by the requesting
person or entity, in a form reasonably acceptable to the
Trustee, generally to the effect that the person or entity is
a prospective purchaser of
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certificates or an interest therein, is requesting the
information for use in evaluating a possible investment in the
certificates and will otherwise keep the information
confidential.
Certificateholders will be deemed to have agreed to keep the information
described above confidential by the acceptance of their certificates. However,
no holder, beneficial owner or prospective transferee of any certificate or
interest in a certificate will be required to keep confidential any information
that has previously been filed with the SEC, and the Trustee will not be
required to obtain either of the confirmations referred to in the second
preceding sentence in connection with providing any information that has
previously been filed with the SEC.
Voting Rights
[ 99% ] of the voting rights for the series offered by this prospectus
supplement will be allocated among the respective classes of principal balance
certificates in proportion to the class principal balances thereof at all times
during the term of the Pooling and Servicing Agreement. 1% of the voting rights
will be allocated to the [Class __ certificates]. Voting rights allocated to a
class of certificates will be allocated among those certificates in proportion
to the percentage interests in the class evidenced by each certificate.
Termination
The obligations created by the Pooling and Servicing 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 assets, and
(ii) the purchase of all of the mortgage loans and REO properties
remaining in the trust assets by the Master Servicer, the
Special Servicer or any single holder or group of holders of
certificates representing a majority interest in the
controlling class (in that order of preference).
Written notice of termination of the Pooling and Servicing 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 the
certificate at the office of the Certificate Registrar or at any other location
specified in the notice of termination.
Any purchase by the Master Servicer, the Special Servicer or any
majority holder or holders of the controlling class of all the mortgage loans
and REO properties remaining in the trust assets is required to be made at a
price equal to (a) the sum of (i) the total purchase price of all the mortgage
loans then included in the trust assets (other than any mortgage loans as to
which the related mortgaged properties have become REO properties) and (ii) the
appraised value of all REO properties then included in the trust assets, as
determined by an appraiser mutually agreed upon by the Master Servicer and the
Trustee, minus (b) (solely in the case of a purchase by the Master Servicer or
the Special Servicer) the total of all amounts payable or reimbursable to the
purchaser under the Pooling and Servicing Agreement. The purchase will effect
early retirement of the outstanding certificates, but the right of the Master
Servicer, the Special Servicer or any majority holder or holders of the
controlling class to effect the termination is subject to the requirement that
the total principal balance of the mortgage pool be less than [1%] of the
initial pool balance. The termination price (exclusive of any portion of the
termination price payable or
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reimbursable to any person other than the certificateholders) will constitute
part of the available distribution amount for the final distribution date. Any
person or entity effecting a purchase will be responsible for reimbursing the
parties to the Pooling and Servicing Agreement (other than itself, if
applicable) for all reasonable out-of-pocket costs and expenses incurred by the
parties in connection with the purchase.
The Trustee
_________ will act as Trustee pursuant to the Pooling and Servicing
Agreement. maintains an office at _________ . Certificate transfer services are
conducted at _________ offices in _________ . _________ otherwise conducts its
trustee and securities administration services at its offices in _________ . Its
address there is ________________. In addition, _________ maintains an office in
New York located at _________ . certificateholders and other interested parties
should direct their inquiries to the New York Office. The telephone number is
_________ .
The Trustee is at all times required to be a corporation, bank, trust
company or association organized and doing business under the laws of the U.S.
or any State of the U.S. or the District of Columbia. In addition, the Trustee
is at all times required to be authorized under those laws to exercise trust
powers, having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authority. If the
corporation, bank, trust company or association publishes reports of condition
at least annually, pursuant to law or to the requirements of the supervising or
examining authority, then the combined capital and surplus of the corporation,
bank, trust company or association will be deemed to be its combined capital and
surplus as described in its most recent published report of condition.
We may, as well as the Master Servicer and Special Servicer and our
respective affiliates, 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 will have the power to appoint a
co-trustee or separate trustee of all or any part of the trust assets. All
rights, powers, duties and obligations conferred or imposed upon the Trustee
will be conferred or imposed upon the Trustee and the 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 the separate
trustee or co-trustee who shall exercise and perform its rights, powers, duties
and obligations solely at the direction of the Trustee).
The Trustee will be entitled to a monthly fee for its services, which
fee will accrue (on a 30/360 Basis) at _________ % per annum on the stated
principal balance outstanding from time to time of each mortgage loan. The
trustee fee is payable out of general collections on the mortgage loans and any
REO properties.
For so long as the same entity acts as Trustee and REMIC administrator,
the entity will be entitled, in its capacity as REMIC Administrator, to the same
limitations on liability and rights to reimbursement and indemnification as it
has in its capacity as Trustee.
See also "Description of the Pooling and Servicing Agreements--the
Trustee", "--Duties of the Trustee", "--Certain Matters Regarding the Trustee"
and "--Resignation and Removal of the Trustee" in the prospectus.
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YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any offered certificate will depend on:
(a) the price at which the certificate is purchased by an
investor, and
(b) the rate, timing and amount of distributions on the
certificate.
The rate, timing and amount of distributions on any offered certificate will in
turn depend on, among other things,
o the pass-through rate for the certificate,
o the rate and timing of principal payments (including
principal prepayments) and other principal
collections on the mortgage loans and the extent to
which the amounts are to be applied or otherwise
result in reduction of the certificate principal
balance or certificate notional amount of the
certificate,
o the rate, timing and severity of realized losses and
additional trust expenses and the extent to which the
losses and shortfalls result in the reduction of the
certificate principal balance or certificate notional
amount of the certificate, and
o the timing and severity of any net aggregate
prepayment interest shortfalls and the extent to
which the shortfalls result in the reduction of the
distributable certificate interest payable on the
certificate.
Pass-Through Rates. The pass-through rate applicable to the [Class S
certificates] will be variable. The applicable pass-through rate will equal the
weighted average of the [Class S strip rates] at which interest accrues on the
respective components of the related class notional amount from time to time.
Each strip rate (as well as the pass-through rates for the [Class A-3, Class
A-4, Class B-1 and Class B-2 certificates]) will, in turn, be calculated based
on the weighted average mortgage pass-through rate from time to time.
Accordingly, the yields on the [Class S, Class A-3, Class A-4, Class B-1 and
Class B- 2 certificates] will be sensitive in varying degrees 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 principal balance certificates. See "Description of the Offered
Certificates--Distributions--Calculation of Pass-Through Rates" and "Description
of the Mortgage Pool" in this prospectus supplement and "--Rate and Timing of
Principal Payments" below.
Rate and Timing of Principal Payments. The yield to maturity on the
[Class S certificates] will be extremely sensitive to the rate and timing of
principal payments made in reduction of the certificate principal balances or
certified notional amounts of the certificates. The yield to maturity on other
offered certificates purchased at a discount or premium will be affected by, the
same factors. In turn, 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 offered certificates
will be directly related to the rate and timing of principal payments on or in
respect of the mortgage loans. Finally, the
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rate and timing of principal payments on or in respect of the mortgage loans
will 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 or
other removals of mortgage loans from the trust assets).
Prepayments and liquidations of the mortgage loans assuming their
respective maturity dates have not occurred will result in distributions on the
principal balance certificates of amounts that would otherwise be distributed
over the remaining terms of the mortgage loans. This 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
principal balance certificates) while work-outs are negotiated or foreclosures
are completed. These delays will tend to lengthen the weighted average lives of
those certificates. See "Servicing of The Mortgage Loans--Modifications,
Waivers, Amendment and Consent" in this prospectus supplement. In addition, the
ability of a borrower under a mortgage loan with an anticipated repayment date,
to repay its mortgage loan on the related anticipated repayment date will
generally depend on its ability to either refinance the mortgage loan or sell
the related mortgaged property. Also, a borrower may have little incentive to
repay its mortgage loan on the related anticipated repayment date if then
prevailing interest rates are relatively high. Accordingly, there can be no
assurance that any mortgage loan with an anticipated repayment date will be paid
in full on its anticipated repayment date.
The extent to which the yield to maturity on any certificate may vary
from the anticipated yield will depend upon the degree to which the certificate
is 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 certificate principal balance or certificate notional amount of
the certificate. If you purchase your offered certificates at a discount, you
should consider the risk that a slower than anticipated rate of principal
payments on the mortgage loans could result in an actual yield to you that is
lower than your anticipated yield. If you purchase [Class S certificates] or if
you purchase any other offered certificates at a premium, you should consider
the risk that a faster than anticipated rate of principal payments on the
mortgage loans could result in an actual yield to you that is lower than your
anticipated yield.
In general, assuming you purchased your certificates at a discount or a
premium, the earlier a payment of principal on or in respect of the mortgage
loans is distributed or otherwise results in reduction of the certificate
principal balance or certificate notional amount of your certificates, the
greater will be the effect on your yield to maturity. As a result, the effect on
your yield of principal payments occurring at a rate higher (or lower) than you
anticipated during any particular period may not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
If you are contemplating an investment in the [Class S certificates],
you should fully consider the risk that an extremely rapid rate of principal
payments on the mortgage loans could result in your failure to recoup fully your
initial investment.
Because the rate of principal payments on or in respect of 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 the rate or the rate of principal
prepayments in particular. We are not aware of any relevant publicly available
or authoritative statistics with respect to the historical prepayment experience
of a comparable large group of mortgage loans.
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Even if they are available and distributable on your certificates,
prepayment premiums and yield maintenance charges may not be sufficient to
offset fully any loss in yield on your certificates attributable to the related
prepayments of the mortgage loans.
Delinquencies and Defaults on the Mortgage Loans. The rate and timing
of delinquencies and defaults on the mortgage loans will affect the amount of
distributions on your certificates, the yield to maturity of your certificates,
the rate of principal payments on your certificates and the weighted average
life of your certificates. Delinquencies on the mortgage loans, unless covered
by advances of principal and/or interest, may result in shortfalls in
distributions of interest and/or principal on your certificates for the current
month. Although any of the shortfalls may be made up on future distribution
dates, no interest would accrue on those shortfalls. Thus, any of the shortfalls
would adversely affect the yield to maturity of your certificates.
If you calculate the anticipated yield to maturity for your
certificates based on an assumed rate of default and amount of losses on the
mortgage loans that is lower than the default rate and amount of losses actually
experienced and the additional losses result in a reduction of the total
distributions on or the total certificate principal balance or certificate
notional amount of your certificates, your actual yield to maturity will be
lower than you calculated and could, under certain scenarios, be negative. The
timing of any loss on a liquidated mortgage loans that results in a reduction of
the total distributions on or the total certificate principal balance or
certificate notional amount of your certificates will also affect your actual
yield to maturity, even if the rate of defaults and severity of losses are
consistent with your expectations. In general, the earlier your loss occurs, the
greater the effect on your yield to maturity.
Even if losses on the mortgage loans do not result in a reduction of
the total distributions on or the total certificate principal balance or
certificate notional amount of your certificates, the losses may still affect
the timing of distributions on (and, accordingly, the weighted average life and
yield to maturity of) your certificates.
Certain Relevant Factors. The following factors, among others, will
affect the rate and timing of principal payments and defaults and the severity
of losses on or in respect of the mortgage loans:
o prevailing interest rates;
o the terms of the mortgage loans (for example, provisions
requiring the payment of prepayment premiums and yield
maintenance charges, provisions requiring lock-out periods and
amortization terms that require balloon payments);
o the demographics and relative economic vitality of the
areas in which the mortgaged properties are located;
o the general supply and demand for commercial and multifamily
rental space of the type available at the mortgaged properties
in the areas in which the mortgaged properties are located;
o the quality of management of the mortgaged properties;
o the servicing of the mortgage loans;
o possible changes in tax laws; and
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o other opportunities for investment.
See "Risk Factors--Risks Related to the Mortgage Loans", "Description
of the Mortgage Pool" and "Servicing of the Mortgage Loans" in this prospectus
supplement and "Description of the Pooling and Servicing Agreements" and "Yield
and Maturity Considerations--Yield and Prepayment Considerations" in the
prospectus.
The rate of prepayment on the 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 the
mortgage rate (or, in the case of a mortgage loan with an anticipated repayment
date after its anticipated repayment date, the revised rate) at which a mortgage
loan accrues interest, a borrower may have an increased incentive to refinance
its mortgage loans. Conversely, to the extent prevailing market interest rates
exceed the applicable mortgage rate (or, in the case of a mortgage loan with an
anticipated repayment date after its anticipated repayment date, the revised
rate) for any mortgage loans, the mortgage loans may be less likely to prepay
(other than, in the case of a mortgage loan with an anticipated repayment date,
out of certain net cash flow from the related mortgaged property). Assuming
prevailing market interest rates exceed the related revised rate, the primary
incentive to prepay a mortgage loan with an anticipated repayment date, on or
before its anticipated repayment date is to give the borrower access to excess
cash flow, all of which (net of the minimum required debt service, approved
property expenses and any required reserves) must be applied to pay down
principal of the mortgage loans. Accordingly, there can be no assurance that any
mortgage loan with an anticipated repayment date will be prepaid on or before
its anticipated repayment date or on any other date prior to maturity.
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 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.
A number of the borrowers are limited or general partnerships. Under
certain circumstances, the bankruptcy of the general partner in a partnership
may result in the dissolution of the partnership. The dissolution of a borrower
partnership, the winding-up of its affairs and the distribution date of its
assets could result in an acceleration of its payment obligations under the
related mortgage loans.
We make no representation or warranty regarding:
o the particular factors that will affect the rate and timing
of prepayments and defaults on the mortgage loans;
o the relative importance of those factors;
o the percentage of the total principal balance of the
mortgage loans that will be prepaid;
o which a default will have occurred as of any date; or
o to the overall rate of prepayment or default on the mortgage
loans.
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CPR Model. Prepayments on mortgage loans are commonly measured relative
to a prepayment standard or model. The prepayment model used in this prospectus
supplement is the "constant prepayment rate" model, which represents an assumed
constant rate of prepayment each month (which is quoted on a per annum basis)
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of the mortgage loans. The CPR model does not purport to be either
an historical description of the prepayment experience of any pool of mortgage
loans or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the mortgage pool. We do not make any representations
about the appropriateness of the CPR model.
Unpaid Distributable Certificate Interest. 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 the class, the shortfall will be
distributable to holders of the class of certificates on subsequent distribution
dates, to the extent of available funds. A shortfall will not bear interest,
however, and will therefore negatively affect the yield to maturity of a class
of certificates for so long as it is outstanding.
Weighted Average Lives of Certain Classes Offered Certificates
The tables set forth on Exhibit C to this prospectus supplement
indicate the respective weighted average lives of the [Class A-1A, Class A-1B,
Class A-2, Class A-3, Class A-4, Class B-1 and Class B-2 certificates], and set
forth the percentages of the respective initial class principal balances of the
classes of offered certificates that would be outstanding after the distribution
dates in each of the calendar months shown subject, however, to the following
discussion and the maturity assumptions specified below.
For purposes in this prospectus supplement, weighted average life
refers to the average amount of time that will elapse from the date of issuance
of a security until each dollar of principal of the security will be repaid to
the investor (assuming no losses). For purposes of this "Yield and Maturity
Considerations" section and Exhibit C to this prospectus supplement, the
weighted average life of a principal balance certificate (such as a [Class A-1A,
Class A-1B, Class A-2, Class A-3, Class A-4, Class B-1 and Class B-2
certificates]) is determined by:
(i) multiplying the amount of each principal distribution on the
principal balance certificates by the number of years from the
assumed settlement date (as defined under "--The Maturity
Assumptions" below) to the related distribution date,
(ii) summing the results, and
(iii) dividing the sum by the total amount of the reductions in the
certificate principal balance of the principal balance
certificate. The weighted average life of any principal
balance 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 with respect to
the mortgage loans as described in this prospectus
supplement. The weighted average life of any principal
balance certificate may also be affected to the extent that
additional distributions in reduction of the certificate
principal balance of the certificate occur as a result of the
purchase of a mortgage loan from the trust or the optional
termination of the trust as described under "Description of
the offered certificates--Termination" in this prospectus
supplement. A purchase from the trust will have the same
effect on distributions to the certificateholders
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as if the related mortgage loan(s) had prepaid in full, except
that no prepayment premiums or yield maintenance charges are
collectible in respect thereof.
The actual characteristics and performance of the mortgage loans will
differ from the maturity assumptions used in calculating the tables in Exhibit C
to this prospectus supplement, which are hypothetical in nature and are provided
only to give a general sense of how the principal cash flows might behave under
the assumed prepayment and loss scenarios. Any difference between these
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 principal balance certificates. You must make
your own decisions as to the appropriate prepayment, liquidation and loss
assumptions to be used in deciding whether to purchase any offered certificate.
The Maturity Assumptions
[The tables set forth on Exhibits C and D to this prospectus supplement
have been prepared on the basis of the following maturity assumptions regarding
the characteristics of the certificates and the mortgage loans and the
performance of the mortgage loans:
o as of the date of issuance of the certificates, the mortgage
loans have the terms identified in the table titled
"Characteristics of the Mortgage Loans" in Exhibit A-1 to this
prospectus supplement;
o each mortgage loan with an anticipated repayment date is paid
in full on its anticipated repayment date, no mortgage loan is
prepaid during its lock-out period, during any prepayment
consideration period during which a yield maintenance charge
is required or during any period that defeasance thereof may
be required and, otherwise, each mortgage loan is assumed to
prepay at the specified CPR;
o no mortgage loan is repurchased or replaced as a result of a
material breach of a representation or warranty, and none of
the Master Servicer, the Special Servicer or any single holder
or group of holders of certificates evidencing a majority
interest in the controlling class exercises its option to
purchase the mortgage loan and thereby cause a termination of
the trust;
o there are no delinquencies or realized losses on the mortgage
loans, and there is no extension of the maturity date of any
mortgage loan;
o payments on the certificates will be made on the ______ day
of each month, commencing in ________;
o payments on the mortgage loans earn no reinvestment return;
o there are no additional ongoing trust expenses payable out of
the trust assets other than the master servicing fee (out of
which the primary servicing fees will be paid) and the
Trustee's fee (which, together with the master servicing fee,
will accrue at a combined rate of ____% per annum), and there
are no additional expenses of the trust assets;
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o the respective classes of REMIC regular certificates will, in
each case, be issued with the initial class principal balance
or class notional amount described in this prospectus
supplement;
o the pass-through rates for the respective classes of REMIC
regular certificates will be as described in this prospectus
supplement; and
o the certificates will be settled with investors on ________.
Yield Sensitivity of the [Class S certificates]
The yield to investors on the [Class S certificates] will be highly
sensitive to the rate and timing of principal payments (including prepayments)
on the mortgage loans. If you are contemplating an investment in the [Class S
certificates], you should fully consider the associated risks, including the
risk that an extremely rapid rate of prepayment and/or liquidation of the
mortgage loans could result in the failure to recoup fully your initial
investment.
[The tables set forth on Exhibit D to this prospectus supplement show
pre-tax corporate bond equivalent yields for the [Class S certificates] based on
the maturity assumptions and assuming the specified purchase prices and the
indicated prepayment scenarios. Assumed purchase prices are expressed in 32nds
(e.g., _________ means ______ %) as a percentage of the initial class notional
amount of the [Class S certificates] and are exclusive of accrued interest.]
[The yields set forth in the tables on Exhibit D to this prospectus
supplement were calculated by--
o determining the monthly discount rates that, when applied to
the assumed stream of cash flows to be paid on the [Class S
certificates], would cause the discounted present value of
each assumed stream of cash flows to equal (i) the assumed
total purchase prices of the class of certificates, plus (ii)
accrued interest at the initial pass-through rate for the
class of certificates from and including the cut-off date to
but excluding the assumed settlement date, and
o converting the monthly rates to corporate bond equivalent
rates.]
Such calculations do not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by them
as distributions on the [Class S certificates] and consequently do not purport
to reflect the return on any investment on the class of certificates when the
reinvestment rates are considered.
There can be no assurance that--
o the mortgage loans will prepay in accordance with the
assumptions used in preparing the tables on Exhibit D to
this prospectus supplement,
o the mortgage loans will prepay as assumed at any of the
rates shown in the tables,
o the mortgage loans will not experience losses,
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o mortgage loans will not be liquidated during any applicable
lock-out period or during any other period that prepayments
are assumed not to occur,
o the mortgage loans with anticipated repayment dates will be
paid in full on their respective anticipated repayment dates,
o the cash flows on the [Class S certificates] will correspond
to the cash flows shown in this prospectus supplement, or
o the total purchase price of the [Class S certificates] will
be as assumed.
It is unlikely that the mortgage loans will prepay as assumed at any of the
specified percentages of CPR until maturity or that all of the mortgage loans
will so prepay at the same rate. Actual yields to maturity for investors in the
[Class S certificates] may be materially different than those indicated on
[Exhibit D] to this prospectus supplement and, under certain circumstances,
could be negative. Timing of changes in rate of prepayments and other
liquidations may significantly affect the actual yield to maturity to investors,
even if the average rate of principal prepayments and other liquidations is
consistent with the expectations of investors. You must make your own decisions
as to the appropriate prepayment, liquidation and loss assumptions to be used in
deciding whether to purchase any offered certificates.
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the offered
certificates will be used by us to purchase the mortgage loans and to pay
certain expenses in connection with the issuance of the certificates.
FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the certificates, Sidley & Austin, counsel to us,
will deliver its opinion generally to the effect that, assuming compliance with
the Pooling and Servicing Agreement (and subject to certain other assumptions
set forth in the opinion), REMIC I, REMIC II and REMIC III, respectively, will
each qualify as a REMIC under the U.S. tax code. The assets of REMIC I will
include the mortgage loans, any REO properties acquired on behalf of the
certificateholders, the certificate account and the interest reserve account,
but will exclude any collections of additional interest on the mortgage loans
with anticipated repayment dates. For federal income tax purposes,
o 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,
o the [Class R-I certificates] will evidence the sole class of
"residual interests" in REMIC I,
o 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,
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o the [Class R-II certificates] will evidence the sole class of
"residual interests" in REMIC II,
o the REMIC regular certificates will evidence the "regular
interests" in, and will generally be treated as debt
obligations of, REMIC III,
o the [Class R-III certificates] will evidence the sole class
of "residual interests" in REMIC III, and
o the [Class D certificates] will represent beneficial interests
in the portion of the trust assets consisting of any amounts
applied as additional interest on the mortgage loans with
anticipated repayment dates, and this portion will be divided
into [two] parts, each of which will be treated as a grantor
trust for federal income tax purposes.
Discount and Premium; Prepayment Consideration
For federal income tax reporting purposes, it is anticipated that the
[Class S and Class ___ certificates] will be treated as having been issued with
original issue discount but the other classes of offered certificates will not
be treated that way. When determining the rate of accrual of market discount and
premium, if any, for federal income tax purposes the prepayment assumption used
will be that subsequent to the date of any determination the mortgage loans with
anticipated repayment dates will be paid in full on their respective anticipated
repayment dates, no mortgage loan will otherwise be prepaid prior to maturity
and there will be no extension of maturity for any mortgage loan. However, no
representation is made as to the actual rate at which the mortgage loans will
prepay, if at all. See "Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular certificates" in the prospectus.
The IRS has issued regulations under Sections 1271 to 1275 of the U.S.
tax code generally addressing the treatment of debt instruments issued with
original issue discount. You should be aware, however, that the OID regulations
and Section 1272(a)(6) of the U.S. tax code do not adequately address certain
issues relevant to, or are not applicable to, prepayable securities such as the
offered certificates. It is recommended that you consult with your own tax
advisor concerning the tax treatment of your certificates.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to any
holder of certificates, a possibility of particular relevance to a holder of
[Class S certificates], the amount of original issue discount allocable to that
period would be zero. The holder would be permitted to offset the negative
amount only against future original issue discount (if any) attributable to the
certificates. Although the matter is not free from doubt, a holder of a [Class S
certificate] may be permitted to deduct a loss to the extent that his or her
respective remaining basis in the certificate exceeds the maximum amount of
future payments to which the holder is entitled, assuming no further prepayments
of the mortgage loans. Any loss might be treated as a capital loss.
The OID regulations provide in general that original issue discount
with respect to debt instruments issued in connection with the same or related
transactions are treated as a single debt instrument for purposes of computing
the accrual of original issue discount with respect to the debt instruments.
This aggregation rule ordinarily is only to be applied when single debt
instruments are issued by a single issuer to a single holder. Although it is not
clear that this aggregation rule technically
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applies to REMIC regular interests or other instruments subject to Section
1272(a)(6) of the as tax code, information reports or returns sent to
certificateholders and the IRS with respect to the [Class S certificates] (which
certificates evidence the ownership of multiple regular interests) will be based
on the aggregate method of computing the yield on the related regular interests.
If you are contemplating the purchase of [Class S certificates], it is
recommended that you consult your own tax advisor about the use of this
methodology and the potential consequences of being required to report original
issue discount separately with respect to each of the regular interests
evidenced by the [Class S 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
this class of certificates will be treated as holding a certificate with
amortizable bond premium will depend on the certificateholder's purchase price
and the distributions remaining to be made on the Certificate at the time of its
acquisition by the certificateholder. If you acquire an interest in any class of
certificates, you should consider consulting your own tax advisor regarding the
possibility of making an election to amortize the premium. See "Federal Income
Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Premium" in the prospectus.
Prepayment premiums and yield maintenance charges actually collected on
the mortgage loans will be distributed on the offered certificates as and to the
extent described in this prospectus supplement. It is not entirely clear under
the U.S. tax code when the amount of a prepayment premium or yield maintenance
charge should be taxed to the holder of a class of certificates entitled the
premium or charge. For federal income tax reporting purposes, prepayment
premiums or yield maintenance charges will be treated as income to the holders
of a class of certificates entitled thereto only after the Master Servicer's
actual receipt thereof. The IRS may nevertheless seek to require that an assumed
amount of prepayment premiums and yield maintenance charges be included in
distributions projected to be made on the certificates and that taxable income
be reported based on the projected constant yield to maturity of the
certificates, including the projected prepayment premiums and yield maintenance
charges prior to their actual receipt. If the projected prepayment premiums and
yield maintenance charges were not actually received, presumably the holder of a
certificate would be allowed to claim a deduction or reduction in gross income
at the time the unpaid prepayment premiums and yield maintenance charges had
been projected to be received. Moreover, it appears that prepayment premiums and
yield maintenance charges are to be treated as ordinary income rather than
capital gain. The correct characterization of the income is not entirely clear,
however, and you should consider consulting your own tax advisors concerning the
treatment of prepayment premiums and yield maintenance charges.
Constructive Sales of [Class S Certificates]
The Taxpayer Relief Act of 1997 added a provision to the U.S. tax code
that requires the recognition of gain upon the "constructive sale of an
appreciated financial position". A constructive sale of a financial position
occurs if a taxpayer enters into certain transactions or series of transactions
that have the effect of substantially eliminating the taxpayer's risk of loss
and opportunity for gain with respect to the financial instrument. Debt
instruments that (i) entitle the holder to a specified principal amount, (ii)
pay interest at a fixed or variable rate and (iii) are not convertible into the
stock of the issuer or a related party, cannot be the subject of a constructive
sale for this purpose. Accordingly, only [Class S certificates], which do not
have certificate principal balances, could be subject to this provision and only
if a holder of a [Class _____ certificate] engages in a constructive sale
transaction.
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Characterization of Investments in Offered Certificates
Generally, except to the extent noted below, the offered certificates
will be "real estate assets" within the meaning of Section 856(c)(5)(B) of the
U.S. tax code in the same proportion that the assets of the trust 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 U.S. tax code to the extent that the certificates are treated as "real
estate assets" within the meaning of Section 856(c)(5)(B) of the U.S. tax code.
Most of the mortgage loans are not secured by real estate used for
residential or certain other purposes prescribed in Section 7701(a)(19)(C) of
the U.S. tax code, and consequently the offered certificates will be treated as
assets qualifying under that section to only a limited extent. Accordingly,
investment in the offered certificates may not be suitable for thrift
institutions seeking to be treated as a "domestic building and loan association"
under Section 7701(a)(19)(C) of the U.S. tax code.
The offered certificates will be treated as "qualified mortgages" for
another REMIC under Section 860G(a)(3)(C) of the U.S. tax code and "permitted
assets" for a "financial asset securitization investment trust" under Section
860L(c) of the U.S. tax code. To the extent that an offered certificate
represents ownership of an interest in any mortgage loan that is secured in part
by the related borrower's interest in an account containing any holdback of loan
proceeds, a portion of the certificate may not represent ownership of assets
described in Section 7701(a)(19)(C) of the U.S. tax code and "real estate
assets" under Section 856(c)(5)(B) of the U.S. tax code, and the interest on
those assets may not constitute "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the U.S. tax code.
See "Description of the Mortgage Pool" in this prospectus supplement and
"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 accordance with the
servicing standard. After the Special Servicer reviews the operation of the REO
property and consults with the REMIC Administrator to determine the trust's
federal income tax reporting position with respect to income it is anticipated
that the trust would derive from the REO property, the Special Servicer could
determine that it would not be commercially reasonable to manage and operate the
REO property in a manner that would avoid the imposition of a tax on "net income
from foreclosure property" (generally, income not derived from renting or
selling real property) within the meaning of the REMIC provisions or a tax on
"prohibited transactions" under Section 860F of the U.S. tax code. To the extent
that income the trust receives from an REO property is subject to a tax on "net
income from foreclosure property", the income would be subject to federal tax at
the highest marginal corporate tax rate (currently 35%), and to the extent that
income the trust receives from an REO property is subject to a tax on
"prohibited transactions", the 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 a 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
the 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 this 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 "prohibited transactions". These considerations will be
of particular relevance
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with respect to any hospitality property that becomes an REO property. However,
unless otherwise required by expressly applicable authority, it is anticipated
that the trust will take the position that no income from foreclosure property
will be subject to the 100% "prohibited transactions" tax. Any tax imposed on
the trust's income from an REO property would reduce the amount available for
distribution to certificateholders. The Special Servicer and the REMIC
Administrator will each be entitled, at the expense of the trust, to consult
with attorneys and tax accountants in respect of the above.
To the extent permitted by then applicable laws, any prohibited
transactions tax (as defined in the prospectus), contributions tax (also as
defined in the prospectus) or tax on "net income from foreclosure property" that
may be imposed on any of 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, if (but only if)--
o the person has sufficient assets to do so, and
o the tax arises out of a breach of the person's obligations
under certain specified sections of the Pooling and Servicing
Agreement.
Any tax not borne by the REMIC Administrator, the Trustee, the Master Servicer
or the Special Servicer will be charged against the trust resulting in a
reduction in amounts available for distribution to the certificateholders. See
"Federal Income Tax Consequences--REMICs--Prohibited Transactions Tax and Other
Taxes" in the prospectus.
For further information regarding the federal income tax consequences
of investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
CERTAIN 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 the plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to Title I of the Employee Retirement Income Security
Act of 1974, or Section 4975 of the U.S. tax code should carefully review with
its legal advisors whether the purchase or holding of offered certificates could
constitute or give rise to a transaction that is prohibited or is not otherwise
permitted either under ERISA or Section 4975 of the U.S. tax code or whether
there exists any statutory or administrative exemption applicable thereto.
Certain fiduciary and prohibited transaction issues arise only if the assets of
the trust constitute "plan assets" for purposes of Part 4 of Title I of ERISA
and Section 4975 of the U.S. tax code. Whether the assets of the trust will
constitute plan assets at any time will depend on a number of factors, including
the portion of any class of certificates that is held by "benefit plan
investors" (as defined in U.S. Department of Labor Regulation Section
2510.3-101).
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The U.S. Department of Labor has issued an individual prohibited
transaction exemption to ____________ (PTE __________). Subject to the
satisfaction of certain conditions set forth therein, PTE ________ generally
exempts from the application of the prohibited transaction provisions of
Sections 406(a) and (b) and 407(a) of ERISA, and the excise taxes imposed on
these prohibited transactions pursuant to Sections 4975(a) and (b) of the U.S.
tax code, certain transactions relating to, among other things, the servicing
and operation of mortgage pools, such as the mortgage pool, and the purchase,
sale and holding of mortgage pass-through certificates, such as the senior
certificates, that are underwritten by one of the following parties--
(a) ____________,
(b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common
control with ____________, and
(c) any member of the underwriting syndicate or selling group of
which a person described in (a) or (b) is a manager or
co-manager with respect to the senior certificates.
The exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and holding of a
senior certificate to be eligible for exemptive relief thereunder. The
conditions are as follows:
o first, the acquisition of the senior certificate 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;
o second, the rights and interests evidenced by the senior
certificate must not be subordinated to the rights and
interests evidenced by the other certificates;
o third, at the time of its acquisition by the plan, the senior
certificate must be rated in one of the three highest generic
rating categories by _________ ;
o fourth, the Trustee cannot be an affiliate of any other member
of the "restricted group", which (in addition to the Trustee)
consists of the exemption-favored parties, us, the Master
Servicer, the Special Servicer, any sub-servicers, the
mortgage loan sellers, each borrower, if any, with respect to
mortgage loans constituting more than ____% of the aggregate
unamortized principal balance of the mortgage pool as of the
date of initial issuance of the certificates and any and all
affiliates of any of the aforementioned persons;
o fifth, the sum of all payments made to and retained by the
exemption-favored parties must represent not more than
reasonable compensation for underwriting the senior
certificates; the sum of all payments made to and retained by
us pursuant to the assignment of the mortgage loans to the
trust must represent not more than the fair market value of
the 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 the person's services under the Pooling and
Servicing Agreement and reimbursement of the person's
reasonable expenses in connection therewith; and
o sixth, the investing plan must be an accredited investor as
defined in Rule 501(a)(1) of Regulation D under the Securities
Act.
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Because the senior certificates are not subordinated to any other class
of certificates, the second general condition set forth above is satisfied with
respect to the senior certificates. It is a condition of their issuance that the
senior certificates be rated not lower than _____________ by ___________. In
addition, the initial Trustee is not an affiliate of any other member of the
restricted group. Accordingly, as of the closing date, the third and fourth
general conditions 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 the purchase, the certificate continues to satisfy the third and fourth
general conditions set forth above. A fiduciary of a plan contemplating
purchasing a senior certificate, whether in the initial issuance of the
certificate or in the secondary market, must make its own determination that the
first and fifth general conditions set forth above will be satisfied with
respect to the certificate as of the date of the purchase. A plan's authorizing
fiduciary will be deemed to make a representation regarding satisfaction of the
sixth general condition set forth above in connection with the purchase of a
senior certificate.
The exemption also requires that the trust meet the following
requirements:
o the trust assets must consist solely of assets of the type
that have been included in other investment pools;
o certificates evidencing interests in the other investment
pools must have been rated in one of the three highest generic
categories of __________ for at least one year prior to the
plan's acquisition of a senior certificate; and
o certificates evidencing interests in the other investment
pools must have been purchased by investors other than plans
for at least one year prior to any plan's acquisition of a
senior certificate.
We have confirmed to its satisfaction that these requirements have been
satisfied as of the date in this prospectus supplement.
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 U.S. tax code by reason of Sections 4975(c)(1)(A) through (D) of the U.S.
tax code) in connection with--
o the direct or indirect sale, exchange or transfer of senior
certificates acquired by a plan upon initial issuance from us
or an exemption-favored party when we are or a mortgage loan
seller, the Trustee, the Master Servicer, the Special Servicer
or any sub-servicer, provider of credit support,
exemption-favored party or mortgagor is a party in interest
(as defined in the prospectus) with respect to the investing
plan,
o the direct or indirect acquisition or disposition in the
secondary market of senior certificates by a plan, and
o the continued holding of senior certificates by a plan,
account or arrangement.
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
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respect to the assets of the excluded plan. For purposes of this prospectus
supplement, 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 Section
4975(c)(1)(E) of the U.S. tax code in connection with--
(1) the direct or indirect sale, exchange or transfer of senior
certificates in the initial issuance of senior certificates
between us 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 the
certificates is (a) a borrower with respect to _______% or
less of the fair market value of the mortgage loans or (b) an
affiliate of this person,
(2) the direct or indirect acquisition or disposition in the
secondary market of senior certificates by a plan, and
(3) the holding of senior certificates by a plan.
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
U.S. tax code by reason of Section 4975(c) of the U.S. tax code, for
transactions in connection with the servicing, management and operation of the
trust assets.
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 U.S. tax code by reason of Sections 4975(c)(1)(A) through (D) of
the U.S. tax code if the 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 this 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 that:
o the senior certificates constitute "certificates" for
purposes of the exemption, and
o 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 the purchase.
In addition to determining the availability of the exemptive relief
provided in the exemption, a plan fiduciary considering an investment in senior
certificates should consider the availability of any other prohibited
transaction class exemptions. See "ERISA Considerations" in the prospectus.
There can be no assurance that any class exemptions will apply with respect to
any particular plan investment in senior certificates or, even if it were deemed
to apply, that any exemption would apply to all prohibited transactions that may
occur in connection with the investment. A purchaser of senior 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.
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The characteristics of the [Class A-2, Class A-3, Class A-4, Class B-1
and Class B-2 certificates] do not meet the requirements of the exemption.
Accordingly, the certificates of those classes may not be acquired by or on
behalf of a plan or with plan assets, except in the case of an insurance company
using funds in its general account, which may be able to rely on Section III of
PTCE 95-60 (discussed below).
Section III of Prohibited Transaction Class Exemption 95-60 exempts
from the application of the prohibited transaction provisions of Sections
406(a), 406(b) and 407(a) of ERISA and Section 4975 of the U.S. tax code
transactions in connection with the servicing, management and operation of a
trust in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company general
accounts would be allowed to purchase certain classes of certificates (such as
the [Class A-2, Class A-3, Class A-4, Class B-1 and Class B-2 certificates])
that do not meet the requirements of the Exemptions solely because they (a) are
subordinated to other classes of certificates in the trust or (b) have not
received a rating at the time of the purchase in one of the three highest rating
categories from [ ]. All other conditions of the exemptions would have to be
satisfied in order for PTCE 95-60 to be available. Before purchasing [Class A-2,
Class A-3, Class A-4, Class B-1 and Class B-2 certificates], an insurance
company general account seeking to rely on Section III of PTCE 95-60 should
itself confirm that all applicable conditions and other requirements have been
satisfied.
A governmental plan as defined in Section 3(32) of ERISA is not subject
to Title I of ERISA or Section 4975 of the U.S. tax code. However, a
governmental plan may be subject to a federal, state or local law which is, to a
material extent, similar to the foregoing provisions of ERISA or the U.S. tax
code. A fiduciary of a governmental plan should make its own determination as to
the need for and the availability of any exemptive relief under similar law.
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 U.S. tax code to the investment.
The sale of offered certificates to a plan is in no respect a
representation or warranty by us or either underwriter that this investment
meets all relevant legal requirements with respect to investments by plans
generally or by any particular plan, or that this investment is appropriate for
plans generally or for any particular plan.
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 offered certificates, is
subject to significant interpretive uncertainties.
We do not nor does either underwriter make any 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.
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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 the investors.
See "Legal Investment" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions of an underwriting agreement dated
___________, between us and the underwriters, each underwriter has agreed to
purchase from us and we have agreed to sell to the underwriter each class of the
offered certificates. It is expected that delivery of the offered certificates
will be made to the underwriters in book-entry form through the same day funds
settlement system of The Depository Trust Company on or about ___________],
against payment therefor in immediately available funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
underwriter [Class S Class A-1A Class A-1B Class A-2 Class A-3 Class A-4 Class B-1 Class B-2]
- ----------- -------- ---------- ---------- --------- --------- --------- --------- ----------
[------------] % % % % % % % %
- ------------] % % % % % [ % % %
100% 100% 100% 100% 100% 100% 100% 100%
Total...................
</TABLE>
The underwriting agreement provides that the obligation of the
underwriters 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 our
registration statement shall be in effect, and that no proceedings for the
purpose of obtaining a stop order shall be pending before or threatened by the
SEC.
The distribution of the offered certificates by the underwriters 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 us from the
sale of the offered certificates, before deducting expenses payable by us, will
be approximately _______% of the total certificate principal balance of the
offered certificates, plus accrued interest on all the offered certificates from
the cut-off date. The underwriters may effect the transactions by selling the
offered certificates to or through dealers, and the dealers may receive
S-155
<PAGE>
compensation in the form of underwriting discounts, concessions or commissions
from the underwriters. The underwriters may be deemed to have received
compensation from us, in connection with the sale of the offered certificates,
in the form of underwriting compensation. The underwriters and any dealers that
participate with the underwriters 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 we will indemnify each
underwriter, and that under limited circumstances each underwriter will
indemnify us, against certain civil liabilities under the Securities Act or
contribute to payments required to be made in respect thereof.
We have also been advised by the underwriters that they presently
intend to make a market in the offered certificates; however, the underwriters
have 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--Risks Related to the
certificates--Risks Associated With Liquidity and Market Value" in this
prospectus supplement and "Risk Factors--Limited Liquidity of offered
certificates" in the prospectus.
The underwriters also may impose a penalty bid. This occurs when a
particular broker-dealer repays to an underwriter a portion of the underwriting
discount received by it because the representatives have repurchased offered
certificates sold by or for the account of the underwriter in stabilizing or
short covering transactions.
These activities by either underwriter may stabilize, maintain or
otherwise affect the market price of the offered certificates. As a result, the
price of the offered certificates may be higher than the price that otherwise
might exist in the open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. These transactions may be effected
in the over-the-counter market or otherwise.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon
for us by Sidley & Austin, New York, New York and for the underwriters by
____________________.
S-156
<PAGE>
RATINGS
It is a condition to the issuance of the certificates that the
respective classes of offered certificates receive the following credit ratings
from Moody's and Fitch:
Class
Class S
Class A-1A
Class A-1B
Class A-2
Class A-3
Class A-4
Class B-1
Class B-2
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 on each distribution date and, except in the case of the Class S
certificates, the ultimate receipt by the holders thereof of all payments of
principal to which they are entitled on or before 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 interest and/or principal required under the offered
certificates.
The ratings on the respective classes of offered certificates do not
represent any assessment of--
o The tax attributes of the offered certificates or of the
trust.
o Whether or to what extent prepayments of principal may be
received on the mortgage loans.
o The likelihood or frequency of prepayments of principal on
the mortgage loans.
o The degree to which the amount or frequency of the prepayments
might differ from those originally anticipated.
o Whether or to what extent the interest distributable on any
class of certificates may be reduced in connection with net
aggregate prepayment interest shortfalls.
o Whether and to what extent prepayment premiums, yield
maintenance charges, default interest and/or additional
interest 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.
S-157
<PAGE>
In general, the ratings address credit risk and not prepayment risk. As
described in this prospectus supplement, the amounts payable with respect to the
[Class S certificates] consist only of interest (and, to the extent described in
this prospectus supplement, may consist of a portion of the yield maintenance
charges and prepayment premiums actually collected on the mortgage loans). Even
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 distributable
certificate interest and accordingly suffer a nearly complete loss of their
investment, all amounts "due" to the certificateholders will nevertheless have
been paid. This result would be consistent with the respective ratings received
on the [Class S certificates]. The class notional amount of the [Class S
certificates] is subject to reduction in connection with each reduction in the
class principal balance of a class of principal balance certificates, whether as
a result of payments of principal or in connection with realized losses and
additional trust assets expenses. The ratings of the [Class S certificates] do
not address the timing or magnitude of reduction of the class notional amount of
certificates, but only the obligation to pay interest timely on the class
notional amount as so reduced from time to time.
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 of
offered certificates and, if so, what the rating would be. A rating assigned to
any class of offered certificates by a rating agency that has not been requested
by us 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. See "Risk Factors--Limited Nature of Ratings" in the
prospectus.
S-158
<PAGE>
EXHIBIT A-1
CERTAIN CHARACTERISTICS OF THE
MORTGAGE LOANS AND MORTGAGED PROPERTIES
See this Exhibit for tables titled:
Managers and Locations of the Mortgaged Properties
Descriptions of the Mortgaged Properties
Characteristics of the Mortgage Loans
Engineering Reserves and Recurring Replacement Reserves
Major Tenants of the Commercial Mortgaged Properties
Additional Mortgage Loans Information
Multifamily Schedule
A-1-1
<PAGE>
EXHIBIT A-2
MORTGAGE POOL INFORMATION
See this Exhibit for tables titled:
Mortgage Rates
Mortgage Loans by Amortization Type
Cut-off Date Balances
Loan Group Cut-off Date Balances
Original Amortization Terms
Original Terms to Stated Maturity
Remaining Amortization Terms
Remaining Terms to Stated Maturity
Year Built/Year Renovated
Occupancy Rates at Underwriting
Underwriting Debt Service Coverage Ratios
Cut-off Date Loan-to-Value Ratios
Mortgage Loans by State
Mortgage Loans Seller
Mortgage Loans by Property Type
Mortgage Loans by Property Sub-Type
Prepayment Provision as of the Cut-off Date
Prepayment Option
Mortgage Pool Prepayment Profile
A-2-1
<PAGE>
EXHIBIT B
FORM OF TRUSTEE REPORT
B-1
<PAGE>
EXHIBIT C
DECREMENT TABLES FOR [CLASS A, CLASS B-1 AND CLASS B-2 CERTIFICATES]
Percentage of Initial Class principal balance Outstanding For:
<TABLE>
<CAPTION>
[Class A-1A certificates]
distribution date 0.00% CPR 25.00% CPR 50.00% CPR 75.00% CPR 100.00%
--------- ---------- ---------- ---------- -------
CPR
<S> <C> <C> <C> <C> <C>
closing date.............................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
Wtd. Avg. Life (yrs):....................
</TABLE>
<TABLE>
<CAPTION>
[Class A-1B certificates
distribution date 0.00% CPR 25.00% CPR 50.00% CPR 75.00% CPR 100.00%
--------- ---------- ---------- ---------- -------
CPR
<S> <C> <C> <C> <C> <C>
closing date.............................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
.........................................
Wtd. Avg. Life (yrs):..................
</TABLE>
C-1
<PAGE>
EXHIBIT D
PRICE/YIELD TABLES FOR THE [CLASS S CERTIFICATES]
Corporate Bond Equivalent (CBE) Yield of the
[Class S certificates] at Various CPRs
[ % ]] Initial Pass-Through Rate
Initial Class notional amount [ $ ]
<TABLE>
<CAPTION>
Price (32nds)* 0.00% CPR 25.00% CPR 50.00% CPR 75.00% CPR 100.00% CPR
-------------- --------- ---------- ---------- ---------- -----------
CBE Yield % CBE Yield % CBE Yield % CBE Yield % CBE Yield %
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5-12
5-16
5-20
5-24
5-28
6-00
6-04
6-08
6-12
</TABLE>
- --------------------
* Exclusive of accrued interest.
D-1
<PAGE>
EXHIBIT E
SUMMARY TERM SHEET
E-1
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED _________________
Prospectus
DLJ COMMERCIAL MORTGAGE CORP., Depositor
Mortgage Pass-Through Certificates (issuable in series)
Our name is DLJ Commercial Mortgage Corp., and we intend to offer
commercial mortgage pass-through certificates from time to time. These offers
may be made through one or more different methods, including offerings through
underwriters. See "Method of Distribution."
The Offered Certificates:
The offered certificates will be issuable in series. Each series of offered
certificates will--
o have its own series designation,
o consist of one or more classes with various payment characteristics,
o evidence beneficial ownership interests in a trust established by
us, and
o be payable solely out of trust assets.
No governmental agency or instrumentality will insure or guarantee payment
on the offered certificates. Neither we nor any of our affiliates are
responsible for making payments on the offered certificates if collections
on the related trust assets are insufficient. We do not currently intend to
list the offered certificates of any series on any national securities
exchange or the NASDAQ stock market.
The Trust Assets:
The assets of each trust will include--
o mortgage loans secured by first and junior liens on, or security
interests in, various interests in commercial and multifamily real
properties,
o mortgage-backed securities that directly or indirectly evidence
interests in, or are directly or indirectly secured by, such types
of mortgage loans, or
o some combination of such types of mortgage loans and mortgage-backed
securities.
Trust assets 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 similar instruments and agreements.
In connection with each offering, we will prepare a supplement to
this prospectus in order to describe in more detail the particular
certificates being offered and the related trust assets. In that document, we
will also state the price to public for each class of offered certificates or
explain the method for determining such price. In addition, in that document,
we will identify the applicable lead or managing underwriter(s), if any, and
the relevant underwriting arrangements. You may not purchase the offered
certificates of any series unless you have also received the prospectus
supplement for that series. You should carefully consider the risk factors
beginning on page 13 in this prospectus, as well as those set forth in the
related prospectus supplement, prior to investing.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this Prospectus is ____________, 1999.
<PAGE>
TABLE OF CONTENTS
Page
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS.......3
AVAILABLE INFORMATION; INCORPORATION BY REFERENCE.........................4
SUMMARY OF PROSPECTUS.....................................................5
RISK FACTORS.............................................................14
DESCRIPTION OF THE TRUST ASSETS..........................................33
YIELD AND MATURITY CONSIDERATIONS........................................57
DLJ COMMERCIAL MORTGAGE CORP.............................................63
DESCRIPTION OF THE CERTIFICATES..........................................64
DESCRIPTION OF THE GOVERNING DOCUMENTS...................................72
DESCRIPTION OF CREDIT SUPPORT............................................83
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..................................85
FEDERAL INCOME TAX CONSEQUENCES..........................................99
STATE AND OTHER TAX CONSEQUENCES........................................135
ERISA CONSIDERATIONS....................................................135
LEGAL INVESTMENT........................................................139
USE OF PROCEEDS.........................................................142
METHOD OF DISTRIBUTION..................................................142
LEGAL MATTERS...........................................................143
FINANCIAL INFORMATION...................................................143
RATING..................................................................144
-----------------
-2-
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS
When deciding whether to invest in any of the offered certificates,
you should only rely on the information contained in this prospectus and the
related prospectus supplement. We have not authorized any dealer, salesman or
other person to give any information or to make any representation that is
different. In addition, information in this prospectus or any related
prospectus supplement is current only as of the date on its cover. By delivery
of this prospectus and any related prospectus supplement, we are not offering
to sell any securities, and are not soliciting an offer to buy any securities,
in any state where the offer and sale is not permitted.
AVAILABLE INFORMATION; INCORPORATION BY REFERENCE
We have filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the certificates offered
by this prospectus. This prospectus forms a part of the registration
statement. This prospectus and the related prospectus supplement do not
contain all of the information with respect to an offering that is contained
in the registration statement. For further information regarding the documents
referred to in this prospectus and the related prospectus supplement, you
should refer to the registration statement and its exhibits. You can inspect
the registration statement and its exhibits, and make copies of these
documents at prescribed rates, at the public reference facilities maintained
by the SEC 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; and New York Regional Office, Seven World Trade Center, New York, New
York 10048. You can also obtain copies of such materials electronically
through the SEC's Web site (http://www.sec.gov).
In connection with each series of offered certificates, we will file
or arrange to have filed with the SEC with respect to the related trust any
periodic reports that are required under the Securities Exchange Act of 1934,
as amended. All documents and reports that are so filed for any particular
trust prior to the termination of an offering of certificates are incorporated
by reference into, and should be considered a part of, this prospectus. Upon
request, we will provide without charge to each person receiving this
prospectus in connection with an offering, a copy of any or all documents or
reports that are so incorporated by reference. All requests should be directed
to us in writing at 277 Park Avenue, 9th Floor, New York, New York 10172,
attention: N. Dante LaRocca, or by telephone at (212) 892-4964.
-3-
<PAGE>
SUMMARY OF PROSPECTUS
This summary contains selected information from this prospectus. It
does not contain all of the information you need to consider in making your
investment decision. To understand all of the terms of a particular offering
of certificates, you should read carefully this prospectus and the related
prospectus supplement in full.
<TABLE>
<S> <C>
Who We Are........................................... DLJ Commercial Mortgage Corp. is a Delaware
corporation and a wholly-owned subsidiary of Donaldson,
Lufkin & Jenrette, Inc. Our principal offices are located
at 277 Park Avenue, 9th Floor, New York, New York
10172. Our main telephone number is (212) 892-3000.
See "DLJ Commercial Mortgage Corp."
The Securities Being Offered......................... The securities that will be offered pursuant to this
prospectus and the related prospectus supplements consist
of mortgage pass-through certificates. These certificates
will be issued in series, and each series will, in turn, consist
of one or more classes. Each class of offered certificates
must, at the time of issuance, be assigned an investment
grade rating by at least one nationally recognized
statistical rating organization. Typically, the four highest
rating categories, within which there may be sub-
categories or gradations to indicate relative standing,
signify investment grade. See "Rating."
Each series of offered certificates will evidence beneficial ownership
interests in a trust established by us and containing the assets
described in this prospectus and the related prospectus supplement.
The Offered Certificates may be
Issued with Other Certificates.................. We may not publicly offer all the mortgage pass-through
certificates evidencing interests in a particular trust. We
may elect to retain some of those certificates, to place
some privately with institutional investors or to deliver
some to the applicable seller as partial consideration for
the related mortgage assets. In addition, some of those
certificates may not satisfy the rating requirement
described above for offered certificates.
The Governing Documents.............................. In general, a pooling and servicing agreement or other
similar agreement or collection of agreements will
govern--
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
o the creation of and transfer of assets to each trust,
o the issuance of the related series of certificates,
and
o the servicing and administration of the trust assets.
The parties to the governing document(s) will always include us
and a trustee. We will be responsible for establishing the trust
relating to each series of offered certificates. In addition, we
will transfer or arrange for the transfer of the initial trust
assets to that trust. In general, the trustee will be responsible for,
among other things, making payments and preparing and disseminating
certain reports to the holders of the offered and non-offered
certificates.
If the trust assets include mortgage loans, the parties to the governing
document(s) will also include--
o a master servicer that will generally be responsible for
performing customary servicing duties with respect to those
mortgage loans that are not defaulted, nonperforming or
otherwise problematic in any material respect, and
o a special servicer that will generally be responsible for
servicing and administering mortgage loans that are defaulted,
nonperforming or otherwise problematic in any material respect and
real estate assets acquired in respect of defaulted mortgage
loans.
The same person or entity, or affiliated entities, may act as both master
servicer and special servicer for any trust.
If the trust assets include mortgage-backed securities, the parties to the
governing document(s) may also include a manager that will be responsible
for performing various administrative duties with respect to such
mortgage-backed securities. If the related trustee assumes such duties,
however, there will be no manager.
In the related prospectus supplement, we will identify the trustee and any
master servicer, special servicer or manager for each trust and will
describe their respective duties in further detail. See "Description of
the Governing Documents."
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C>
Certain Characteristics of
the Mortgage Assets............................. The trust assets with respect to any series of offered
certificates will, in general, include mortgage loans. Each
mortgage loan to be included in a trust will constitute the
obligation of one or more persons to repay a debt, and the
performance of that obligation will be secured by a first or
junior lien on, or security interest in, the ownership,
leasehold or other interest(s) of the related borrower or
another person in or with respect to one or more
commercial or multifamily real properties. In particular,
the those properties may include:
o rental or cooperatively-owned buildings with
multiple dwelling units;
o retail properties related to the sale of consumer goods and
other products, or related to providing entertainment,
recreational or personal services, to the general public;
o office buildings;
o hospitality properties;
o casino properties;
o health care-related facilities;
o industrial facilities;
o warehouse facilities, mini-warehouse facilities and
self-storage facilities;
o restaurants, taverns and other establishments
involved in the food and beverage industry;
o manufactured housing communities, mobile home
parks and recreational vehicle parks;
o recreational and resort properties;
o arenas and stadiums;
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C>
o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and
o unimproved land that is zoned for multifamily
residential or commercial use.
The mortgage loans to be included by us in a trust will
have a variety of payment terms. For example, a
mortgage loan--
o may provide for the accrual of interest at a mortgage
interest rate that is fixed over its term, that resets
on one or more specified dates or that otherwise
adjusts from time to time;
o may provide for the accrual of interest at a mortgage
interest rate that may be converted at the borrower's election
from an adjustable to a fixed interest rate or from a fixed to an
adjustable interest rate;
o may provide for no accrual of interest;
o may provide for level payments to stated maturity, for
payments that reset in amount on one or more specified dates or
for payments that otherwise adjust from time to time to
accommodate changes in the coupon rate or to reflect the
occurrence of certain events;
o may be fully amortizing or, alternatively, may be
partially amortizing or nonamortizing, with a
substantial payment of principal due on its stated
maturity date;
o may permit the negative amortization or deferral
of accrued interest;
o may prohibit some or all voluntary prepayments or
require payment of a premium, fee or charge in
connection with those prepayments; and/or
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C>
o may provide for payments of principal, interest or both, on due
dates that occur monthly, bi-monthly, quarterly, semi-annually,
annually or at some other interval.
Any mortgage loan may have two or more component parts, each having
characteristics that are otherwise described in this prospectus as being
attributable to separate and distinct mortgage loans.
We do not originate mortgage loans. However, some of the mortgage loans
underlying the offered certificates may be originated by our affiliates.
Neither we nor any of our affiliates will guarantee or insure repayment of
any of the mortgage loans to be included in a trust. Unless we expressly
state otherwise in the related prospectus supplement, no governmental
agency or instrumentality will guarantee or insure repayment of any of the
mortgage loans to be included in a trust. See "Description of the Trust
Assets--Mortgage Loans."
The trust assets with respect to any series of offered certificates may
also include mortgage participations, mortgage pass-through certificates,
collateralized mortgage obligations and other mortgage-backed securities,
that evidence an interest in, or are secured by a pledge of, one or more
mortgage loans of the type described above. We will not include a
mortgage-backed security among the trust assets with respect to any series
of offered certificates unless we would be free to publicly resell the
security without registration. See "Description of the Trust
Assets--Mortgage-Backed Securities."
We will describe the specific characteristics of the mortgage assets
underlying a series of offered certificates in the related prospectus
supplement.
In general, the aggregate outstanding principal balance of the mortgage
assets transferred by us to any particular trust will equal or exceed the
initial aggregate outstanding principal balance of the related series of
certificates. In the event that the aggregate outstanding principal
balance of the related mortgage assets initially delivered by us to the
related trustee is less than the initial aggregate outstanding
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
principal balance of any series of certificates, we may deposit or arrange
for the deposit of cash or liquid investments on an interim basis with the
related trustee to cover the shortfall. For 90 days following the date of
initial issuance of that series of certificates, we will be entitled to
obtain a release of the deposited cash or investments if we deliver or
arrange for delivery of a corresponding amount of mortgage assets. If we
fail, however, to deliver mortgage assets sufficient to make up the entire
shortfall, any of the cash or, following liquidation, investments
remaining on deposit with the related trustee will be used by the related
trustee to pay down the aggregate principal balance of the related series
of certificates, as described in the related prospectus supplement.
Certain Characteristics of
the Offered Certificates........................ An offered certificate may entitle the holder to receive:
o a stated principal amount;
o interest on a principal balance or notional amount,
at a fixed, variable or adjustable pass-through rate;
o specified, fixed or variable portions of the interest,
principal or other amounts received on the related
mortgage assets;
o payments of principal, with disproportionate,
nominal or no distributions of interest;
o payments of interest, with disproportionate,
nominal or no distributions of principal;
o payments of interest or principal that commence only as of a
specified date or only after the occurrence of certain events,
such as the payment in full of the interest and principal
outstanding on one or more other classes of certificates of the
same series;
o payments of principal 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
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C>
collections of principal are received on the related mortgage
assets;
o payments of principal to be made, subject to available funds,
based on a specified principal payment schedule or other
methodology; or
o payments of all or part of the prepayment or repayment premiums,
fees and charges, equity participations payments or other similar
items received on the related mortgage assets.
Any class of offered certificates may be senior or subordinate to one or
more other classes of certificates of the same series, including a
non-offered class of certificates of that series, for purposes of some or
all payments and/or allocations of losses.
A class of offered certificates may have two or more component parts, each
having characteristics that are otherwise described in this prospectus as
being attributable to separate and distinct classes.
We will describe the specific characteristics of each class of offered
certificates in the related prospectus supplement. See "Description of
the Certificates."
Credit Support and
Interest Rate Protection for
the Offered Certificates........................ Some classes of offered certificates may be protected in
full or in part against certain defaults and losses on the
related mortgage assets through the subordination of one
or more other classes of certificates of the same series or
by other types of credit support. The other types of credit
support may include a letter of credit, a surety bond, an
insurance policy, a guarantee or a reserve fund. We will
describe the credit support, if any, for each class of offered
certificates in the related prospectus supplement.
The assets of any particular trust may also include any of the following
agreements:
o guaranteed investment contracts pursuant to which moneys held in
the funds and accounts established for the related series of
certificates will be invested at a specified rate; or
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
o interest rate exchange agreements, interest rate cap or floor
agreements, or other agreements and arrangements designed to
reduce the effects of interest rate fluctuations on the related
mortgage assets or on one or more classes of offered certificates
of the related series.
We will describe the types of reinvestment and interest rate protection,
if any, for each class of offered certificates in the related prospectus
supplement.
See "Risk Factors," "Description of the Trust Funds" and
"Description of Credit Support."
Advances to Cover Delinquent
Payments of Principal and
Interest on the Mortgage Assets................. If the related trust assets include 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 may have the option
of making, certain advances with respect to delinquent
scheduled payments of principal and/or interest on such
mortgage loans. Any party making advances will be
entitled to reimbursement from subsequent recoveries on
the related mortgage loan and as otherwise described in
this prospectus or the related prospectus supplement.
That party may also be entitled to receive interest on its
advances for a specified period. See "Description of the
Certificates--Advances in Respect of Delinquencies."
If the related trust assets include mortgage-backed securities, we will
describe in the related prospectus supplement any comparable advancing
obligation in respect of such mortgage-backed securities or the underlying
mortgage loans.
Optional Termination................................. We will describe in the related prospectus supplement any
circumstances in which a specified party is permitted or
obligated to purchase or sell any of the mortgage assets
underlying a series of offered certificates. In particular, a
master servicer, special servicer or other designated party
may be permitted or obligated to purchase or sell--
o all the mortgage assets in any particular trust,
thereby resulting in a termination of the trust, or
</TABLE>
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<TABLE>
<S> <C>
o that portion of the mortgage assets in any particular trust as is
necessary or sufficient to retire one or more classes of offered
certificates of the related series.
See "Description of the Certificates--Termination."
Federal Income Tax Consequences...................... Any class of offered certificates will constitute or evidence
ownership of either:
o "regular interests" or "residual interests" in a "real estate
mortgage investment conduit" under Sections 860A through 860G of
the Internal Revenue Code of 1986, or
o interests in a grantor trust under Subpart E of Part I of
Subchapter J of the Internal Revenue Code of 1986.
See "Federal Income Tax Consequences."
ERISA Considerations................................. If you are a fiduciary of an employee benefit plan or other
retirement plan or arrangement, you should review with
your legal advisor whether the purchase or holding of
offered certificates could give rise to a transaction that is
prohibited or is not otherwise permissible under applicable
law. See "ERISA Considerations."
Legal Investment..................................... If your investment authority is subject to legal restrictions,
you should consult your legal advisor to determine
whether and to what extent the offered certificates
constitute a legal investment for you. We will specify in
the related prospectus supplement which classes of the
offered certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended. See
"Legal Investment."
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RISK FACTORS
You should consider the following factors (as well as the factors set
forth under "Risk Factors" in the related prospectus supplement) in deciding
whether to purchase offered certificates.
Lack of Liquidity will Impair Your Ability to Sell Your Certificates and
may Have an Adverse Effect on the Market Value of Your Certificates
The offered certificates may have limited or no liquidity. We cannot
assure you that a secondary market for your certificates will develop. There
will be no obligation on the part of anyone to establish a secondary market.
Even if a secondary market does develop for your certificates, it may provide
you with less liquidity than you anticipated and it may not continue for the
life of your certificates.
We will describe in the related prospectus supplement the information
that will be available to you with respect to your certificates. The limited
nature of such information may adversely affect the liquidity of your
certificates.
We do not currently intend to list the offered certificates on any
national securities exchange or the NASDAQ stock market.
Lack of liquidity will impair your ability to sell your certificates
and may prevent you from doing so at a time when you may want or need to. Lack
of liquidity could adversely affect the market value of your certificates. We
do not expect that you will have any redemption rights with respect to your
certificates.
If you decide to sell your certificates, you may have to sell at
discount from the price you paid for reasons unrelated to the performance of
your certificates or the related mortgage assets. Pricing information
regarding your certificates may not be generally available on an ongoing
basis.
The Market Value of Offered Certificates will be Sensitive to Fluctuations in
Prevailing Interest Rates and Spreads
The market value of your certificates will be sensitive to
fluctuations in current interest rates. However, a change in the market value
of your certificates as a result of an upward or downward movement in current
interest rates may not equal the change in the market value of your
certificates as a result of an equal but opposite movement in interest rates.
Investor perceptions regarding the quality of commercial
mortgage-backed securities generally as an investment relative to alternative
investments such as U.S. treasury securities will affect the market value of
your certificates. That market value will decline if potential investors
prefer the safety of investments such as U.S. treasury securities. This may
occur regardless of the performance of your certificates or the related
mortgage assets.
If you decide to sell your certificates, you may have to sell at
discount from the price you paid for reasons unrelated to the performance of
your certificates or the related mortgage assets. Pricing information
regarding your certificates may not be generally available on an ongoing
basis.
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Payments on the Offered Certificates will be Made Solely From the Limited
Assets of the Related Trust
The offered certificates do not represent obligations of any person
or entity and do not represent a claim against any assets other than those of
the related trust. No governmental agency or instrumentality will guarantee or
insure payment on the offered certificates. In addition, neither we nor our
affiliates are responsible for making payments on the offered certificates if
collections on the related trust assets are insufficient. If the related trust
assets are insufficient to make payments on your certificates, no other assets
will be available to you for payment of the deficiency, and you will bear the
resulting loss. Any advances made by a master servicer or other party with
respect to the mortgage assets underlying your certificates are intended
solely to provide liquidity and not credit support. The party making those
advances will have a right to reimbursement, probably with interest, which is
senior to your right to receive payment on your certificates.
Any Credit Support for Your Certificates may be Insufficient to Protect you
Against all Potential Losses
The Amount of Credit Support Will Be Limited. The rating agencies
that assign ratings to your certificates will establish the amount of credit
support, if any, for your certificates based on, among other things, an
assumed level of defaults, delinquencies and losses with respect to the
related mortgage assets. Actual losses may, however, exceed the assumed
levels. See "Description of the Certificates--Allocation of Losses and
Shortfalls" and "Description of Credit Support." If actual losses on the
related mortgage assets exceed the assumed levels, you may be required to bear
the additional losses.
Credit Support May Not Cover All Types of Losses. The credit support,
if any, for your certificates may not cover all of your potential losses. For
example, certain forms of credit support may not cover or may provide limited
protection against losses that you may suffer by reason of fraud or negligence
or as a result of certain uninsured casualties at the real properties securing
the related mortgage loans. You may be required to bear any losses which are
not covered by the credit support.
Disproportionate Benefits to Certain Classes and Series. If a form of
credit support covers multiple classes or series and losses exceed the amount
of such credit support, it is possible that the holders of offered
certificates of another series or class will be disproportionately benefited
by such credit support to your detriment.
The Investment Performance of Your Certificates will Depend Upon Payments,
Defaults and Losses on the Underlying Mortgage Loans
The Terms of the Underlying Mortgage Loans Will Affect Payments on
Your Certificates. Each of the mortgage loans underlying the offered
certificates will specify the terms on which the related borrower must repay
the outstanding principal amount of the loan. The rate, timing and amount of
scheduled payments of principal may vary, and may significantly, from mortgage
loan to mortgage loan. The rate at which the underlying mortgage loans
amortize will directly affect the rate at which the principal balance or
notional amount of your certificates is paid down or otherwise reduced.
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In addition, any mortgage loan underlying the offered certificates
may permit the related borrower during some or all of the loan term to prepay
the loan. In general, a borrower will be more likely to prepay its mortgage
loan when it has an economic incentive to do so, such as obtaining a larger
loan on the same underlying real property or a lower or otherwise more
advantageous interest rate through refinancing. If a mortgage loan includes
some form of prepayment restriction, the likelihood of prepayment should
decline. These restrictions may include--
o an absolute or partial prohibition against voluntary
prepayments during some or all of the loan term, or
o a requirement that voluntary prepayments be accompanied by
some form of prepayment premium, fee or charge during some
or all of the loan term.
In many cases, there will be no restriction associated with the application of
insurance proceeds or condemnation proceeds as a prepayment of principal.
Notwithstanding the terms of the mortgage loans, the amount, rate and
timing of payments and other collections thereon will, to some degree, be
unpredictable because of borrower defaults and because of casualties and
condemnations with respect to the underlying real properties.
The investment performance of your certificates may vary materially
and adversely from your expectations due to--
o the rate of prepayments and other unscheduled collections of
principal on the underlying mortgage loans being faster or
slower than you anticipated, or
o the rate of defaults on the underlying mortgage loans being
faster, or the severity of losses on the underlying mortgage
loans being greater, than your anticipated.
The actual yield to you, as a holder of an offered certificate, may
not equal the yield you anticipated at the time of your purchase, and the
total return on investment that you expected may not be realized. In deciding
whether to purchase any offered certificates, you should make an independent
decision as to the appropriate prepayment, default and loss assumptions to be
used. If the trust assets underlying your certificates include mortgage-backed
securities, the terms of those securities may soften or enhance the effects to
you that may result from prepayments, defaults and losses on the mortgage
loans that ultimately back those securities.
Prepayments on the Underlying Mortgage Loans Will Affect the Average
Life of Your Certificates. Payments of principal and/or interest on your
certificates will depend upon, among other things, the rate and timing of
payments on the related mortgage assets. Prepayments on the underlying
mortgage loans may result in a faster rate of principal payments on your
certificates, thereby resulting in a shorter average life for your
certificates than if such prepayments had not occurred. The rate and timing of
principal prepayments on pools of mortgage loans varies among pools and is
influenced by a variety of economic, demographic, geographic, social, tax and
legal factors. Accordingly, neither you nor we can predict the rate and timing
of principal prepayments on the mortgage loans directly or indirectly
underlying your certificates. As a result,
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repayment of your certificates could occur significantly earlier or later, and
the average life of your certificates could be significantly shorter or
longer, than you expected.
The extent to which prepayments on the underlying mortgage loans
ultimately affect the average life of your certificates depends on the terms
and provisions of your certificates. A class of offered certificates may
entitle the holders to a pro rata share of any prepayments on the related
mortgage loans, to all or a disproportionately large share of those
prepayments, or to none or a disproportionately small share of those
prepayments. If you are entitled to a disproportionately large share of any
prepayments on the underlying mortgage loans, your certificates may be retired
at an earlier date. If, however, you are only entitled to a small share of the
prepayments on the underlying mortgage loans, the average life of your
certificates may be extended. Your entitlement to receive payments, including
prepayments, of principal of the underlying mortgage loans may--
o vary based on the occurrence of certain events, such as the
retirement of one or more other classes of certificates of
the same series, or
o be subject to certain contingencies, such as prepayment and
default rates with respect to the underlying mortgage loans.
We will describe the terms and provisions of your certificates more
fully in the related prospectus supplement.
Prepayments on the Underlying Mortgage Loans Will Affect the Yield on
Your Certificates. If you purchase your certificates at a discount or premium,
the yield on your certificates will be sensitive to prepayments on the
mortgage loans. If you purchase your certificates at a discount, you should
consider the risk that a slower than anticipated rate of principal payments on
the underlying mortgage loans could result in your actual yield being lower
than your anticipated yield. Alternatively, if you purchase your certificates
at a premium, you should consider the risk that a faster than anticipated rate
of principal payments on the underlying mortgage loans could result in your
actual yield being lower than your anticipated yield. The potential effect
that prepayments may have on the yield of your certificates will increase as
the discount deepens or the premium increases. If the amount of interest
payable on your certificates is disproportionately large, as compared to the
amount of principal payable on your certificates, you may fail to recover your
original investment under some prepayment scenarios.
Delinquencies, Defaults and Losses on the Underlying Mortgage Loans
May Affect the Amount and Timing of Payments on Your Certificates. The rate
and timing of delinquencies and defaults, and the severity of losses, on the
underlying mortgage loans will impact the amount and timing of payments on the
related series of offered certificates to the extent that their effects are
not offset by delinquency advances or some form of credit support.
Unless otherwise covered by delinquency advances or some form of
credit support, defaults on the underlying mortgage loans may delay payments
on the related series of offered certificates while the defaulted mortgage
loans are worked-out or liquidated. However, liquidations of defaulted
mortgage loans prior to maturity could affect the yield and average life of an
offered certificate in a manner similar to a voluntary prepayment.
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If you calculate your anticipated yield to maturity based on an
assumed rate of default and amount of losses on the underlying mortgage loans
that is lower than the default rate and amount of losses actually experienced,
then, to the extent that you are required to bear the additional losses, your
actual yield to maturity will be lower than you calculated and could, under
certain scenarios, be negative. Furthermore, the timing of losses on the
underlying mortgage loans can affect your yield. In general, the earlier you
bear any loss on an underlying mortgage loan, the greater the negative effect
on your yield.
See "--Repayment of a Commercial or Multifamily Mortgage Loan Depends
Upon the Performance and Value of the Underlying Real Property and the Related
Borrower's Ability to Refinance the Property below."
There is an Increased Risk of Default Associated With Balloon
Payments. Any of the mortgage loans underlying your certificates may be
nonamortizing or only partially amortizing. The borrower under that mortgage
loan is required to make substantial payments of principal and interest (that
is, balloon payments) on the maturity date of the loan. The ability of the
borrower to make a balloon payment depends upon the borrower's ability to
refinance or sell the real property securing the loan. The ability of the
borrower to refinance or sell the property will be affected by a number of
factors, including:
o the fair market value and condition of the underlying real
property;
o the level of interest rates;
o the borrower's equity in the underlying real property;
o the borrower's financial condition;
o the operating history of the underlying real property;
o changes in zoning and tax laws;
o changes in competition in the relevant area;
o changes in rental rate in the relevant area;
o changes in governmental regulation and fiscal policy;
o prevailing general and regional economic conditions;
o the state of the fixed income and mortgage markets; and
o the availability of credit for multifamily rental or
commercial properties.
See "--Repayment of a Commercial or Multifamily Mortgage Loan Depends
Upon the Performance and Value of the Underlying Real Property and the Related
Borrower's Ability to Refinance the Property below."
Neither we nor any of our affiliates will be required to refinance
any mortgage loan underlying your certificates.
The related master servicer or special servicer may (within
prescribed limits) extend and modify mortgage loans underlying your
certificates that are in default or as to which a payment default is imminent
in order to maximize recoveries on the defaulted loans. The related master
servicer or special servicer is only required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
than a liquidation of the real property securing the defaulted loan. There is
a risk that the decision of the master servicer or special servicer to extend
or modify a mortgage loan may not in fact produce a greater recovery.
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Repayment of a Commercial or Multifamily Mortgage Loan Depends Upon the
Performance and Value of the Underlying Real Property and the Related Borrower's
Ability to Refinance the Property
Most of the Mortgage Loans Underlying Your Certificates Will be
Nonrecourse. You should consider all of the mortgage loans underlying your
certificates to be nonrecourse loans. This means that, in the event of a
default, recourse will be limited to the related real property or properties
securing the defaulted mortgage loan. In those cases where recourse to a
borrower or guarantor is permitted by the loan documents, we generally will
not undertake any evaluation of the financial condition of such borrower or
guarantor. Consequently, full and timely payment on each mortgage loan
underlying your certificates will depend on one or more of the following:
o the sufficiency of the net operating income of the applicable
real property;
o the market value of the applicable real property at or prior
to maturity; and
o the ability of the related borrower to refinance or sell the
applicable real property.
In general, the value of a multifamily or commercial property will depend on
its ability to generate net operating income. The ability of an owner to
finance a multifamily or commercial property will depend, in large part, on
the property's value and ability to generate net operating income.
Unless we state otherwise in the related prospectus supplement, none
of the mortgage loans underlying your certificates will be insured or
guaranteed by any governmental entity or private mortgage insurer.
The risks associated with lending on multifamily and commercial
properties are inherently different from those associated with lending on the
security of single-family residential properties. This is because multifamily
rental and commercial real estate lending involves larger loans and, as
described above, repayment is dependent upon the successful operation and
value of the related real estate project.
Many Risk Factors are Common to Most or All Multifamily and
Commercial Properties. The following factors, among others, will affect the
ability of a multifamily or commercial property to generate net operating
income and, accordingly, its value:
o the age, design and construction quality of the property;
o perceptions regarding the safety, convenience and
attractiveness of the property;
o the characteristics of the neighborhood where the property
is located;
o the proximity and attractiveness of competing properties;
o the existence and construction of competing properties;
o the adequacy of the property's management and maintenance;
o national, regional or local economic conditions, including
plant closings, industry slowdowns and unemployment rates;
o local real estate conditions, including an increase in or
oversupply of comparable commercial or residential space;
o demographic factors;
o customer tastes and preferences;
o retroactive changes in building codes; and
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ochanges in governmental rules, regulations and fiscal policies,
including environmental legislation.
Particular factors that may adversely affect the ability of a
multifamily or commercial property to generate net operating income include:
o an increase in interest rates, real estate taxes and other
operating expenses;
o an increase in the capital expenditures needed to maintain the
property or make improvements;
o a decline in the financial condition of a major tenant and, in
particular, a sole tenant or anchor tenant;
o an increase in vacancy rates;
o a decline in rental rates as leases are renewed or replaced; and
o natural disasters and civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots.
The volatility of net operating income generated by a multifamily or
commercial property over time will be influenced by many of the foregoing
factors, as well as by:
othe length of tenant leases;
othe creditworthiness of tenants;
o the rental rates at which leases are renewed or replaced;
o the percentage of total property expenses in relation to
revenue;
o the ratio of fixed operating expenses to those that vary with
revenues; and
o the level of capital expenditures required to maintain the
property and to maintain or replace tenants.
Therefore, commercial and multifamily properties with short-term or less
creditworthy sources of revenue and/or relatively high operating costs, such
as those operated as hospitality and self-storage properties, can be expected
to have more volatile cash flows than commercial and multifamily properties
with medium- to long-term leases from creditworthy tenants and/or relatively
low operating costs. A decline in the real estate market will tend to have a
more immediate effect on the net operating income of commercial and
multifamily properties with short-term revenue sources and may lead to higher
rates of delinquency or defaults on the mortgage loans secured by those
properties.
The Successful Operation of a Multifamily or Commercial Property
Depends on Tenants. Generally, multifamily and commercial properties are
subject to leases. The owner of a multifamily or commercial property typically
uses lease or rental payments for the following purposes:
o to pay for maintenance and other operating expenses associated
with the property;
oto fund repairs, replacements and capital improvements at the
property; and
oto service mortgage loans secured by, and any other debt
obligations associated with operating, the property.
Factors that may adversely affect the ability of a multifamily or
commercial property to generate net operating income from lease and rental
payments include:
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oan increase in vacancy rates, which may result from tenants
deciding not to renew an existing lease or discontinuing
operations;
oan increase in tenant payment defaults;
oa decline in rental rates as leases are entered into, renewed
or extended at lower rates;
oan increase in the capital expenditures needed to maintain the
property or to make improvements; and
oa decline in the financial condition of a major or sole tenant.
Various factors that will affect the operation and value of a
commercial property include:
othe business operated by the tenants;
othe creditworthiness of the tenants; and
othe number of tenants.
Dependence on a Single Tenant or a Small Number of Tenants Makes a
Property Riskier Collateral. In those cases where an income-producing property
is leased to a single tenant or is primarily leased to one or a small number
of major tenants, a deterioration in the financial condition or a change in
the plan of operations of any such tenant can have particularly significant
effects on the net operating income generated by the property. If any such
tenant defaults under or fails to renew its lease, the resulting adverse
financial effect on the operation of the property will be substantially more
severe than would be the case with respect to a property occupied by a large
number of less significant tenants.
An income-producing property operated for retail, office or
industrial purposes also may be adversely affected by a decline in a
particular business or industry if a concentration of tenants at the property
is engaged in that business or industry.
Tenant Bankruptcy Adversely Affects Property Performance. The
bankruptcy or insolvency of a major tenant, or a number of smaller tenants, at
a commercial property may adversely affect the income produced by the
property. Under the U.S. bankruptcy code, a tenant has the option of assuming
or rejecting any unexpired lease. If the tenant rejects the lease, the
landlord's claim for breach of the lease would be a general unsecured claim
against the tenant unless there is collateral securing the claim. The claim
would be limited to:
(i) the unpaid rent reserved under the lease for the periods
prior to the bankruptcy petition or any earlier surrender of
the leased premises, plus
(ii) an amount, not to exceed three years' rent, equal to the
greater of one year's rent and 15% of the remaining reserved
rent.
The Success of an Income-Producing Property Depends on Reletting
Vacant Spaces. The operations at an income-producing property will be
adversely affected if the owner or property manager is unable to renew leases
or relet space on comparable terms when existing leases expire and/or become
defaulted. Even if vacated space is successfully relet, the costs associated
with reletting, including tenant improvements and leasing commissions in the
case of income-producing properties operated for retail, office or industrial
purposes, can be substantial and could reduce cash flow from the
income-producing properties. Moreover, if a tenant at a income-producing
property defaults in its lease obligations, the landlord may incur substantial
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costs and experience significant delays associated with enforcing its rights
and protecting its investment, including costs incurred in renovating and
reletting the property.
If an income-producing property has multiple tenants, re-leasing
expenditures may be more frequent than in the case of a property with fewer
tenants, thereby reducing the cash flow generated by the multi-tenanted
property. Multi-tenanted properties may also experience higher continuing
vacancy rates and greater volatility in rental income and expenses.
Property Value May Be Adversely Affected Even When Current Operating
Income Is Not. Various factors may affect the value of multifamily and
commercial properties without affecting their current net operating income,
including:
o changes in interest rates;
o the availability of refinancing sources;
o changes in governmental regulations, licensing or fiscal
policy;
o changes in zoning or tax laws; and
o potential environmental or other legal liabilities.
Property Management May Affect Property Operations and Value. The
operation of an income-producing property will depend upon the property
manager's performance and viability. The property manager generally is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure, including
staggering durations of leases and establishing levels of
rent payments;
o operating the property and providing building services;
o managing operating expenses; and
o ensuring that maintenance and capital improvements are
carried out in a timely fashion.
Income-producing properties that derive revenues primarily from
short-term rental commitments, such as hospitality or self-storage properties,
generally require more intensive management than properties leased to tenants
under long-term leases.
By controlling costs, providing appropriate and efficient services to
tenants and maintaining improvements in good condition, a property manager can
maintain or improve occupancy rates, business and cash flow, reduce operating
and repair costs and preserve building value. On the other hand, management
errors can, in some cases, impair the long term viability of an
income-producing property.
Maintaining a Property in Good Condition is Expensive. The owner may
expend a substantial amount to maintain, renovate or refurbish a commercial or
multifamily property. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
superior construction will deteriorate over time if management does not
schedule and perform adequate maintenance in a timely fashion.
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Competition Will Adversely Affect the Profitability and Value of an
Income-Producing Property. Some income-producing properties are located in
highly competitive areas. Comparable income-producing properties located in
the same area compete on the basis of a number of factors including:
o rental rates;
o location;
o type of business or services and amenities offered; and
o nature and condition of the particular property.
The profitability and value of an income-producing property may be
adversely affected by a comparable property that:
o offers lower rents;
o has lower operating costs;
o offers a more favorable location; or
o offers better facilities.
Costs of renovating, refurbishing or expanding an income-producing
property in order to remain competitive can be substantial.
Various Types of Income-Producing Properties May Present Special
Risks. The relative importance of any factor affecting the value or operation
of an income-producing property will depend on the type and use of the
property. In addition, the type and use of a particular income-producing
property may present special risks. For example, health care-related
facilities and casinos are subject to significant governmental regulation of
the ownership, operation, maintenance and/or financing of such properties.
Multifamily rental properties, manufactured housing communities and mobile
home parks may be subject to rent control or rent stabilization laws and laws
governing landlord/tenant relationships. Hospitality 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 is subject to local law
requirements. Recreational and resort properties, properties that provide
entertainment services, hospitality properties, restaurants and taverns,
mini-warehouses and self-storage facilities tend to be adversely affected more
quickly by a general economic downturn than other types of commercial
properties. 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 and hospitality properties 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, automotive sales and
service centers, dry cleaners, warehouses and industrial facilities may be
more likely to have environmental issues. Additionally, many types of
commercial properties are not readily convertible to alternative uses if the
original use is not successful or may require significant capital expenditures
to effect any conversion to an alternative use . As a result, the liquidation
value of any of those types of property would be substantially less than would
otherwise be the case. See "Description of the Trust Assets--Mortgage Loans--A
Discussion of the Various Type of Multifamily and Commercial Properties that
may Secure Mortgage Loans Underlying a Series of Offered Certificates."
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Borrower Concentration Within a Trust Exposes Investors to Greater Risk of
Default and Loss
A particular borrower or group of related borrowers may be associated
with multiple real properties securing the mortgage loans in any of our
trusts. The bankruptcy or insolvency of, or other financial problems with
respect to, that borrower or group of borrowers could have an adverse effect
on the operation of all of the related real properties and on the ability of
those properties to produce sufficient cash flow to make required payments on
the related mortgage loans. For example, if a borrower or group of related
borrowers that owns or controls several real properties experiences financial
difficulty at one of those properties, it could defer maintenance at another
of those properties in order to satisfy current expenses with respect to the
first property. That borrower or group of related borrowers could also attempt
to avert foreclosure by filing a bankruptcy petition that might have the
effect of interrupting debt service payments on all the related mortgage loans
for an indefinite period. In addition, multiple real properties owned by the
same borrower or related borrowers are likely to have common management. This
would increase the risk that financial or other difficulties experienced by
the property manager could have a greater impact on the lender, including one
of our trusts, holding the related loans.
Loan Concentration Within a Trust Exposes Investors to Greater Risk of Default
and Loss
Any of the mortgage loans in one of our trusts may be substantially
larger than the other loans in that trust. In general, the inclusion in a
trust of one or more mortgage loans that have outstanding principal balances
that are substantially larger than the other mortgage loans in the trust can
result in losses that are more severe, relative to the size of the related
mortgage pool, than would be the case if the aggregate balance of that pool
were distributed more evenly.
Geographic Concentration Within a Trust Exposes to Greater Risk of Default and
Loss
If a concentration of mortgage loans in any of our trusts is secured
by real properties in a particular locale, state or region, the holders of the
related offered certificates will have a greater exposure to:
o any adverse economic developments that occur in the locale,
state or region where the properties are located;
o changes in the real estate market where the properties are
located;
o changes in governmental rules and fiscal policies in the
governmental jurisdiction where the properties are located;
and
o acts of nature, including floods, tornadoes and earthquakes,
in the areas where properties are located.
Changes in Pool Composition Will Change the Nature of Your Investment
The mortgage loans underlying any series of offered certificates will
amortize at different rates and mature on different dates. In addition, some
of those mortgage loans may be prepaid or liquidated. As a result, the
relative composition of the mortgage pool will change over time.
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If you purchase certificates with a pass-through rate that is equal
to or calculated based upon a weighted average of interest rates on the
underlying mortgage loans, your pass-through rate will be affected, and may
decline, as the relative composition of the mortgage pool changes.
In addition, as payments and other collections of principal are
received with respect to the underlying mortgage loans, the remaining mortgage
pool backing your certificates may exhibit an increased concentration with
respect to property type, number and affiliation of borrowers and geographic
location.
Subordinate Debt Increases the Likelihood That a Borrower Will Default on a
Mortgage Loan Backing Your Certificates
Most mortgage loans included in one of our trusts will either (i)
prohibit the related borrower from encumbering the related real property with
additional secured debt or (ii) require the consent of the holder of the
mortgage loan prior to so encumbering such property. However, a violation of
this prohibition may not become evident until the related mortgage loan
otherwise defaults, and a lender, such as one of our trusts, may not
realistically be able to prevent a borrower from incurring subordinate debt.
The existence of any secured subordinated indebtedness increases the
difficulty of refinancing a mortgage loan backing your certificates at the
loan's maturity. In addition, the related borrower may have difficulty
repaying multiple loans. Moreover, the filing of a petition in bankruptcy by,
or on behalf of, a junior lienholder may stay the senior lienholder from
taking action to foreclose out the junior lien. See "Certain Legal Aspects of
Mortgage Loans--Subordinate Financing".
Borrower Bankruptcy Proceedings Can Delay and Impair Recovery on a Mortgage
Loan Backing Your Certificates
Under the U.S. bankruptcy code, the filing of a petition in
bankruptcy by or against a borrower will stay the sale of a real property
owned by that borrower, as well as the commencement or continuation of a
foreclosure action. In addition, if a court determines that the value of a
real property is less than the principal balance of the mortgage loan it
secures, the court may reduce the amount of secured indebtedness to the
then-value of the property. Such an action would make the lender a general
unsecured creditor for the difference between the then-value of the property
and the amount of its outstanding mortgage indebtedness.
A bankruptcy court also may:
o grant a debtor a reasonable time to cure a payment default
on a mortgage loan;
o reduce monthly payments due under a mortgage loan;
o change the rate of interest due on a mortgage loan; or
o otherwise alter the mortgage loan's repayment schedule.
Additionally, the borrower, as debtor-in-possession, or its
bankruptcy trustee has certain special powers to avoid, subordinate or
disallow debts. In certain circumstances, the claims of a secured lender, such
as one of our trusts, may be subordinated to financing obtained by a
debtor-in-possession subsequent to its bankruptcy.
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Under the U.S. bankruptcy code, a lender will be stayed from
enforcing a borrower's assignment of rents and leases. The U.S. bankruptcy
code also may interfere with a lender's ability to enforce lockbox
requirements. The legal proceedings necessary to resolve these issues can be
time consuming and may significantly delay the receipt of rents. Rents also
may escape an assignment to the extent they are used by borrower to maintain
its property or for other court authorized expenses.
As a result of the foregoing, the related trust's recovery with
respect to borrowers in bankruptcy proceedings may be significantly delayed,
and the aggregate amount ultimately collected may be substantially less than
the amount owed.
Environmental Liabilities Will Adversely Affect the Value and Operation of the
Contaminated Property and May Deter a Lender from Foreclosing
There can be no assurance--
o as to, the legal of environmental testing conducted at the
related real properties in connection with the origination
of the mortgage loans underlying your certificates;
o that the environmental testing conducted by or on behalf of
the applicable originators in connection with the
origination of those mortgage loans identified all adverse
environmental conditions and risks at the related real
properties;
o that the results of that environmental was accurately
evaluated in all cases;
o that the related borrowers have implemented or will
implement all operations and maintenance plans and other
remedial actions recommended by any environmental consultant
that may have conducted testing at the related real
properties; or
o that the recommended action will fully remediate or
otherwise address all the identified adverse environmental
conditions and risks.
In addition, the current environmental condition of a real property
securing a mortgage loan underlying your certificates could be adversely
affected by tenants, such as gasoline stations or dry cleaners, or by the
conditions or operations in the vicinity of the properties, such as leaking
underground storage tanks at another property nearby.
Various environmental laws may make a current or previous owner or
operator of real property liable for the costs of removal or remediation of
hazardous or toxic substances on, under or adjacent to the property. Those
laws often impose liability whether or not the owner or operator knew of, or
was responsible for, the presence of the hazardous or toxic substances. For
example, certain laws impose liability for release of asbestos containing
materials into the air or require the removal or containment of the materials.
The owner's liability for any required remediation generally is unlimited and
could exceed the value of the property and/or the aggregate assets of the
owner. In addition, the presence of hazardous or toxic substances, or the
failure to remediate the adverse environmental condition, may adversely affect
the owner's or operator's ability to use the affected property. In certain
states, contamination of a property may give rise to a lien on the property to
ensure the costs of cleanup. In some of those states, this lien has priority
over
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the lien of an existing mortgage. In addition, third parties may seek recovery
from owners or operators of real property for personal injury associated with
exposure to hazardous substances, including asbestos and lead-based paint.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may be liable for the costs of removal or remediation of the
substances at the disposal or treatment facility.
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, commonly referred to as "CERCLA", together
with certain other federal and state laws, provide that a secured lender, such
as one of our trusts, may be liable as an "owner" or "operator" of the real
property, regardless of whether the borrower or a previous owner caused the
environmental damage, if --
o agents or employees of the lender are deemed to have
participated in the management of the borrower, or
o under certain conditions, the lender actually takes
possession of a borrower's property or control of its
day-to-day operations, including through the appointment of
a receiver or foreclosure.
Although recently enacted legislation clarifies the activities in which a
lender may engage without becoming subject to liability under CERCLA and
similar federal laws, that legislation has no applicability to state
environmental laws. Moreover, future laws, ordinances or regulations could
impose material environmental liability.
Federal law requires owners of residential housing constructed prior
to 1978 to disclose to potential residents or purchasers--
o any condition on the property that causes exposure to
lead-based paint, and
o the potential hazards to pregnant women and young children,
including that the ingestion of lead-based paint chips
and/or the inhalation of dust particles from lead-based
paint by children can cause permanent injury, even at low
levels of exposure.
Property owners may be liable for injuries to their tenants resulting from
exposure under various laws that impose affirmative obligations on property
owners of residential housing containing lead-based paint.
Some Provisions in the Mortgage Loans Underlying Your Certificates May Be
Challenged as Being Unenforceable
Cross-Collateralization Arrangements. It may be possible to challenge
cross-collateralization arrangements involving more than one borrower as a
fraudulent conveyance, even if the borrowers are related. If one of those
borrowers were to become a debtor in a bankruptcy case, creditors of the
bankrupt party or the representative of the bankruptcy estate of the bankrupt
party could seek to have the bankruptcy court avoid any lien granted by the
bankrupt party to secure repayment of another borrower's loan. In order to do
so, the court would have to determine that--
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o the bankrupt party was insolvent at the time of granting the
lien, was rendered insolvent by the granting of the lien,
was left with inadequate capital, or was not able to pay its
debts as they matured; and
o the bankrupt party did not, when it allowed its property to
be encumbered by a lien securing the other borrower's loan,
receive fair consideration or reasonably equivalent value
for pledging its property for the equal benefit of the other
borrower.
If the court were to conclude that the granting of the lien was an avoidable
fraudulent conveyance, it could nullify the lien or mortgage effecting the
cross-collateralization. The court could also allow the bankrupt party to
recover payments it made pursuant to the avoided cross-collateralization.
Prepayment Premiums, Fees and Charges. Under the laws of a number of
states, the enforceability of any mortgage loan provisions that require
payment of a prepayment premium, fee or charge upon an involuntary prepayment,
is unclear. If those provisions were unenforceable, borrowers would have an
incentive to default in order to prepay their loans.
Due-on-sale and Debt Acceleration Clauses. Many of the mortgage loans
underlying the offered certificates will contain a due-on-sale clause, which
permits the lender, with some exceptions, to accelerate the maturity of the
mortgage loan upon the sale, transfer or conveyance of (i) the related real
property or (ii) a majority ownership interest in the related borrower. All of
the mortgage loans will include some form of debt-acceleration clause, which
permits the lender to accelerate the debt upon specified monetary or
non-monetary defaults by the related borrower. The courts of all states will
enforce acceleration clauses in the event of a material payment default. The
equity courts of any state, however, may refuse to allow the foreclosure of a
mortgage or deed of trust or to permit the acceleration of the indebtedness
if:
o the default is deemed to be immaterial,
o the exercise of such remedies would be inequitable or
unjust, or
o the circumstances would render the acceleration
unconscionable.
Assignments of Leases. Many of the mortgage loans underlying the
offered certificates will be secured by, among other things, an assignment of
leases and rents. Pursuant to that document, the related borrower will assign
its right, title and interest as landlord under the leases on the related real
property and the income derived therefrom to the lender as further security
for the related mortgage loan, while retaining a license to collect rents for
so long as there is no default. In the event the borrower defaults, the
license terminates and the lender is entitled to collect rents. In some cases,
those assignments may not be perfected as security interests prior to actual
possession of the cash flow. Accordingly, state law may require that the
lender take possession of the property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, the
commencement of bankruptcy or similar proceedings by or in respect of the
borrower will adversely affect the lender's ability to collect the rents. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
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Defeasance. A mortgage loan underlying a series of offered
certificates may, during specified periods and subject to certain conditions,
permit the related borrower to pledge to the holder of the mortgage loan a
specified amount of direct, non-callable United States government securities
and thereby obtain a release of the related Mortgaged Property. The cash
amount which a Borrower must expend to purchase, or must deliver to a master
servicer in order for the master servicer to purchase, the required United
States government securities may be in excess of the principal balance of the
mortgage loan. There can be no assurance that a court would not interpret that
excess amount as a form of prepayment premium or would not take it into
account for usury purposes. In some states, some forms of prepayment premiums
are unenforceable. If the payment of that excess amount were held to be
unenforceable, the remaining portion of the cash amount to be delivered may be
insufficient to purchase the requisite amount of United States government
securities.
Lack of Insurance Coverage Exposes a Trust to Risk for Certain Special Hazard
Losses.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of a property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in the
related policy. Most insurance policies typically do not cover any physical
damage resulting from:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement, including earthquakes, landslides and
mudflows,
o wet or dry rot,
o vermin,
o domestic animals, and
o certain other kinds of risks.
Unless the related mortgage loan documents specifically require the
borrower to insure against physical damage arising from such causes, then the
resulting losses may be borne by you as a holder of offered certificates.
Ground Leases Create Risks for Lenders that are not Present when Lending on an
Actual Ownership Interest in a Real Property
In order to secure a mortgage loan, a borrower may grant a lien on
its leasehold interest in a real property as tenant under a ground lease. If
the ground base does not provide for notice to a lender of a default
thereunder on the part of the borrower, together with a reasonable opportunity
for the lender to cure the default, the lender may be unable to prevent
termination of the lease and may lose its collateral.
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In addition, upon the bankruptcy of a landlord or a tenant under a
ground lease, the debtor entity has the right to assume or reject the ground
lease. If a debtor landlord rejects the lease, the tenant has the right to
remain in possession of its leased premises at the rent reserved in the lease
for the term, including renewals. If a debtor tenant rejects any or all of its
leases, the tenant's lender may not be able to succeed to the tenant's
position under the lease unless the landlord has specifically granted the
lender that right. If both the landlord and the tenant are involved in
bankruptcy proceedings, the trustee for your certificates may be unable to
enforce the bankrupt tenant's obligation to refuse to treat as terminated a
ground lease rejected by a bankrupt landlord. In those circumstances, it is
possible that the trustee could be deprived of its security interest in the
leasehold estate, notwithstanding lender protection provisions contained in
the lease or mortgage loan documents.
Changes in Zoning Laws may Adversely Affect the Use or Value of a Real Property
Due to changes in zoning requirements since the construction thereof,
an income-producing property may not comply with current zoning laws,
including density, use, parking and set back requirements. Accordingly, the
property may be a "permitted non-conforming structure" or the operation of the
property may be a "permitted non-conforming use". This means that the owner is
not required to alter the property's structure or use to comply with the new
law, but the owner may be limited in its ability to rebuild the premises "as
is" in the event of a substantial casualty loss. This may adversely affect the
cash flow available following the casualty. If a substantial casualty were to
occur, insurance proceeds may not be sufficient to pay a mortgage loan secured
by the property in full. In addition, if the property were repaired or
restored in conformity with the current law, its value or revenue-producing
potential may be less than that which existed before the casualty.
Compliance With the Americans with Disabilities Act of 1990 May be Expensive
Under the Americans with Disabilities Act of 1990, all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. If a property does not currently comply
with that Act, the owner thereof may be required to incur significant costs in
order to effect such compliance. In addition, noncompliance could result in
the imposition of fines by the federal government or an award or damages to
private litigants.
Litigation may Adversely Affect a Borrower's Ability to Repay its Mortgage Loan
The owner of a multifamily or commercial property may be a defendant
in a litigation arising out of, among other things, the following:
o breach of contract involving a tenant, a supplier or other
party;
o negligence resulting in a personal injury, or
o responsibility for an environmental problem.
Litigation will divert the owner's attention from operating its
property. If the litigation were decided adversely to the owner, the award to
the plaintiff may adversely affect the owner's ability to repay a mortgage
loan secured by the property.
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"Residual Interests" in a "Real Estate Mortgage Investment Conduit" Have
Adverse Tax Consequences
Inclusion of Taxable Income in Excess of Cash Received. If you own a
certificate which is a "residual interest" in a "real estate mortgage
investment conduit", or "REMIC", you will have to report on your income tax
return as ordinary income your pro rata share of the taxable income of the
REMIC, regardless of the amount or timing of your possible receipt of any cash
on the certificate. As a result, your certificate may have "phantom income"
early in the term of the REMIC because the taxable income from the certificate
may exceed the amount of cash you actually receive. While you will have a
corresponding amount of tax losses later in the term of the REMIC, the present
value of the "phantom income" may significantly exceed the present value of
the tax losses. Therefore, the after-tax yield on any "residual interest"
certificate may be significantly less than that of a corporate bond or other
instrument having similar cash flow characteristics. In fact, certain offered
certificates which are "residual interests" may have a negative value.
You have to report your share of the taxable income and net loss of
the REMIC until all the certificates in the related series have a principal
balance of zero. See "Federal Income Tax Consequences--REMICs".
Some Taxable Income of a "Residual Interest" can not be Offset under
the Internal Revenue Code of 1986. A portion of the taxable income from a
"residual interest" certificate may be treated as "excess inclusion" under the
Internal Revenue Code of 1986. You will have to pay tax on the "excess
inclusion" regardless of whether you have other credits, deductions or losses.
In particular, the tax on "excess inclusion":
o generally will not be reduced by losses from other
activities,
o for a tax-exempt holder, will be treated as unrelated
business taxable income, and
o for a foreign holder, will not qualify for any exemption
from withholding tax.
Certain Entities Should not Invest in Certificates which are
"Residual Interests". The fees and non-interest expenses of a REMIC will be
allocated pro rata to certificates which are "residual interests" of the
REMIC. However, individuals will only be able to deduct these expenses as
miscellaneous itemized deductions, which are subject to numerous restrictions
and limitations under the Internal Revenue Code of 1986. Therefore, the
certificates which are "residual interests" generally are not appropriate
investments for:
o individuals,
o estates,
o trusts beneficially owned by any individual or estate, and
o pass-through entities having any individual, estate or trust
as a shareholder, member or partner.
In addition, the "residual interests" certificates are subject to
numerous transfer restrictions. These restrictions reduce your ability to
liquidate a "residual interest" certificate. For example, unless we indicate
otherwise in the related prospectus supplement, you will not be able to
transfer a "residual interest" certificate to a non-U.S. person under the
Internal Revenue Code of 1986.
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See "Federal Income Tax Consequences -- REMICs -- Taxation of Owners
of REMIC Residual Certificates".
Problems With Book-Entry Registration
Your certificates may be issued in book-entry form through the
facilities of the Depository Trust Company. As a result--
o you will be able to exercise your rights as a
certificateholder only indirectly through the Depository
Trust Company and its participating organizations;
o you may have only limited access to information regarding
your certificates;
o you may suffer delays in the receipt of payments on
your certificates; and
o your ability to pledge or otherwise take action with
respect to your certificates may be limited due to the
lack of a physical certificate evidencing your ownership
of those certificates.
See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates."
Potential Conflicts of Interest Can Affect a Person's Performance
The master servicer or special servicer for one of our trusts, or any
of their respective affiliates, may purchase certificates evidencing interests
in that trust.
In addition, the master servicer or special servicer for one of our
trusts or any of their respective affiliates, may have interests in, or other
financial relationships with, borrowers under the related mortgage loans.
In servicing the mortgage loans in any of our trusts, the related
master servicer and special servicer will each be required to observe the
terms of the governing document(s) for the related series of offered
certificates and, in particular, to act in accordance with the servicing
standard described in the related prospectus supplement. You should consider,
however, that either of these parties, if it or an affiliate owns
certificates, or has financial interests in or other financial dealings with
any of the related borrowers, may have interests when dealing with the
mortgage loans that are in conflict with your interests. For example, if the
related special servicer owns any certificates, it could seek to mitigate the
potential loss on its certificates from a troubled mortgage loan by delaying
enforcement in the hope of realizing greater proceeds in the future. However,
this action by a special servicer could result a lower recovery to the related
trust than would have been the case if the special servicer had not delayed in
taking enforcement action.
Furthermore, the master servicer or special servicer for any of our
trusts may service existing and new loans for third parties, including
portfolios of loans similar to the mortgage loans included in that trust. The
properties securing these other loans may be in the same markets as and
compete with the properties securing mortgage loans in our trust. Accordingly,
that master servicer or special servicer may be acting on behalf of parties
with conflicting interests.
The Transition from the Year 1999 to the Year 2000 may Disrupt the Ability of
Computerized Systems to Process Information
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The collection of payments on the mortgage loans backing your
certificates, the servicing of those mortgage loans and the payments on your
certificates are highly dependent upon computer systems of the related master
servicer, special servicer, trustee, borrowers and other third parties.
We will inquire into the year 2000 readiness of the parties to the
governing documents for a series of offered certificates and will obtain
assurances from these parties that they will take the necessary steps to cure
any problems their computer systems may have with the manipulation or
calculation of dates after December 31, 1999.
The Depository Trust Company has informed members of the financial
community that it has developed and is implementing a program so that its
systems, as these systems relate to the timely payment of distributions,
including principal and interest payments to security holders, book-entry
deliveries, and settlement of trades within the Depository Trust Company,
continue to function appropriately on and after January 1, 2000. This program
includes a technical assessment and a remediation plan, which the Depository
Trust Company has completed. Additionally, the Depository Trust Company's plan
includes a testing phase, which it expects to complete within appropriate time
frames.
However, the Depository Trust Company's ability to perform properly
its services is also dependent upon other parties, including, its
participating organizations, as well as the computer systems of third-party
service providers. The Depository Trust Company has informed the financial
community that it is contacting and will continue to contact third-party
vendors from whom it acquires services, in order to: (i) impress upon them the
importance of these services being year 2000 compliant, and (ii) determine the
extent of their efforts with respect to remediation of year 2000 problems with
their services. In addition, the Depository Trust Company has stated that it
is in the process of developing contingency plans as it considers appropriate.
If problems associated with the year 2000 issue were to occur with
respect to the Depository Trust Company and the services provided by it,
payments on offered certificates held in book-entry form could be delayed or
otherwise adversely affected.
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DESCRIPTION OF THE TRUST ASSETS
General
We will be responsible for establishing the trust underlying each
series of offered certificates. The assets of the trust will primarily consist
of:
o various types of multifamily and/or commercial mortgage loans;
o mortgage participations, pass-through certificates,
collateralized mortgage obligations or other mortgage-backed
securities that directly or indirectly evidence interests
in, or are secured by pledges of, one or more of various
types of multifamily and/or commercial mortgage loans; or
o a combination of mortgage loans and mortgage-backed
securities of the types described above.
We do not originate mortgage loans. Accordingly, we must acquire each
of the mortgage loans to be included in one of our trusts from the originator
or a subsequent assignee. In some cases, that originator or subsequent
assignee will be one of our affiliates.
We will acquire, directly or through one of our affiliates, in the
secondary market, any mortgage-backed security to be included in one of our
trusts.
Neither we nor any of our affiliates will guarantee any of the
mortgage assets included in one of our trusts. Furthermore, unless we indicate
otherwise in the related prospectus supplement, no governmental agency or
instrumentality will guarantee or insure any of those mortgage assets.
Mortgage Loans
General. Each mortgage loan underlying the offered certificates will
constitute the obligation of one or more persons to repay a debt. That
obligation will be evidenced by a promissory note or bond. In addition, that
obligation will be secured by a mortgage, deed of trust or other security
instrument that creates a first or junior lien on, or security interest in, an
interest in one or more of the following types of real property:
o rental or cooperatively-owned buildings with multiple
dwelling units;
o retail properties related to the sale of consumer goods and
other products to the general public, such as shopping
centers, malls, factory outlet centers, automotive sales
centers, department stores and other retail stores, grocery
stores, specialty shops, convenience stores and gas stations;
o retail properties related to providing entertainment,
recreational and personal services to the general public,
such as movie theaters, fitness centers, bowling alleys,
salons, dry cleaners and automotive service centers;
o office properties;
o hospitality properties, such as hotels, motels and other
lodging facilities;
o casino properties;
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o health care-related properties, such as hospitals, skilled
nursing facilities, nursing homes, congregate care
facilities and, in some cases, assisted living centers and
senior housing;
o industrial properties;
o warehouse facilities, mini-warehouse facilities and
self-storage facilities;
o restaurants, taverns and other establishments involved in the
food and beverage industry;
o manufactured housing communities, mobile home parks and
recreational vehicle parks;
o recreational and resort properties, such as recreational
vehicle parks, golf courses, marinas, ski resorts and
amusement parks;
o arenas and stadiums;
o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and
o unimproved land zoned for multifamily residential or
commercial use.
The real property interests that may be encumbered in order to secure
a mortgage loan underlying your certificates, include --
o a fee interest or estate, which consists of ownership of the
property for an indefinite period,
o an estate for years, which consists of ownership of the
property for a specified period of years,
o a leasehold interest or estate, which consists of a right to
occupy and use the property for a specified period of years,
subject to the terms and conditions of a lease,
o shares in a cooperative corporation which owns the property,
or
o any other real estate interest under applicable local law.
Any of these real property interests may be subject to deed restrictions,
easements, rights of way and other matters of public record with respect to
the related property. In addition, the use of, and improvements that may be
constructed on, any particular real property may be subject to zoning laws and
other legal restrictions.
If we so indicate in the related prospectus supplement, one or more
of the mortgage loans underlying a series of offered certificates may be
secured by a junior lien on the related real property. However, the loan or
loans secured by the more senior liens on that property may not be included in
the related trust. The primary risk to the holder of a mortgage loan secured
by a junior lien on a real property is the possibility that the foreclosure
proceeds remaining after payment of the loans secured by more senior liens on
that property will be insufficient to pay the junior loan in full. In a
foreclosure proceeding, the sale proceeds are applied first to the payment of
court costs and fees in connection with the foreclosure, second to the payment
of real estate taxes, and third to the payment of all principal, interest,
prepayment or acceleration penalties, if any, and all other amounts owing to
the holder of the senior loans. The claims of the holders of the senior loans
must be satisfied in full before the holder of the junior loan receives any
payments in respect of the junior loan. If a lender forecloses on a junior
loan, it does so subject to any related senior loans.
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If we so indicate in the related prospectus supplement, the mortgage
loans underlying a series of offered certificates may be delinquent as of the
date the certificates are initially issued. In those cases, we will describe
in the related prospectus supplement the period of the delinquency, any
forbearance arrangement then in effect, the condition of the related real
property and the ability of the related real property to generate income to
service the mortgage debt. We will not, however, transfer any mortgage loan to
a trust if we know that the mortgage loan is, at the time of transfer, more
than 90 days delinquent in respect of any scheduled payment of principal or
interest or in foreclosure.
A Discussion of the Various Types of Multifamily and Commercial
Properties that may Secure Mortgage Loans Underlying a Series of Offered
Certificates. The mortgage loans underlying a series of offered certificates
may be secured by numerous types of multifamily and commercial properties. As
we discuss below under "--Mortgage Loans--Default and Loss Considerations with
Respect to the Mortgage Loans," the adequacy of an income-producing property
as security for a mortgage loan depends in large part on its value and ability
to generate net operating income. Set forth below is a discussion of some of
the various factors that may affect the value and operations of the indicated
types of multifamily and commercial properties.
Multifamily Rental Properties. Factors affecting the value and
operation of a multifamily rental property include:
o the physical attributes of the property, such as its age,
appearance, amenities and construction quality;
o the types of services offered at the property;
o the location of the property;
o the characteristics of the surrounding neighborhood, which
may change over time;
o the rents charged for dwelling units at the property
relative to the rents charged for comparable units at
competing properties;
o the ability of management to provide adequate maintenance
and insurance;
o the property's reputation;
o the level of mortgage interest rates, which may encourage
tenants to purchase rather than lease housing;
o the existence or construction of competing or alternative
residential properties, including other apartment buildings
and complexes, manufactured housing communities, mobile home
parks and single-family housing;
o the ability of management to respond to competition;
o the tenant mix and whether the property is primarily
occupied by workers from a particular company or type of
business, personnel from a local military base or students;
o adverse local, regional or national economic conditions,
which may limit the amount that may be charged for rents and
may result in a reduction in timely rent payments or a
reduction in occupancy levels;
o state and local regulations, which may affect the property
owner's ability to increase rent to the market rent for an
equivalent apartment;
o the extent to which the property is subject to land use
restrictive covenants or contractual covenants that require
that units be rented to low income tenants;
o the extent to which the cost of operating the property,
including the cost of utilities and the cost of required
capital expenditures, may increase; and
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o the extent to which increases in operating costs may be
passed through to tenants.
Because units in a multifamily rental property are leased to
individuals, usually for no more than a year, the property is likely to respond
relatively quickly to a downturn in the local economy or to the closing of a
major employer in the area.
Certain states regulate the relationship of an owner and its tenants
at a multifamily rental property. Among other things, these states may --
o require written leases;
o require good cause for eviction;
o require disclosure of fees;
o prohibit unreasonable rules;
o prohibit retaliatory evictions;
o prohibit restrictions on a resident's choice of unit vendors;
o limit the basis on which a landlord may increase rent; or
o prohibit a landlord from terminating a tenancy solely by
reason of the sale of the owner's building.
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.
Some counties and municipalities also impose rent control regulations
on apartment buildings. These regulations may limit rent increases to --
o fixed percentages,
o percentages of increases in the consumer price index,
o increases set or approved by a governmental agency, or
o 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 landlord's
ability to raise rents at a multifamily rental property may impair the
landlord's ability to repay a mortgage loan secured by the property or to meet
operating costs.
Some multifamily rental properties are subject to land use
restrictive covenants or contractual covenants in favor of federal or state
housing agencies. These covenants generally require that a minimum number or
percentage of units be rented to tenants who have incomes that are
substantially lower than median incomes in the area or region. These covenants
may limit the potential rental rates that may be charged at a multifamily
rental property, the potential tenant base for the property or both. An owner
may subject a multifamily rental property to these covenants in exchange for
tax credits or rent subsidies. When the credits or subsidies cease, net
operating income will decline.
Some mortgage loans underlying the offered certificates will be
secured by the related borrower's interest in multiple units in a residential
condominium project and the related voting rights in the owners' association
for such project. Due to the nature of condominiums, a default on any of those
mortgage loans
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will not allow the holder of the mortgage loan the same flexibility in
realizing on its real property collateral as is generally available with
respect to multifamily rental properties that are not condominiums. The rights
of other unit owners, the governing documents of the owners' association and
the state and local laws applicable to condominiums must be considered and
respected. Consequently, servicing and realizing upon the collateral for those
mortgage loans could subject the lender to greater delay, expense and risk
than a loan secured by a multifamily rental property that is not a
condominium.
Cooperatively-Owned Apartment Buildings. Some multifamily properties
are owned or leased by cooperative corporations. In general, each shareholder
in the corporation is entitled to occupy a particular apartment unit pursuant
to a long-term proprietary lease or occupancy agreement.
A tenant/shareholder of a cooperative corporation must make a monthly
maintenance payment to the corporation. The monthly maintenance payment
represents a tenant/shareholder's pro rata share of the corporation's mortgage
loan payments, real property taxes, maintenance expenses and other capital and
ordinary expenses of the property. These monthly maintenance payments 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
maintenance 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, and to pay all other operating
expenses of, the cooperatively owned property depends primarily upon the
receipt of --
o maintenance payments from the tenant/shareholders, and
o any rental income from units or commercial space that the
cooperative corporation might control.
A cooperative corporation may have to impose special assessments on
the tenant/shareholders in order to pay unanticipated expenditures.
Accordingly, a cooperative corporation is highly dependent on the financial
well being of its 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 cooperatively owned property depends primarily on its ability
to refinance the property.
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. In general the
sponsor controls the corporation's board of directors and management for a
limited period of time. If the sponsor holds the shares allocated to a large
number of apartment units, the lender on a mortgage loan secured by a
cooperatively owned property may be adversely affected by a decline in the
creditworthiness of the sponsor.
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. In addition, the subtenant may be entitled to renew
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its lease for an indefinite number of years with continued protection from
rent increases above those permitted by any applicable rent control and rent
stabilization laws. The owner/shareholder is responsible for the maintenance
payments to the cooperative corporation without regard to whether it receives
rent from the subtenant or whether the rent payments are lower than
maintenance payments on the unit. Newly-formed cooperative corporations
typically have the greatest concentration of non-tenant/shareholders.
Retail Properties. The term "retail property" encompasses a broad
range of properties at which businesses sell consumer goods and other products
and provide various entertainment, recreational or personal services to the
general public. Some examples of retail properties include:
o shopping centers
o factory outlet centers
o malls
o automotive sales and service centers
o consumer oriented businesses
o department stores
o grocery stores
o convenience stores
o specialty shops
o gas stations
o movie theaters
o fitness centers
o bowling alleys
o salons
o dry cleaners
Unless owner occupied, retail properties generally derive all or a
substantial percentage of their income from lease payments from commercial
tenants. Therefore, it is important for the owner of a retail property to
attract and keep tenants, particularly significant tenants, that are able to
meet their lease obligations. In order to attract tenants, the owner of a
retail property may be required--
o to lower rents;
o to grant a potential tenant a "free rent" or reduced rent
period;
o to improve the condition of the property generally; or
o to make at its own expense, or grant a rent abatement to
cover, tenant improvements for a potential tenant.
A prospective tenant will also be interested in the number and type
of customers that it will be able to attract at a particular retail property.
The ability of a tenant at a particular retail property to attract customers
will be affected by a number of factors related to the property and the
surrounding area, including--
o competition from other retail properties;
o perceptions regarding the safety, convenience and
attractiveness of the property;
o perceptions regarding the safety of the surrounding area;
o demographics of the surrounding area;
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o the strength and stability of the local, regional and
national economies;
o traffic patterns and access to major thoroughfares;
o the visibility of the property;
o availability of parking;
o the particular mixture of the goods and services offered at
the property;
o customer tastes, preferences and spending patterns; and
o the drawing power of other tenants.
The success of a retail property is often dependent on the success of
its tenants' businesses. A significant component of the total rent paid by
tenants of retail properties is often tied to a percentage of gross sales or
revenues. Declines in sales or revenues of the tenants will likely cause a
corresponding decline in percentage rents and/or impair the tenants' ability
to pay their rent or other occupancy costs. A default by a tenant under its
lease could result in delays and costs in enforcing the landlord's rights.
Retail properties would be directly and adversely affected by a decline in the
local economy and reduced consumer spending.
Repayment of a mortgage loan secured by a retail property will be
affected by the expiration of space leases at the property and the ability of
the borrower to renew or relet the space on comparable terms. Even if vacant
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, may be substantial and
could reduce cash flow from a retail property.
The presence or absence of an anchor tenant in a multi-tenanted
retail property can be important. Anchor tenants play a key role in generating
customer traffic and making the center desirable for other tenants. An "anchor
tenant" is, in general, a retail tenant whose space is substantially larger in
size than that of other tenants at the same retail property and whose
operation is vital in attracting customers to the property. At some retail
properties, the anchor tenant owns the space it occupies. In those cases where
the property owner does not control the space occupied by the anchor tenant,
the property owner may not be able to take actions with respect to the space
that it otherwise typically would, such as granting concessions to retain an
anchor tenant or removing an ineffective anchor tenant. In some cases, an
anchor tenant may cease to operate at the property, thereby leaving its space
unoccupied even though it continues to own or pay rent on the vacant space. If
an anchor tenant ceases operations at a retail property, other tenants at the
property may be entitled to terminate their leases prior to the scheduled
termination date or to pay rent at a reduced rate for the remaining term of
the lease.
Various factors will adversely affect the economic performance of an
"anchored" retail property, including:
o an anchor tenant's failure to renew its lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an anchor tenant or a
self-owned anchor;
o the cessation of the business of a self-owned anchor or of
an anchor tenant, notwithstanding its continued ownership of
the previously occupied space or its continued payment of
rent, as the case may be; or
o a loss of an anchor tenant's ability to attract shoppers.
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Retail properties may also face competition from sources outside a
given real estate market or with lower operating costs. For example, all of
the following compete with more traditional department stores and specialty
shops for consumer dollars:
o factory outlet centers;
o discount shopping centers and clubs;
o catalogue retailers;
o television shopping networks and programs;
o internet web sites; and
o telemarketing.
Similarly, home movie rentals and pay-per-view movies provide alternate
sources of entertainment to movie theaters. Continued growth of these
alternative retail outlets (which are often characterized by lower operating
costs) and entertainment sources could adversely affect the rents collectible
at retail properties.
Gas stations, automotive sales and service centers and dry cleaners
also pose unique environmental risks because of the nature of their
businesses.
Office Properties. Factors affecting the value and operation of an
office property include:
o the number and quality of the tenants, particularly
significant tenants, at the property;
o the physical attributes of the building in relation to
competing buildings;
o the location of the property with respect to the central
business district or population centers;
o demographic trends within the metropolitan area to move away
from or towards the central business district;
o social trends combined with space management trends, which
may change towards options such as telecommuting or hoteling
to satisfy space needs;
o tax incentives offered to businesses or property owners by
cities or suburbs adjacent to or near where the building is
located;
o local competitive conditions, such as the supply of office
space or the existence or construction of new competitive
office buildings;
o the quality and philosophy of building management;
o access to mass transportation; and
o changes in zoning laws.
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. Competitive factors affecting an office
property include:
o rental rates;
o the building's age, condition and design, including floor
sizes and layout;
o access to public transportation and availability of parking;
and
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o amenities offered to its tenants, including sophisticated
building systems, such as fiber optic cables, satellite
communications or other base building technological
features.
The cost of refitting office space for a new tenant is often higher
than for other property types.
The success of an office property also depends on the local economy.
Factors influencing a company's decision to locate in a given area include:
o the cost and quality of labor;
o tax incentives; and
o quality of life matters, such as schools and cultural
amenities.
The strength and stability of the local or regional economy will
affect an office property's ability to attract stable tenants on a consistent
basis. A central business district may have a substantially different economy
from that of a suburb.
Hospitality Properties. Hospitality properties may involve different
types of hotels and motels, including:
o full service hotels;
o resort hotels with many amenities;
o limited service hotels;
o hotels and motels associated with national or regional
franchise chains;
o hotels that are not affiliated with any franchise chain but
may have their own brand identity; and
o other lodging facilities.
Factors affecting the economic performance of a hospitality property
include:
o the location of the property and its proximity to major
population centers or attractions;
o the seasonal nature of business at the property;
o the level of room rates relative to those charged by
competitors;
o quality and perception of the franchise affiliation;
o economic conditions, either local, regional or national,
which may limit the amount that can be charged for a room
and may result in a reduction in occupancy levels;
o the existence or construction of competing hospitality
properties;
o nature and quality of the services and facilities;
o financial strength and capabilities of the owner and
operator;
o the need for continuing expenditures for modernizing,
refurbishing and maintaining existing facilities;
o increases in operating costs, which may not be offset by
increased room rates;
o the property's dependence on business and commercial
travelers and tourism; and
o changes in travel patterns caused by changes in access,
energy prices, labor strikes, relocation of highways, the
reconstruction of additional highways or other factors.
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Because limited service hotels and motels are relatively quick and
inexpensive to construct and may quickly reflect a positive value, an
over-building of these hotels and motels could occur in any given region,
which would likely adversely affect occupancy and daily room rates. Further,
because rooms at hospitality properties are generally rented for short periods
of time, hospitality properties tend to be more sensitive to adverse economic
conditions and competition than many other types of commercial properties.
Additionally, the revenues of certain hospitality properties, particularly
those located in regions whose economies depend upon tourism, may be highly
seasonal in nature.
Hospitality properties may be operated pursuant to franchise
agreements. The continuation of a franchise 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 hospitality property to maintain those
standards or adhere to those 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 owner of the hospitality property determines are too
expensive or are otherwise unwarranted in light of the operating results or
prospects of the property. In that event, the owner of the hospitality
property may elect to allow the franchise license to lapse. In any case, if
the franchise is terminated, the owner of the hospitality property may seek to
obtain a suitable replacement franchise or to operate property independently
of a franchise license. The loss of a franchise license could have a material
adverse effect upon the operations or value of the hospitality property
because of the loss of associated name recognition, marketing support and
centralized reservation systems provided by the franchisor.
The viability of any hospitality property that is a franchise of a
national or a regional hotel or motel chain is dependent upon:
o the continued existence and financial strength of the
franchisor;
o the public perception of the franchise service mark; and
o the duration of the franchise licensing agreement.
The transferability of franchise license agreements may be
restricted. The consent of the franchisor would be required for the continued
use of the franchise license by the hospitality property following a
foreclosure. 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 hospitality property, the lender or other purchaser of the
hospitality property may not be entitled to the rights under any associated
liquor license. That party would be required to apply in its own right for a
new liquor license. There can be no assurance that a new license could be
obtained or that it could be obtained promptly.
Casino Properties. Factors affecting the economic performance of a
casino property include:
o location, including proximity to or easy access from major
population centers;
o appearance;
o economic conditions, either local, regional or national,
which may limit the amount of disposable income that
potential patrons may have for gambling;
o the existence or construction of competing casinos;
o dependence on tourism; and
o local or state governmental regulation.
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Competition among major casinos may involve attracting patrons by
providing alternate forms of entertainment, such as performers and sporting
events, and offering low-priced or free food and lodging. In addition, casino
owners may expend substantial sums to modernize, refurbish and maintain
existing facilities.
Because of their dependence on disposable income of patrons, casino
properties are likely to respond quickly to a downturn in the economy.
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 to a lender. Gaming licenses are not transferable, including in
connection with a foreclosure. There can be no assurance that a lender or
another purchaser in foreclosure or otherwise will be able to obtain the
requisite approvals to continue operating the foreclosed property as a casino.
Any given state or municipality that currently allows legalized
gambling could pass legislation banning it.
The loss of a gaming license for any reason would have a material
adverse effect on the value of a casino property.
Health Care-Related Properties. Health-care related properties include
o hospitals;
o skilled nursing facilities;
o nursing homes;
o congregate care facilities; and
o in some cases, assisted living centers and housing for
seniors.
Health care-related facilities, particularly nursing homes, may
receive a substantial portion of their revenues from government reimbursement
programs, primarily Medicaid and Medicare. Medicaid and Medicare are subject
to
o statutory and regulatory changes;
o retroactive rate adjustments;
o administrative rulings;
o policy interpretations;
o delays by fiscal intermediaries; and
o government funding restrictions.
All of the foregoing can adversely affect revenues from the operation a health
care-related facility. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers. In
addition, there are currently under consideration various proposals for
national health care relief that could further limit these payments.
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Providers of long-term nursing care and other medical services are
highly regulated by federal, state and local law. They are subject to numerous
factors which can increase the cost of operation, limit growth and, in extreme
cases, require or result in suspension or cessation of operations, including:
o federal and state licensing requirements;
o facility inspections;
o rate setting;
o reimbursement policies; and
o laws relating to the adequacy of medical care, distribution
of pharmaceuticals, use of equipment, personnel operating
policies and maintenance of and additions to facilities and
services.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements generally may not be made to any person other than the
provider who actually furnished the related material goods and services.
Accordingly, in the event of foreclosure on a health care-related facility,
neither a lender nor other subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
property prior to such foreclosure. Furthermore, in the event of foreclosure,
there can be no assurance that a lender or other purchaser in a foreclosure
sale would be entitled to the rights under any required licenses and
regulatory approvals. The lender or other purchaser 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.
Health care-related facilities are generally "special purpose"
properties that could not be readily converted to general residential, retail
or office use. This will adversely affect their liquidation value.
Furthermore, 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 properties.
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 slowdown in the economy. In
addition, 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.
The value and operation of an industrial property depends on:
o location of the property, the desirability of which in a
particular instance may depend on--
(i) availability of labor services,
(ii) proximity to supply sources and customers, and
(iii) accessability to various modes of transportation
and shipping, including railways, roadways, airline
terminals and ports;
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o building design of the property, the desirability of which
in a particular instance may depend on--
(i) ceiling heights,
(ii) column spacing,
(iii) number and depth of loading bays,
(iv) divisibility,
(v) floor loading capacities,
(vi) truck turning radius,
(vii) overall functionality, and
(viii) adaptability of the property, because industrial
tenants often need space that is acceptable for
highly specialized activities; and
o the quality and creditworthiness of individual tenants,
because industrial properties frequently have higher tenant
concentrations.
Industrial properties are generally "special purpose" properties that
could not be readily converted to general residential, retail or office use.
This will adversely affect their liquidation value.
Warehouse, Mini-Warehouse and Self-Storage Facilities. Warehouse,
mini-warehouse and self-storage properties are considered vulnerable to
competition because both acquisition costs and break-even occupancy are
relatively low. In addition, it would require substantial capital expenditures
to convert a warehouse, mini-warehouse or self-storage property to an
alternative use. This will materially impair the liquidation value of the
property if its operation for storage purposes becomes unprofitable due to
decreased demand, competition, age of improvements or other factors.
Successful operation of a warehouse, mini-warehouse or self-store
property depends on--
o building design;
o location and visibility;
o tenant privacy;
o efficient access to the property;
o proximity to potential users, including apartment complexes
or commercial users;
o services provided at the property, such as security;
o age and appearance of the improvements; and
o quality of management.
Restaurants and Taverns. Factors affecting the economic viability of
individual restaurants, taverns and other establishments that are part of the
food and beverage service industry include:
o competition from facilities having businesses similar to a
particular restaurant or tavern;
o perceptions by prospective customers of safety, convenience,
services and attractiveness;
o the cost, quality and availability of food and beverage
products;
o negative publicity, resulting from instances of food
contamination, food-borne illness and similar events;
o changes in demographics, consumer habits and traffic
patterns;
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o the ability to provide or contract for capable management and
o 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 potential customers dine out. Because of the nature of the business,
restaurants and taverns tend to respond to adverse economic conditions more
quickly than do many other types of commercial properties. Furthermore, the
transferability of any operating, liquor and other licenses to an entity
acquiring a bar or restaurant, either through purchase or foreclosure, is
subject to local law requirements.
The food and beverage service industry is highly competitive. The
principal means of competition are--
o segment,
o product,
o price,
o value,
o quality,
o service,
o convenience,
o location, and
o the nature and condition of the restaurant facility.
A restaurant or tavern operator competes with the operators of
comparable establishments in the area in which its restaurant or tavern is
located. Other restaurants could have--
o lower operating costs,
o more favorable locations,
o more effective marketing,
o more efficient operations, or
o better facilities.
The location and condition of a particular restaurant or tavern 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 a
restaurant or tavern is located may change over time or in relation to
competing facilities. Also, the cleanliness and maintenance at a restaurant or
tavern will affect its appeal to customers. In the case of a regionally- or
nationally-known chain restaurant, there may be costly expenditures for
renovation, refurbishment or expansion, regardless of its condition.
Factors affecting the success of a regionally- or nationally-known
chain restaurant include:
o 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;
o the degree of support provided or arranged by the
franchisor, including its franchisee organizations and
third-party providers of products or services; and
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o the bankruptcy or business discontinuation of the
franchisor or any of its franchisee organizations or
third-party providers.
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. Also, federal and state
franchise regulations may impose additional risk, 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.
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 "home sites" that are primarily
leased to owners of the individual mobile homes or other housing units. 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. Due to relocation costs and, in some cases, demand
for homesites, the value of a mobile home or other housing unit 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. In general,
the individual mobile homes and other housing units will not constitute
collateral for a mortgage loan underlying a series of certificates.
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 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.
Factors affecting the successful operation of a manufactured housing
community, mobile home park or recreational vehicle park include:
o the number of comparable competing properties in the local
market;
o the age, appearance and reputation of the property;
o the quality of management, and
o 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,
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condominium complexes and single-family residential developments. Recreational
vehicle parks also compete against alternative forms of recreation and
short-term lodging, such as 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. This will adversely
affect the liquidation value of the property if its operation as a
manufactured housing community, mobile home park or recreational vehicle park,
as the case may be, becomes unprofitable due to competition, age of the
improvements or other factors.
Certain states regulate the relationship of an owner of a
manufactured housing community or mobile home park and its tenants in a manner
similar to the way they regulate the relationship between a landlord and
tenant at a multifamily rental property. In addition, some states also
regulate changes in the use of a manufactured housing community or mobile home
park and require that the owner 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:
o fixed percentages,
o percentages of increases in the consumer price index,
o increases set or approved by a governmental agency, or
o increases determined through mediation or binding
arbitration.
In many cases, the rent control laws either do not permit vacancy decontrol or
permit vacancy decontrol only in the relatively rare event that the mobile
home or manufactured housing unit 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.
Recreational and Resort Properties. Any mortgage loan underlying a
series of offered certificates may be secured by a golf course, marina, ski
resort, amusement park or other property used for recreational purposes or as
a resort. Factors affecting the economic performance of a property of this
type include:
o the location and appearance of the property;
o the appeal of the recreational activities offered;
o the existence or construction of competing properties,
whether are not they offer the same activities;
o the need to make capital expenditures to maintain,
refurbish, improve and/or expand facilities in order to
attract potential patrons;
o geographic location and dependence on tourism;
o changes in travel patterns caused by changes in energy
prices, strikes, location of highways, construction of
additional highways and similar factors;
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o seasonality of the business, which may cause periodic
fluctuations in operating revenues and expenses;
o sensitivity to weather and climate changes; and
o local, regional and national economic conditions.
A marina or other recreational or resort property located next to
water will also be affected by various statutes and government regulations
that govern the use of, and construction on, rivers, lakes and other
waterways.
Because of the nature of the business, recreational and resort
properties tend to respond to adverse economic conditions more quickly than do
many other types of commercial properties.
Recreational and resort properties are generally "special purpose"
properties that are not readily convertible to alternative uses. This will
adversely affect their liquidation value.
Arenas and Stadiums. The success of an arena or stadium generally
depends on its ability to attract patrons to a variety of events, including:
o sporting events;
o musical events;
o theatrical events;
o animal shows; and/or
o circuses.
The ability to attract patrons is dependent on such factors as:
o the appeal of the particular event;
o the cost of admission;
o perceptions by prospective patrons of the safety,
convenience, services and attractiveness of the arena or
stadium;
o perceptions by prospective patrons of the safety of the
surrounding area; and
o the alternative forms of entertainment available in the
particular locale.
In some cases, an arena's or stadium's success will depend on its
ability to attract and keep a sporting team as a tenant. An arena or stadium
may become unprofitable, or unacceptable to such a tenant, due to decreased
attendance, competition and age of improvements. Often, substantial
expenditures must be made to modernize, refurbish and/or maintain existing
facilities.
Arenas and stadiums are "special purpose" properties which cannot be
readily convertible to alternative uses. This will adversely affect their
liquidation value.
Churches and Other Religious Facilities. Churches and other religious
facilities generally depend on charitable donations to meet expenses and pay
for maintenance and capital expenditures. The extent of such donations is
dependent on the attendance at any particular Religious Facility and the
extent to which attendees are prepared to make donations, which is influenced
by a variety of social, political and economic factors. Donations may be
adversely affected by economic conditions, whether local, regional or
national.
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Religious facilities are "special purpose" properties that are not readily
convertible to alternative uses. This will adversely affect their liquidation
value.
Parking Lots and Garages. The primary source of income for parking
lots and garages is the rental fees charged for parking spaces. Factors
affecting the success of a parking lot or garage include:
o the number of rentable parking spaces and rates charged;
o the location of the lot or garage and, in particular, its
proximity to places where large numbers of people work,
shop or live;
o the amount of alternative parking spaces in the area;
o the availability of mass transit; and
o the perceptions of the safety, convenience and services of
the lot or garage.
Unimproved Land. The value of unimproved land is largely a function
of its potential use. This may depend on--
o its location,
o its size,
o the surrounding neighborhood, and
o local zoning laws.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are
substantially different from mortgage 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 the property and its ability to generate income sufficient to
make payments on the loan. This is particularly true because most or all of
the mortgage loans underlying the offered certificates will be nonrecourse
loans.
The debt service coverage ratio of a multifamily or commercial
mortgage loan is an important measure of the likelihood of default on the
loan. In general, the "debt service coverage ratio" of a multifamily or
commercial mortgage loan at any given time is the ratio of--
(a) the amount of income derived or expected to be derived from
the related real property for a twelve-month period that is
available to pay debt service, to
(b) the annualized scheduled payments of principal and/or
interest on the mortgage loan and any other senior loans
that are secured by the related real property.
The amount described in clause (a) of the preceding sentence is often a highly
subjective number based on a variety of assumptions regarding, and adjustments
to revenues and expenses in respect of the related real property. We will
provide a more detailed discussion of its calculation in the related
prospectus supplement.
The cash flow generated by a multifamily or commercial property will
generally fluctuate over time and may or may not be sufficient to make the
loan payments on the related mortgage loan, cover operating expenses and fund
capital improvements at any given time. Operating revenues of a nonowner
occupied, income- producing property may be affected by the condition of the
applicable real estate market and/or area
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economy. Properties 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).
Some commercial properties may be owner-occupied or leased to a small
number of tenants. Accordingly, the operating revenues may depend
substantially on the financial condition of the borrower or one or a few
tenants. Mortgage loans secured by liens on owner-occupied and single tenant
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 property operating expenses can increase the likelihood
of a borrower default on a multifamily or commercial mortgage loan secured by
the property. Increases in property operating expenses may result from:
o increases in energy costs and labor costs;
o increases in interest rates and real estate tax rates; and
o changes in governmental rules, regulations and fiscal
policies.
Some "net leases" of commercial properties may provide that the
lessee, rather than the borrower/landlord, is responsible for payment of
operating expenses. However, a net lease will result in stable net operating
income to the borrower/landlord only if the lessee is able to pay the
increased operating expense while also 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 is liquidated
following a default. In general, the "loan-to-value ratio" of a multifamily or
commercial mortgage loan at any given time is the ratio, expressed as a
percentage, of--
(a) the then outstanding principal balance of the mortgage loan and
any other senior loans that are secured by the related real property,
to
(b) the estimated value of the related real property based on an
appraisal, a cash flow analysis, a recent sales price or another
method.
A low the loan-to-value ratio means the borrower has a large amount
of its own equity in the multifamily or commercial property that secures its
loan. In these circumstances--
(x) the borrower has a greater incentive to perform under the
terms of the related mortgage loan in order to protect such
equity, and
(y) the lender has greater protection against loss on liquidation
following a borrower default.
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Loan-to-value ratios are not necessarily an accurate measure of the
likelihood of liquidation loss in a pool of multifamily and commercial
mortgage loans. For example, the value of a multifamily or commercial property
as of the date of initial issuance of a series of offered certificates may be
less than the estimated value determined at loan origination. The value of any
real property, in particular a multifamily or commercial property, will likely
fluctuate from time to time. Moreover, even a current appraisal is not
necessarily a reliable estimate of value. Appraised values of income-producing
properties are generally based on--
o the market comparison method, which takes into account the
recent resale value of comparable properties at the date of
the appraisal;
o the cost replacement method, which takes into account the
cost of replacing the property at such date;
o the income capitalization method, which takes into account
the property's projected net cash flow; or
o a selection from the values derived from the foregoing
methods.
Each of these appraisal methods presents analytical difficulties:
o it is often difficult to find truly comparable properties
that have recently been sold;
o the replacement cost of a property may have little to do
with its current market value; and
o income capitalization is inherently based on inexact
projections of income and expense and the selection of an
appropriate capitalization rate and discount rate.
If more than one appraisal method is used and significantly different results
are produced, an accurate determination of value and, correspondingly, a
reliable analysis of the likelihood of default and loss, is even more
difficult.
The value of a multifamily or commercial property will be affected by
property performance. As a result, if a multifamily or commercial mortgage
loan defaults because the income generated by the related property is
insufficient to pay operating costs and expenses as well as debt service),
then the value of the property will decline and a liquidation loss may occur.
We believe that the foregoing considerations are important factors
that generally distinguish mortgage loans secured by liens on income-producing
real estate from single-family mortgage loans. However, the originators of the
mortgage loans underlying the offered certificates may not have considered all
of such factors for all or any of such loans.
See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage
Loan Depends Upon the Performance and Value of the Underlying Real Property and
the Related Borrower's Ability to Refinance the Property."
Payment Provisions of the Mortgage Loans. Each of the mortgage loans
included in one of our trusts will have the following features:
o an original term to maturity of not more than approximately
40 years; and
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o scheduled payments of principal, interest or both, to be
made on specified dates, that occur monthly, bi-monthly
quarterly, semi-annually, annually or at some other
interval.
A mortgage loan included in one of our trusts may also include terms
that:
o provide for the accrual of interest at a mortgage interest
rate that is fixed over its term, that resets on one or more
specified dates or that otherwise adjusts from time to time;
o provide for the accrual of interest at a mortgage interest
rate that may be converted at the borrower's election from
an adjustable to a fixed interest rate or from a fixed to an
adjustable interest rate;
o provide for no accrual of interest;
o provide for level payments to stated maturity, for payments
that reset in amount on one or more specified dates or for
payments that otherwise adjust from time to time to
accommodate changes in the coupon rate or to reflect the
occurrence of certain events;
o be fully amortizing or, alternatively, may be partially
amortizing or nonamortizing, with a substantial payment of
principal due on its stated maturity date;
o permit the negative amortization or deferral of accrued
interest; and/or
o prohibit some or all voluntary prepayments or require
payment of a premium, fee or charge in connection with
those prepayments.
Mortgage Loan Information in Prospectus Supplements. We will describe
in the related prospectus supplement the characteristics of the mortgage loans
that we will include in any of our trusts. In general, we will provide in the
related prospectus supplement, among other items, the following information on
the particular mortgage loans in one of our trusts:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the
mortgage loans;
o the type or types of property that provide security for
repayment of the mortgage loans;
o the earliest and latest origination date and maturity date
of the mortgage loans;
o the original and remaining terms to maturity of the mortgage
loans, or the range thereof, and the weighted average
original and remaining terms to maturity of the mortgage
loans;
o 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 those loan-to-value
ratios;
o the mortgage interest rates of the mortgage loans, or the
range thereof, and the weighted average mortgage interest
rate of the mortgage loans;
o if any mortgage loans have adjustable mortgage interest
rates, the index or indices upon which the adjustments are
based, the adjustment dates, the range of gross margins and
the weighted average gross margin, and any limits on
mortgage interest rate adjustments at the time of any
adjustment and over the life of the loan;
o information on the payment characteristics of the mortgage
loans, including applicable prepayment restrictions;
o 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 those debt service
coverage ratios; and
o the geographic distribution of the properties securing the
mortgage loans on a state-by-state basis.
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If we are unable to provide the specific information described above
at the time a series of offered certificates is initially offered, we will
provide--
o more general information in the related prospectus
supplement, and
o specific information in a report which will be filed with
the SEC as part of a Current Report on Form 8-K within
fifteen (15) days following the issuance of the
certificates.
If any mortgage loan, or group of related mortgage loans, included in
one of our trusts represents a material concentration of credit risk, we will
include in the related prospectus supplement financial statements or other
financial information on the related real property or properties.
If and to the extent available and relevant to an investment decision
in a series of offered certificates, we will include in the related prospectus
supplement information regarding the prepayment experience of a master
servicer's multifamily and/or commercial mortgage loan servicing portfolio.
However, many servicers do not maintain records regarding prepayment
experience or, at least, do not maintain those records in a format that can be
readily aggregated. In addition, if the relevant characteristics of a master
servicer's servicing portfolio are materially different from those of the
mortgage loans included in one of our trusts, the master servicer's prepayment
experience would not be meaningful to an investor. For example, differences in
geographic dispersion, property type and/or loan terms, such as mortgage
interest rates, terms to maturity and/or prepayment restrictions, between the
two pools of loans may render the master servicer's prepayment experience
irrelevant. Because of the nature of the assets to be serviced and
administered by a special servicer, we will not include comparable prepayment
information in the related prospectus supplement with respect to the special
servicer's multifamily and/or commercial mortgage loan servicing portfolio.
Mortgage-Backed Securities
The mortgage backed-securities underlying a series of offered
certificates may include:
o mortgage participations, mortgage pass-through certificates,
collateralized mortgage obligations or other mortgage-backed
securities that are not insured or guaranteed by any
governmental agency or instrumentality, or
o certificates issued and/or insured or guaranteed by the
Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association ("FNMA"), the
Governmental National Mortgage Association ("GNMA"), the
Federal Agricultural Mortgage Corporation ("FAMC") or
another federal or state governmental agency or
instrumentality.
In addition, each of those mortgage-backed securities will directly
or indirectly evidence an interest in, or be secured by a pledge of,
multifamily and/or commercial mortgage loans.
We will acquire each mortgage-backed security included in one of our
trusts, directly or through an affiliate, in a bona fide secondary market
transaction. In addition, the security will be--
o registered under the Securities Act of 1933, as amended (the
Securities Act"), or
o exempt from registration requirements of the Securities
Act, or
o held for at least the holding period specified in Rule
144(k) under the Securities Act.
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We will describe in the related prospectus supplement the
characteristics of the mortgage-backed securities that we will include in any
of our trusts. In general, we will provide in the related prospectus
supplement, among other items, the following information on the particular
mortgage-backed securities included in one of our trusts:
o the initial and outstanding principal amount(s) and type of
the securities;
o the original and remaining term(s) to stated maturity of the
securities;
o the pass-through or bond rate(s) of the securities or the
formula for determining such rate(s);
o the payment characteristics of the securities;
o the identity of the issuer(s), servicer(s) and trustee(s)
for the securities;
o a description of the related credit support (if any);
o the type of mortgage loans underlying the securities;
o the circumstances under which the related underlying
mortgage loans, or the securities themselves, may be
purchased prior to maturity;
o the terms and conditions for substituting mortgage loans
backing the securities; and
o the characteristics of any agreements or instruments
providing interest rate protection to the securities.
With respect to any mortgage-backed security included in one of our
trusts, we will provide in our reports filed under the Exchange Act of 1934,
as amended (the "Exchange Act") the same information regarding the security as
is provided by the issuer of the security in its own reports filed under the
Exchange Act, if the security was publicly offered, or in the reports the
issuer of the security provides to the related trustee, if the security was
privately issued.
Undelivered Mortgage Assets
In general, the aggregate outstanding principal balance of the
mortgage assets transferred by us to any particular trust will equal or exceed
the initial aggregate outstanding principal balance of the related series of
certificates. In the event that the aggregate outstanding principal balance of
the related mortgage assets initially delivered by us to the related trustee
is less than the initial aggregate outstanding principal balance of any series
of certificates, we may deposit or arrange for the deposit of cash or liquid
investments on an interim basis with the related trustee to cover the
shortfall. For 90 days following the date of initial issuance of that series
of certificates, we will be entitled to obtain a release of the deposited cash
or investments if we deliver or arrange for delivery of a corresponding amount
of mortgage assets. If we fail, however, to deliver mortgage assets sufficient
to make up the entire shortfall, any of the cash or, following liquidation,
investments remaining on deposit with the related trustee will be used by the
related trustee to pay down the aggregate principal balance of the related
series of certificates, as described in the related prospectus supplement.
Accounts
The trust assets underlying a series of offered certificates will
include one or more accounts established and maintained on behalf of the
holders. All payments and collections received or advanced on the mortgage
assets and other trust assets will be deposited and held in those accounts. We
will identify and describe those accounts, and will further describe the
deposits to and withdrawals from those accounts, in the related prospectus
supplement.
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Credit Support
General. The holders of any class of offered certificates may be the
beneficiaries of credit support designed to protect them partially or fully
against all or particular defaults and losses on the related mortgage assets.
The types of credit support that may benefit the holders of a class of offered
certificates include:
o the subordination or one or more other classes of
certificates of the same series;
o a letter of credit;
o a surety bond;
o an insurance policy;
o a guarantee; and/or
o a reserve fund.
In the related prospectus supplement, we will describe the amount and
types of any credit support benefiting the holders of a class of offered
certificates.
Arrangements Providing Interest Rate Protection
The trust assets for a series of offered certificates may include
guaranteed investment contracts pursuant to which moneys held in the funds and
accounts established for that series will be invested at a specified rate. The
trust assets may also include:
o interest rate exchange agreements;
o interest rate cap agreements;
o interest rate floor agreements; or
o other agreements or arrangements designed to reduce the
effects of interest rate fluctuations on the mortgage assets.
In the related prospectus supplement, we will describe any agreements
or other arrangements designed to protect the holders of a class of offered
certificates against shortfalls resulting from movements or fluctuations in
interest rates. If applicable, we will also identify any obligor under the
agreement or other arrangement.
YIELD AND MATURITY CONSIDERATIONS
General
The yield on your certificates will depend on--
o the price you paid for your certificates,
o the pass-through rate on your certificates,
o the amount and timing of payments on your certificates.
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The following discussion contemplates a trust established by us that
consists only of mortgage loans. If one of our trusts also includes a
mortgage-backed security, the payment terms of that security will soften or
enhance the effects that the characteristics and behavior of mortgage loans
backing that security can have on the yield to maturity and/or weighted
average life of a class of offered certificates. If one of our trusts includes
a mortgage-backed security, we will discuss in the related prospectus
supplement the effect, if any, that the security may have on the yield to
maturity and weighted average lives of the related offered certificates.
Pass-Through Rate
A class of interest-bearing offered certificates may have a fixed,
variable or adjustable pass-through rate. We will specify in the related
prospectus supplement the pass-through rate for each class of interest-bearing
offered certificates or, if the pass-through rate is variable or adjustable,
the method of determining the pass-through rate.
Payment Delays
There will be a delay between the date on which payments on the
underlying mortgage loans are due and the date on which those payments are
passed through to you and other investors. That delay will reduce the yield
that would otherwise be produced if mortgage loan payments were passed through
on your certificates on the same date that the payments were due.
Yield and Prepayment Considerations
The yield to maturity on your certificates will be affected by the
rate of principal payments on the mortgage loans and the allocation of those
principal payments to reduce the principal balance or notional amount of your
certificates. The rate of principal payments on the mortgage loans will be
affected by the following:
o the amortization schedules of the mortgage loans, which may
change from time to time to reflect, among other things,
changes in mortgage interest rates or partial prepayments of
principal;
o the dates on which any balloon payments are due; and
o the rate of principal prepayments on the mortgage loans,
including voluntary prepayments by borrowers and involuntary
prepayments resulting from liquidations, casualties or
purchases of mortgage loans.
Because the rate of principal prepayments on the mortgage loans
underlying your certificates will depend on future events and a variety of
factors, we cannot give you any assurance as to that rate.
The extent to which the yield to maturity of your certificates may
vary from your anticipated yield will depend upon --
o whether you purchased your certificates at a discount or
premium and, if so, the extent of that discount or premium,
and
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o when, and to what degree, payments of principal on the
underlying mortgage loans are applied or otherwise result in
the reduction of the principal balance or notional amount of
your certificates.
If you purchase your certificates at a discount, you should consider
the risk that a slower than anticipated rate of principal payments on the
underlying mortgage loans could result in an actual yield to you that is lower
than your anticipated yield. If you purchase your certificates at a premium,
you should consider the risk that a faster than anticipated rate of principal
payments on the underlying mortgage loans could result in an actual yield to
you that is lower than your anticipated yield.
If your certificates entitle you to payments of interest, with
disproportionate, nominal or no payments of principal, you should consider
that your yield will be extremely sensitive to prepayments on the underlying
mortgage loans and, under some prepayment scenarios, may be negative.
If a class of offered certificates accrues interest on a notional
amount, that notional amount will, in general, either--
(a) be based on the principal balances of some or all of the
mortgage assets in the related trust,
or
(b) equal the aggregate principal balance of one or more of the
other classes of certificates of the same series.
Accordingly, the yield on that class of certificates will be
inversely related to, as applicable, the rate at which payments and other
collections of principal are received on the mortgage assets or referred to in
clause (a) above or payments are made in reduction of the aggregate principal
balance of the class or classes of certificates referred to in clause (b)
above.
The extent of prepayments of principal of the mortgage loans
underlying your certificates may be affected by a number of factors,
including:
o the availability of mortgage credit;
o the relative economic vitality of the area in which the
related real properties are located;
o the quality of management of the related real properties;
o the servicing of the mortgage loans;
o possible changes in tax laws; and
o other opportunities for investment.
In general, those factors which increase the attractiveness of selling or
refinancing a multifamily or commercial property that secures a mortgage loan,
as well as those factors which increase the likelihood of default under the
mortgage loan, would be expected to cause the rate of prepayment to
accelerate. In contrast, those factors having an opposite effect would be
expected to cause the rate of prepayment to slow.
The rate of principal payments on the mortgage loans underlying your
certificates may also be affected by the existence and enforceability of
prepayment restrictions, such as prepayment lock-out periods and requirements
that voluntary principal prepayments be accompanied by prepayment premiums,
fees or charges.
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If enforceable, those provisions could constitute either an absolute
prohibition, in the case of a prepayment lock-out period, or a disincentive,
in the case of a prepayment premium, fee or charge, 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. As prevailing market interest rates
decline, a borrower may have an increased incentive to refinance its mortgage
loan. Even in the case of adjustable rate mortgage loans, as prevailing market
interest rates decline, the related borrowers may have an increased incentive
to refinance for the following purposes:
o to convert to a fixed rate loan and thereby "lock in" that
rate, or
o to take advantage of a different index, margin or rate cap
or floor on another adjustable rate mortgage loan.
Subject to prevailing market interest rates and economic conditions
generally, a borrower may sell a real property in order to--
o realize its equity in the property,
o meet cash flow needs or
o make other investments.
Additionally, some borrowers may be motivated by federal and state tax laws,
which are subject to change, to sell their properties prior to the exhaustion
of tax depreciation benefits. We make no representation as to--
o the particular factors that will affect the prepayment of
the mortgage loans underlying any series of offered
certificates,
o the relative importance of those factors
o the percentage of the principal balance of those mortgage
loans that will be paid as of any date; or
o the overall rate of prepayment on those mortgage loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the mortgage
loans underlying any series of offered certificates will affect the ultimate
maturity and the weighted average life of one or more classes of the offered
certificates of that related series. In general, 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 offered
certificates will be influenced by the rate at which principal on the
underlying mortgage loans is paid to that class, whether in the form of
scheduled amortization or prepayments, including voluntary prepayments by
borrowers and involuntary prepayments resulting from liquidations, casualties
or condemnations and purchases of mortgage loans out of the related trust.
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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 those 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 is 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. It is unlikely that
the prepayment experience of the mortgage loans underlying any series of
offered certificates will conform to any particular level of CPR or SPA.
In the prospectus supplement for a series of offered certificates, we
will include tables, if applicable, setting forth the projected weighted
average life of each class of those offered certificates with an aggregate
principal balance, and the percentage of the initial aggregate certificate
principal balance of each such class that would be outstanding on specified
dates, based on the assumptions stated in that prospectus supplement,
including assumptions regarding prepayments on the underlying mortgage loans.
Those tables and assumptions illustrate the sensitivity of the weighted
average lives of the certificates to various assumed prepayment rates and are
not intended to predict, or to provide information that will enable you to
predict, the actual weighted average lives of your certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans underlying a series of offered certificates may require that balloon
payments be made at maturity. The ability of a borrower to make a balloon
payment typically will depend upon its ability either (a) to refinance the
loan, or (b) to sell the related real property. If a borrower is unable to
refinance or sell the related real property, there is a possibility that the
borrower may default on the mortgage loan or that the maturity of the mortgage
loan may be extended in connection with a workout. If a borrower defaults,
recovery of proceeds may be delayed by (a) the bankruptcy of the borrower, or
(b) adverse economic conditions in the market where the related real property
is located.
In order to minimize losses on defaulted mortgage loans, the related
master servicer or special servicer may be authorized within prescribed limits
to modify mortgage loans that are in default or as to which a payment default
is reasonably foreseeable. Any defaulted balloon payment or modification that
extends the maturity of a mortgage loan may delay payments of principal on
your certificates and extend the weighted average life of your certificates.
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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. Those are the mortgage loans that provide for the
current payment of interest calculated at a rate lower than the rate at which
interest accrues on the mortgage loan, with the unpaid portion of such
interest being added to the related principal balance. Negative amortization
most commonly occurs in respect of an adjustable rate mortgage loan that:
o limits the amount by which its scheduled payment may adjust
in response to a change in its mortgage interest rate;
o provides that its scheduled payment will adjust less
frequently than its mortgage interest rate; or
o provides for constant scheduled payments regardless of
adjustments to its mortgage interest rate.
Negative amortization on one or more mortgage loans in any of our
trusts may result in negative amortization on a related class of offered
certificates. We will describe in the related prospectus supplement, if
applicable, the manner in which negative amortization in respect of the
underlying mortgage loans is allocated among the respective classes of a
series of offered certificates.
The portion of any mortgage loan negative amortization allocated to a
class of offered certificates may result in a deferral of some or all of the
interest payable on those certificates. Deferred interest may be added to the
aggregate principal balance of a class of offered certificates. In addition,
an adjustable rate mortgage loan that permits negative amortization would be
expected during a period of increasing interest rates to amortize, if at all,
at a slower rate than if interest rates were declining or were remaining
constant. This slower rate of mortgage loan amortization would be reflected in
a slower rate of amortization for one or more classes of certificates of the
related series. Accordingly, there may be an increase in the weighted average
lives of those classes of certificates to which any mortgage loan negative
amortization would be allocated or that would bear the effects of a slower
rate of amortization of the underlying mortgage loans.
During a period of declining interest rates, the scheduled payment on
an adjustable rate 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 interest rate. The result is the accelerated
amortization of the mortgage loan. The acceleration in amortization of a
mortgage loan will shorten the weighted average lives of those classes of
certificates that entitle their holders to a portion of the principal payments
on the mortgage loan.
The extent to which the yield on your certificates may be affected by
the inclusion in the related trust of mortgage loans that permit negative
amortization, will depend upon the following:
o whether you purchase your certificates at a premium or a
discount; and
o whether the payment characteristics of the underlying
mortgage loans delay or accelerate the payments of principal
on, or in reduction of the notional amount of, your
certificates.
See "--Yield and Prepayment Considerations" above.
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Foreclosures and Payment Plans. The weighted average life of and
yield on your certificates will be affected by--
o the number of foreclosures with respect to the underlying
mortgage loans; and
o the principal amount of the foreclosed mortgage loans in
relation to the principal amount of those mortgage loans that
are repaid in accordance with their terms.
Servicing decisions made with respect to 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 affect the payment patterns of particular mortgage loans and, as a
result, the weighted average life of and yield on your certificates.
Losses and Shortfalls on the Mortgage Assets. The yield on your
certificates will directly depend on the extent to which you are required to
bear the effects of any losses or shortfalls in collections on the underlying
mortgage loans and the timing of those losses and shortfalls. In general, the
earlier that you bear any loss or shortfall, the greater will be the negative
effect on the yield of your certificates.
The amount of any losses or shortfalls in collections on the mortgage
assets in any of our trusts will to the extent not covered or offset by draws
on any reserve fund or under any instrument of credit support, be allocated
among the various classes of certificates of the related series in the
priority and manner, and subject to the limitations, that we specify in the
related prospectus supplement. As described in the related prospectus
supplement, those allocations may be effected by the following:
o a reduction in the entitlements to interest and/or the
aggregate principal balances of one or more classes of
certificates; and/or
o the establishment of a priority of payments among classes of
certificates.
If you purchase subordinated certificates, the yield to maturity on
those certificates may be extremely sensitive to losses and shortfalls in
collections on the underlying mortgage loans.
Additional Certificate Amortization. If your certificates have a
principal balance, then they entitle you to a specified portion of the
principal payments received on the underlying mortgage loans. They may also
entitle you to payments of principal from the following sources:
o amounts attributable to interest accrued but not currently
payable on one or more other classes of certificates;
o interest received or advanced on the underlying mortgage
assets that is in excess of the interest currently accrued on
the certificates of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the
underlying mortgage assets that do not constitute interest
or principal; or
o any other amounts described in the related prospectus
supplement.
The amortization of your certificates out of the sources described in
the prior paragraph would shorten their weighted average life and, if your
certificates were purchased at a premium, reduce their yield to maturity.
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DLJ COMMERCIAL MORTGAGE CORP.
We were incorporated in the State of Delaware on July 10, 1997. We
are a wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc., a
Delaware corporation. We were 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 those trusts.
Our principal executive offices are located at 277 Park Avenue, New York, New
York 10172. Our telephone number is 212-892-3000. We do not have, and we do
not expect to have, any significant assets.
DESCRIPTION OF THE CERTIFICATES
General
Each series of offered certificates, together with any non-offered
certificates of the same series, will represent the entire beneficial
ownership interest in a trust established by us. Each series of offered
certificates will consist of one or more classes. Any non-offered certificates
of that series will likewise consist of one or more classes.
A "series" of certificates are all those certificates that--
o have the same series designation;
o were issued pursuant to the same governing documents; and
o represent beneficial ownership interests in the same trust.
A "class" of certificates are all those certificates of a particular
series that--
o have the same class designation; and
o have the same payment terms.
The respective classes of offered and non-offered certificates of any
series may have a variety of payment terms. An offered certificate may entitle
the holder to receive:
o a stated principal amount, which will be represented by its
principal balance;
o interest on a principal balance or notional amount, at a
fixed, variable or adjustable pass-through rate;
o specified, fixed or variable portions of the interest,
principal or other amounts received on the related mortgage
assets;
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o payments of principal, with disproportionate, nominal or no
distributions of interest;
o payments of interest, with disproportionate, nominal or no
distributions of principal;
o payments of interest or principal that commence only as of a
specified date or only after the occurrence of certain
events, such as the payment in full of the interest and
principal outstanding on one or more other classes of
certificates of the same series;
o payments of principal 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 related
mortgage assets;
o payments of principal to be made, subject to available funds,
based on a specified principal payment schedule or other
methodology; or
o payments of all or part of the prepayment or repayment
premiums, fees and charges, equity participations payments
or other similar items received on the related mortgage
assets.
Any class of offered certificates may be senior or subordinate to one
or more other classes of certificates of the same series, including a
non-offered class of certificates of that series, for purposes of some or all
payments and/or allocations of losses or other shortfalls.
A class of offered certificates may have two or more component parts,
each having characteristics that are described in this prospectus as being
attributable to separate and distinct classes. For example, a class of offered
certificates may have an aggregate principal balance on which it accrues
interest at a fixed, variable or adjustable rate. That class of offered
certificates may also accrue interest on an aggregate notional amount at a
different fixed, variable or adjustable rate. In addition, a class of offered
certificates may accrue interest on one portion of its aggregate principal
balance or notional amount at one fixed, variable or adjustable rate and on
another portion of its aggregate principal balance or notional amount at a
different fixed, variable or adjustable rate.
Each class of offered certificates will be issued in minimum
denominations corresponding to specified principal balances, notional amounts
or percentage interests, as described in the related prospectus supplement. A
class of offered certificates may be issued in fully registered, definitive
form and evidenced by physical certificates or may be issued in book-entry
form through the facilities of The Depository Trust Company ("DTC"). Offered
certificates held in fully registered, definitive form 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, except for any tax or
other governmental charge payable in connection with the transfer or exchange.
Interests in offered certificates held in book entry form will be transferred
on the book-entry records of DTC and its participating organizations (the "DTC
Participants"). If we so specify in the related prospectus supplement, we will
arrange for clearance and settlement through CEDEL, S.A. or the Euroclear
System, for so long as they are participants in DTC.
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Payments on the Certificates
General. Payments on a series of offered certificates may occur
monthly, bi-monthly, quarterly, semi-annually, annually or at any other
specified interval. In the prospectus supplement for each series of offered
certificates, we will identify:
o the periodic payment date for that series, and
o the record date as of which certificateholders entitled to
payments on any particular payment date will be established.
All payments with respect to a class of offered certificates on any
payment date will be allocated pro rata among the outstanding certificates of
that class in proportion to the respective principal balances, notional
amounts or percentage interests, as the case may be, of those certificates.
Payments on an offered certificate will be made to the holder entitled thereto
either--
o by wire transfer of immediately available funds to the
account of that holder at a bank or similar entity, provided
that the holder has furnished the party making the payments
with wiring instructions no later than the applicable record
date and has satisfied any other conditions specified in the
related prospectus supplement, or
o by check mailed to the address of that holder as it appears
in the certificate register, in all other cases.
In general, the final payment on any offered certificate will be made
only upon presentation and surrender of that certificate at the location
specified to the holder in notice of final payment.
Payments of Interest. In the case of each class of interest-bearing offered
certificates, interest will accrue from time to time, at the applicable
pass-through rate and in accordance with the applicable interest accrual
method, on the aggregate outstanding principal balance or notional amount of
that class.
The pass-through rate for a class of interest-bearing offered
certificates may be fixed, variable or adjustable. We will specify in the
related prospectus supplement the pass-through rate for each class of
interest-bearing offered certificates or, in the case of a variable or
adjustable pass-through rate, the method for determining that pass-through
rate.
Interest may accrue with respect to any offered certificate on the
basis of:
o a 360-day year consisting of 12 30-day months,
o the actual number of days elapsed during each relevant
period in a year assumed to consist of 360 days,
o the actual number of days elapsed during each relevant period
in a normal calendar year, or
o such other method identified in the related prospectus
supplement.
We will identify the interest accrual method for each class of
offered certificates in the related prospectus supplement.
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Subject to available funds and any adjustments to interest
entitlements described in the related prospectus supplement, accrued interest
in respect of each class of interest-bearing offered certificates will
normally be payable on each payment date. However, in the case of some classes
of interest-bearing offered certificates, which we will refer to as "compound
interest certificates", payments of accrued interest will only begin on a
particular payment date or under the circumstances described in the related
prospectus supplement. Prior to that time, the amount of accrued interest
otherwise payable on that class will be added to its aggregate principal
balance on each date or otherwise deferred as described in the related
prospectus supplement.
If a class of offered certificates accrues interest on an aggregate
notional amount, that aggregate notional amount, in general, will be either:
(a) based on the principal balances of some or all of the related
mortgage assets; or
(b) equal to the aggregate principal balances of one or more
other classes of certificates of the same series.
Reference to the notional amount of any certificate is solely for convenience
in making certain calculations of interest and does not represent the right to
receive any distributions of principal.
We will describe in the related prospectus supplement the extent to
which the amount of accrued interest that is payable on, or that may be added
to the aggregate principal balance of, a class of interest-bearing offered
certificates may be reduced as a result of any contingencies, including
shortfalls in interest collections due to prepayments, delinquencies, losses
and deferred interest on the related mortgage assets.
Payments of Principal
A class of offered certificates may or may not have an aggregate principal
balance. If it does, that aggregate principal balance outstanding from time to
time will represent the maximum amount that the holders of that class will be
entitled to receive as principal out of the future cash flow on the related
mortgage assets and the other related trust assets. The aggregate outstanding
principal balance of any class of offered certificates will be reduced by--
o payments of principal actually made to the holders of that
class, and
o if and to the extent that we so specify in the related
prospectus supplement, losses of principal on the related
mortgage assets that are allocated to or are required to be
borne by that class.
If a class of offered certificates are compound interest certificates, then
the aggregate outstanding principal balance of that class may be increased by
the amount of any interest accrued, but not currently payable, on that class.
We will describe in the related prospectus supplement any other adjustments to
the aggregate outstanding principal balance of a class of offered
certificates.
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Unless we so state in the related prospectus supplement, the initial
aggregate principal balance of all classes of a series will not be greater
than the aggregate outstanding principal balance of the related mortgage
assets transferred by us to the related trust. We will specify the expected
initial aggregate principal balance of each class of offered certificates in
the related prospectus supplement.
The payments of principal to be made on a series of offered
certificates from time to time will, in general, be a function of the
payments, other collections and advances received or made with respect to the
related prospectus supplement. Payments of principal on a series of offered
certificates may also be made from the following sources:
o amounts attributable to interest accrued but not currently
payable on one or more other classes of certificates;
o interest received or advanced on the underlying mortgage
assets that is in excess of the interest currently accrued
on the certificates of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the
underlying mortgage assets that do not constitute interest
or principal; or
o any other amounts described in the related prospectus
supplement.
We will describe in the related prospectus supplement the principal
entitlement of each class of offered certificates on each payment date.
Allocation of Losses and Shortfalls
If and to the extent that any losses or shortfalls in collections on
the mortgage assets in any of our trusts are not covered or offset by
delinquency advances or draws on any reserve fund or under any instrument of
credit support, they will be allocated among the various 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, the allocations may be effected as
follows:
(i) by reducing the entitlements to interest and/or the
aggregate principal balances of one or more of those
classes; and/or
(ii) by establishing a priority of payments among those classes.
See "Description of Credit Support."
Advances in Respect of Delinquencies
If any trust established by us includes mortgage loans, then as and
to the extent described in the related prospectus supplement, the related
master servicer, the related special servicer, the related trustee, any
related provider of credit support and/or any other specified person may be
obligated to advance, or have the option of advancing, delinquent payments of
principal and interest due on those mortgage loans, other than balloon
payments. If there are any limitations with respect to a party's advancing
obligations, we will discuss those limitations in the related prospectus
supplement.
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Advances are intended to maintain a regular flow of scheduled
interest and principal payments certificateholders. Advances are not a
guarantee against losses. The advancing party will be entitled to recover all
of its advances out of subsequent recoveries on the related mortgage loans,
including amounts drawn under any fund or instrument constituting credit
support, and out of any other specific sources identified in the related
prospectus supplement.
If and to the extent that we so specify in the related prospectus
supplement, any entity making advances will be entitled to receive interest on
some or all of those advances for a specified period during which they are
outstanding at the rate specified in that prospectus supplement. That entity
may be entitled to payment of interest on its outstanding advances
periodically from general collections on the mortgage assets in the related
trust, prior to any payment to the related series of certificateholders, or at
such other times and from such sources as we may describe in the related
prospectus supplement.
If any trust established by us includes mortgage-backed securities,
we will discuss in the related prospectus supplement any comparable advancing
obligations in respect of those securities or the mortgage loans that back
them.
Reports to Certificateholders
On or about each payment date, the related master servicer, manager
or trustee will forward to each offered certificateholder a statement
substantially in the form, or specifying the information, set forth in the
related prospectus supplement. In general, that statement will include
information regarding (i) the payments made on that payment date with respect
to the applicable class of offered certificates and (ii) the recent
performance of the mortgage assets.
Within a reasonable period of time after the end of each calendar
year, the related master servicer, manager or trustee, as the case may be,
will be required to furnish to each person who at any time during the calendar
year was a holder of an offered certificate a statement containing information
regarding the principal, interest and other amounts paid on the applicable
class of offered certificates, aggregated for that calendar year or the
applicable portion thereof during which the person was a certificateholder.
The obligation to provide that annual statement will be deemed to have been
satisfied by the related master servicer, manager or trustee, as the case may
be, to the extent that substantially comparable information is provided
pursuant to any requirements of the Internal Revenue Code of 1986.
See, also, "--Book-Entry Registration and Definitive Certificates"
below.
If one of our trusts includes mortgage-backed securities, the ability
of the related master servicer, manager or trustee, as the case may be, to
include in any payment date statement information regarding the mortgage loans
that back those securities will depend on comparable reports being received
with respect to them.
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Voting Rights
Voting rights will be allocated among the respective classes of
offered and non-offered certificates of each 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 governing
documents or as otherwise specified in the related prospectus supplement. See
"Description of the governing Documents--Amendment."
As and to the extent described in the related prospectus supplement,
the holders of specified amounts of certificates of a particular series will
have the right to act as a group to remove or replace the related trustee,
master servicer, special servicer or manager. In general, any such removal or
replacement must be for cause. We will identify exceptions in the related
prospectus supplement.
Termination
The trust for each series of offered certificates will terminate and
cease to exist following:
o the final payment or other liquidation of the last mortgage
asset in that trust; and
o the payment, or provision for payment, to the
certificateholders of that series of all amounts required to
be paid to them.
Written notice of termination of a trust will be given to each
affected certificateholder, and the final distribution will be made only upon
presentation and surrender of the certificates of the related series at the
location to be specified in the notice of termination.
If we so specify in the related prospectus supplement, one or more
designated parties will be entitled to purchase all of the mortgage assets
underlying a series of offered certificates, thereby effecting early
retirement of the certificates and early termination of the related trust. We
will describe in the related prospectus supplement the circumstances under
which that purchase may occur.
In addition, if we so specify in the related prospectus supplement,
on a specified date or upon the reduction of the aggregate principal balance
of a specified class or classes of certificates by a specified percentage or
amount, a party designated in the related prospectus supplement may be
authorized or required to solicit bids for the purchase of all the mortgage
assets of the related trust or of a sufficient portion of the mortgage assets
to retire that class or those classes of certificates. The solicitation of
bids must be conducted in a commercially reasonable manner, and assets will,
in general, be sold at their fair market value. If the fair market value of
the mortgage assets being sold is less than their unpaid balance, then the
certificateholders of one or more classes of certificates may receive an
amount less than the aggregate certificate principal balance of, and accrued
and unpaid interest on, their certificates.
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Book-Entry Registration and Definitive Certificates
Any class of offered certificates may be issued in book-entry form
through the facilities of DTC. If so ,that class will be represented by one or
more global certificates registered in the name of DTC or its nominee. If we
so specify in the related prospectus supplement, we will arrange for clearance
and settlement through the Euroclear System or CEDEL, S.A., for so long they
are participants in DTC.
DTC is:
o a limited-purpose trust company organized under the New York
Banking Law,
o a "banking corporation" within the meaning of the New York
Banking Law,
o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and
o 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 to
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 an account with
DTC. The rules applicable to DTC and DTC Participants are on file with the
SEC.
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 those
certificates will be recorded on the records of DTC or, alternatively, if the
beneficial owner's Financial Intermediary is not a DTC Participant, on the
records of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC. A
beneficial owner of book-entry certificates must rely on the foregoing
procedures to evidence its beneficial ownership of those certificates. The
beneficial ownership interest of the owner of a book-entry certificate 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 beneficial owners of the
book-entry certificates. DTC's records reflect only the identity of the DTC
Participants to whose accounts those certificates are credited, which may or
may not be the actual beneficial owners. The DTC Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC
Participants, and by DTC Participants to Financial Intermediaries and
beneficial owners, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
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Payments on the book-entry certificates will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the related payment 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 that date.
Disbursement of such payments by DTC Participants to Financial Intermediaries
and beneficial owners will be--
o 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",
o the sole responsibility of each such DTC Participant,
subject to any statutory or regulatory requirements in
effect from time to time.
Under a book-entry system, beneficial owners may receive payments
after the related payment date.
The only "certificateholder" of book-entry certificates will be DTC
or its nominee. Parties to the governing documents for any series of offered
certificates need not recognize beneficial owners of book-entry certificates
as "certificateholders". The beneficial owners of book-entry certificates will
be permitted to exercise the rights of "certificateholders" only indirectly
through the DTC Participants, who in turn will exercise their rights through
DTC. We have been informed that DTC will take action permitted to be taken by
a "certificateholder" only at the direction of one or more DTC Participants.
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 those certificates.
Because DTC can act only on behalf of DTC Participants, who in turn
act on behalf of Financial Intermediaries and certain beneficial owners, the
ability of a beneficial owner to pledge its interest in a class of book-entry
certificates to persons or entities that do not participate in the DTC system,
or otherwise to take actions in respect of its interest in a class of
book-entry certificates, may be limited due to the lack of a physical
certificate evidencing such interest.
Unless we specify otherwise in the related prospectus supplement,
beneficial owners of affected offered certificates initially issued in
book-entry form will not be able to obtain physical certificates that
represent those offered certificates, unless:
o we advise the related trustee in writing that DTC is no
longer willing or able to discharge properly its
responsibilities as depository with respect to those offered
certificates and we are unable to locate a qualified
successor; or
o we elect, at our option, to terminate the book-entry system
through DTC with respect to those offered certificates.
Upon the occurrence of either of the two events described above, DTC
will be required to notify all DTC Participants of the availability through
DTC of physical certificates with respect to the affected offered
certificates. Upon surrender by DTC of the certificate or certificates
representing a class of book-entry offered certificates, together with
instructions for registration, the related trustee or other designated party
will be required to issue to the beneficial owners identified in those
instructions physical certificates representing those offered certificates.
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DESCRIPTION OF THE GOVERNING DOCUMENTS
General
The offered certificates of each series will be issued pursuant to a
pooling and servicing agreement or other similar agreement or collection of
agreements (individually and collectively, the "Governing Documents"). In
general, the parties to the Governing Document for a series of offered
certificates will include us, a trustee, a master servicer and a special
servicer. However, if the related trust assets include mortgage-backed
securities, the Governing Document may include a manager as a party, but may
not include a master servicer, special servicer or other servicer as a party.
We will identify in the related prospectus supplement the parties to the
Governing Document for a series of offered certificates.
If we so specify in the related prospectus supplement, a party from
whom we acquire mortgage assets or one of its affiliates may perform the
functions of master servicer, special servicer or manager for the trust to
which we transfer those assets. If we so specify in the related prospectus
supplement, the same person or entity may act as both master servicer and
special servicer for one of our trusts.
Any party to the Governing Document for a series of offered
certificates, or any of its affiliate, may own certificates issued thereunder.
However, except in limited circumstances, including with respect to required
consents to certain amendments to the Governing Document for a series of
offered certificates, certificates that are held by the related master
servicer, special servicer or manager 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 the Governing Document for each series of offered
certificates will vary depending upon the nature of the certificates to be
issued thereunder and the nature of the related trust assets. The following
summaries describe certain provisions that may appear in the Governing
Document for each series of offered certificates. The prospectus supplement
for each series of offered certificates will provide material additional
information regarding the Governing Document for that series. The summaries in
this prospectus do not purport to be complete, and you should refer to the
provisions of the Governing Document for your certificates and, further, to
the description of those provisions in the related prospectus supplement. We
will provide a copy of the Governing Document, exclusive of exhibits, that
relates to your certificates, without charge, upon written request addressed
to our principal executive offices specified under "DLJ Commercial Mortgage
Corp."
Assignment of Mortgage Assets
At the time of initial issuance of any series of offered
certificates, we will assign or cause to be assigned to the designated trustee
the mortgage assets to be included in the related trust, together with certain
related assets. We will specify in the related prospectus all material
documents in respect of the related mortgage assets that will be delivered to
the related trustee, and all other actions to be taken by us or any prior
holder of the related mortgage assets, in connection with that assignment.
Concurrently with that assignment, the related trustee will deliver to us or
our designee the certificates of that series in exchange for the mortgage
assets and the other assets to be included in the related trust.
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Each mortgage asset included in one of our trusts will be identified
2in a schedule appearing as an exhibit to the related Governing Documents. That
schedule generally will include detailed information about each mortgage asset
transferred to the related trust, including:
o in the case of a mortgage loan, the address of the related
real property and the type of that property; the mortgage
interest rate and, if applicable, the applicable index,
gross margin, adjustment date and any rate cap information;
the remaining term to maturity; the remaining amortization
term; and the outstanding principal balance; and
o in the case of a mortgage-backed security, the outstanding
principal balance and the pass-through rate or coupon rate.
Representations and Warranties with respect to Mortgage Assets; Repurchases
and Other Remedies
Unless we state otherwise in the prospectus supplement for any series
of offered certificates, we will, with respect to each mortgage asset in the
related trust, 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:
o the accuracy of the information set forth for each mortgage
asset on the schedule of mortgage assets appearing as an
exhibit to the Governing Document for that series;
o the Warranting Party's title to each mortgage asset and the
authority of the Warranting Party to sell that mortgage
asset; and
o 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."
We will identify the Warranting Party, and give a more complete
sampling of the representations and warranties made thereby, in the related
prospectus supplement. We will also specify in the related prospectus
supplement any remedies against the warranting party available to the related
certificateholders, or the related trustee on their behalf, in the event of a
breach of any of those representations and warranties. In most cases, the
Warranting Party will be a prior holder of the particular mortgage assets.
Collection and Other Servicing Procedures with respect to Mortgage Loans
The Governing Document for each series of offered certificates will
govern the servicing and administration of any mortgage loans included in the
related trust.
In general, the related master servicer and special servicer,
directly or through sub-servicers, will be obligated to service and administer
for the benefit of the related certificateholders the mortgage loans in any of
our trusts. The master servicer and the special servicer will be required to
service and administer those mortgage loans in accordance with applicable law
and, further, in accordance with the terms of the related Governing Document,
the mortgage loans themselves and any instrument of credit support included in
that
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trust. 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 that 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 for one of our trusts will be required to make reasonable
efforts to collect all payments called for under the terms and provisions of
the related mortgage loans that it services and, in general will be obligated
to follow the same collection procedures as it would follow for comparable
mortgage loans held for its own account, provided that:
(i) those procedures are consistent with the terms of the related
Governing Document; and
(ii) they do not impair recovery under any instrument of credit
support included in the related trust.
Consistent with the foregoing, the master servicer and the special servicer
will each be permitted, in its discretion, to waive any default charge in
connection with collecting a late payment on any defaulted any mortgage loan.
The master servicer and/or the special servicer for one or our
trusts, directly or through sub-servicers, will also be required to perform
various other customary functions of a servicer of comparable loans,
including:
o maintaining escrow or impound accounts for the payment of
taxes, insurance premiums, ground rents and similar items,
or otherwise monitoring the timely payment of those items;
o ensuring that the related properties are properly insured;
o attempting to collect delinquent payments;
o supervising foreclosures;
o negotiating modifications;
o responding to borrower requests for partial releases of the
encumbered property, easements, consents to alteration or
demolition and similar matters;
o protecting the interests of certificateholders with respect
to senior lienholders;
o conducting inspections of the related real properties on a
periodic or other basis;
o collecting and evaluating financial statements for the related
real properties;
o managing or overseeing the management of real properties
acquired on behalf of the trust through foreclosure,
deed-in-lieu of foreclosure or otherwise; and
o maintaining servicing records relating to mortgage loans in
the trust.
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We will specify in the related prospectus supplement when, and the
extent to which, servicing of a mortgage loan is to be transferred from a
master servicer to a special servicer. In general, a special servicer for any
of our trusts will be responsible for the servicing and administration of:
o mortgage loans that are delinquent in respect of a specified
number of scheduled payments;
o mortgage loans as to which there is a material non-monetary
default;
o 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
o real properties acquired as part o the trust in respect of
defaulted mortgage loans.
The related Governing Document may also may provide that if a default on a
mortgage loan in the related trust 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 of that mortgage
loan, in whole or in part, to the related special servicer. When the
circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan, such as when the related borrower is paying in
accordance with the forbearance arrangement entered into between the special
servicer and that borrower, the master servicer will generally resume the
servicing duties with respect to the particular mortgage loan.
Unless we state otherwise in the related prospectus supplement, the
master servicer for your series will be responsible for filing and settling
claims in respect of particular mortgage loans for your series under any
applicable instrument of credit support. See "Description of Credit Support"
in this Prospectus.
A borrower's failure to make required mortgage loan payments may mean
that operating income from the related real borrower's property 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 borrower
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 real
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 real property, initiate corrective
action in cooperation with the mortgagor if cure is likely, inspect the
related real property and take such other actions as it deems necessary and
appropriate. A significant period of time may elapse before a special servicer
is able to assess the success of any such corrective action or the need for
additional initiatives. The time within which a 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 real property in
lieu of foreclosure) on behalf of the certificateholders of the related series
may vary considerably depending on the particular mortgage loan, the related
real property, the borrower, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the related real
Property is located. If a borrower files a bankruptcy petition, the special
servicer may not be permitted to accelerate the maturity of the defaulted loan
or to foreclose on the related real property for a considerable period of
time. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
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A special servicer may also perform certain limited duties in respect
of mortgage loans for which the master servicer is primarily responsible, such
as performing property inspections and collecting evaluating financial
statements. A master servicer may perform certain limited duties in respect of
any mortgage loan for which the special servicer is primarily responsible,
such as continuing to receive payments on the mortgage loan, making certain
calculations with respect to the mortgage loan and making remittances and
preparing certain reports to the related trustee and/or certificateholders
with respect to such mortgage loan. The duties of the master servicer and
special servicer for your series will be more fully described in the related
prospectus supplement.
Sub-Servicers
A master servicer or special servicer may delegate its servicing
obligations to one or more third-party servicers or sub-servicers. However,
unless we specify otherwise in the related prospectus supplement, the master
servicer or Special Servicer will remain obligated under the related Governing
Document. Each sub-servicing agreement between a master servicer or special
servicer, as applicable, and a sub-servicer must provide for servicing of the
applicable mortgage loans consistent with the related Governing Document. Any
master servicer and special servicer for one of our trusts will each be
required to monitor the performance of sub-servicers retained by it.
Unless we specify otherwise in the related Prospectus Supplement, any
master servicer or special servicer for the related trust will be solely
liable for all fees owed by it to any sub-servicer, regardless of whether the
master servicer's or special servicer's compensation pursuant to the related
Governing Document is sufficient to pay those fees. Each sub-servicer will be
entitled to reimbursement from 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 the master servicer or special servicer would be
reimbursed under the related Governing Document.
Collection of Payments on Mortgage-Backed Securities
Unless we specify otherwise in the related prospectus supplement, if
a mortgage-backed security is included among the trust assets underlying any
series of offered certificates, then--
o that mortgage-backed security will be registered in the name
of the related trustee or its designee;
o the related trustee will receive payments on that
mortgage-backed security; and
o subject to any conditions described in the related
prospectus supplement, the related prospectus supplement,
the related trustee or a designated manager will, on behalf
and at the expense of the trust, exercise all rights and
remedies in respect of that mortgaged-backed security,
including the prosecution of any legal action necessary in
connection with any payment default.
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Certain Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator, the Manager and the Depositor
Unless we specify otherwise in the related prospectus supplement, no
master servicer, special servicer or manager for any of our trusts may resign
from its obligations in such capacity, except upon--
o the appointment of, and the acceptance of such appointment
by, a successor to the resigning party and receipt by the
related trustee of written confirmation from each applicable
rating agency that the resignation and appointment will not
result in a withdrawal or downgrade of any rating assigned
by that rating agency to any class of certificates of the
related series, or
o a determination that those 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 the resigning party.
In general, no resignation will become effective until the related
trustee or other successor has assumed the obligations and duties of the
resigning master servicer, special servicer or manager, as the case may be.
Each master servicer, special servicer and, if it receives distributions on
mortgage-backed securities, manager for one of our trusts 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 such limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions as may be permitted by the rating
agencies assigning ratings to the related series of certificates.
In no event will we, any master servicer, special servicer or manager
for one of our trusts, or any of our or their respective directors, officers,
employees or agents be under any liability to the related trust or
certificateholders for any action taken, or not taken, in good faith pursuant
to the Governing Document for any series of certificates or for errors in
judgment. None of those persons or entities will be protected, however,
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 under the Governing Document for any series of certificates or by
reason of reckless disregard of those obligations and duties.
Furthermore, the Governing Document for each series of offered
certificates will entitle us, the master servicer, special servicer and/or
manager for the related trust, and our and their respective directors,
officers, employees and agents to indemnification out of the related trust
assets for any loss, liability or expense incurred in connection with any
legal action that relates to that Governing Document or series of offered
certificates or to the related trust. The indemnification will not extend,
however, 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 that Governing Document, or by reason of reckless disregard of
those obligations or duties.
Neither we nor any master servicer, special servicer or manager for
the related trust will be under any obligation to appear in, prosecute or
defend any legal action that is not incidental to its respective
responsibilities under the Governing Document for any series of offered
certificates or that in its opinion may involve it in any ultimate expense or
liability. However, we and each of those other parties undertake any legal
action that may be necessary or desirable with respect to the enforcement
and/or protection of the rights
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and duties of the parties to the Governing Document for any series of offered
certificates and the interests of the certificateholders of that series under
such Government Document. In that event, the legal expenses and costs of the
action, and any liability resulting therefrom, will be expenses, costs and
liabilities of the related trust and payable out of related trust assets.
Any person into which we or any related master servicer, a special
servicer or manager may be merged or consolidated, or any person resulting
from any merger or consolidation to which we or any related master servicer,
special servicer, manager is a party, or any person succeeding to the business
of us or any related master servicer, special servicer or manager, will be the
successor of us or that master servicer, special servicer or manager, as the
case may be, under the Governing Document for each series of offered
certificates.
The compensation arrangements with respect to the master servicer,
special servicer and/or manager for any of our trusts will be set forth in the
related prospectus supplement. In general, that compensation will be payable
out of the related trust assets.
Events of Default
We will identify in related prospectus supplement the various events
of default under the Governing Document for each series of offered
certificates for which any related master servicer, special servicer or
manager may be terminated in that capacity.
Amendment
The Governing Document for each series of offered certificates may be
amended by the parties thereto, without the consent of any of the holders of
those certificates, or of any non-offered certificates of the same series for
the following reasons:
(i) to cure any ambiguity;
(ii) to correct, modify or supplement any provision in the
Governing Document 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 under the Governing Documents that are not
inconsistent with the existing provisions of that document;
(iv) to the extent applicable, to relax or eliminate any
requirement under the Governing Document imposed by the
provisions of the Internal Revenue Code of 1986 relating to
REMICs if the provisions of that Code are amended or
clarified so as to allow for the relaxation or elimination
of that requirement;
(v) to relax or eliminate any requirement under the Governing
Document imposed by the Securities Act or the rules under
that Act if the Securities Act or those rules are amended or
clarified so as to allow for the relaxation or elimination
of that requirement;
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(vi) to comply with any requirements imposed by the Internal
Revenue Code of 1986 or any final, temporary or, in some
cases, proposed regulation, revenue ruling, revenue
procedure or other written official announcement or
interpretation relating to federal income tax laws, or to
avoid a prohibited transaction or reduce the incidence of
any tax that would arise from any actions taken with respect
to the operation of any REMIC created under the Governing
Document;
(vii) to the extent applicable, to modify, add to or eliminate
certain transfer restrictions relating to the certificates
which are "residual interests" in a REMIC; or
(viii) for any other purpose.
However, no amendment of the Governing Document for any series of
offered certificates, other than an amendment for any of the specific purposes
described in clauses (vi) and (vii) above, may adversely affect in any
material respect the interests of any holders of offered or non-offered
certificates of that series. In addition, no amendment of the Governing
Document for any series of offered certificates covered solely by clause
(viii) above may result in a downgrade or withdrawal of any then current
rating assigned to any class of certificates of the related series, as
evidenced by written confirmation to that effect from each applicable rating
agency obtained by or delivered to the related trustee.
In general, the Governing Agreement for a series of offered
certificates may also be amended by the parties to that document, with the
consent of the holders of offered and non-offered certificates representing,
in the aggregate, not less than 66-2/3%, or such other percentage specified in
the related prospectus supplement, of all the voting rights allocated to those
classes of that series that are affected by the amendment. However, the
Governing Document for a series of offered certificates may not be amended
to--
o 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 any offered or non-offered
certificate of that series without the consent of the holder
of that certificate; or
o adversely affect in any material respect the interests of
the holders of any class of offered or non-offered
certificates of that series in any other manner without the
consent of the holders of all certificates of that class; or
o modify the provisions of the Governing Document relating to
amendments thereof without the consent of the holders of all
offered and non-offered certificates of that series then
outstanding.
List of Certificateholders
Upon written request of three or more certificateholders of record of
any series made for purposes of communicating with other holders of
certificates of the same series with respect to their rights under the related
Governing Document, the related trustee or other certificate registrar of that
series will afford the requesting certificateholders access during normal
business hours to the most recent list of certificateholders of that series.
If the list is as of a date more than ninety (90) days prior to the date of
receipt of such certificateholders' request, then the trustee, if it is not
the certificate registrar for that series, will be required to request from
the registrar a current list and to provide access to the current list
promptly upon receipt.
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The Trustee
The trustee for each series of offered certificates will be named in
the related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee for
any series of offered certificates may have typical banking relationships with
the us and our affiliates and with any of the other parties to the related
Governing Document and its affiliates.
Duties of the Trustee
The trustee for each series of offered certificates will make no
representation as to the validity or sufficiency of those certificates, the
related Governing Document 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 Governing Document of any funds paid
to that party in respect of those certificates or the underlying 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 Governing Document. However, upon receipt of any of
the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Governing Document, the trustee must
examine those documents and determine whether they conform to the requirements
of that Governing Document.
Certain Matters Regarding the Trustee
As and to the extent described in the related prospectus supplement,
the fees and normal disbursements of the trustee for any series of offered
certificates may be the expense of the related master servicer or other
specified person or may be required to be paid by the related trust assets.
The trustee for each series of offered certificates will be entitled
to indemnification, out of related trust assets, for any loss, liability or
expense incurred by that trustee in connection with its acceptance or
administration of its trusts under the related Governing Document. The
indemnification of a trustee 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 under
the related Governing Document, or by reason of its reckless disregard of
those obligations or duties.
The trustee for each series of offered certificates will be entitled
to execute any of its trusts or powers and perform any of its duties under the
related Governing Document, either directly or by or through agents or
attorneys. 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 of offered certificates may resign at any
time. We will be obligated to appoint a successor to a resigning trustee. We
may also remove the trustee for any series of offered certificates if that
trustee ceases to be eligible to continue as such under the related Governing
Document or if that trustee becomes insolvent. Unless we indicate otherwise in
the related prospectus supplement, the trustee for any series of offered
certificates may also be removed at any time by the holders of the offered and
non-offered certificates of that series evidencing not less than 51%, or such
other percentage specified in the related prospectus supplement, of the voting
rights for that series. However, if the removal was without
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cause, the certificateholders effecting the 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.
DESCRIPTION OF CREDIT SUPPORT
General
Credit support may be provided with respect to one or more classes of
the offered certificates of any series or with respect to the related mortgage
assets. That credit support may be in the form of any of the following:
o the subordination of one or more other classes of certificates
of the same series;
o the use of a letter of credit, a surety bond, an insurance
policy or a guarantee;
o the establishment of one or more reserve funds; or
o any combination of the foregoing.
If and to the extent described in the related prospectus supplement,
any of the above forms of credit support may provide credit enhancement for
non-offered certificates, as well as offered certificates, or for more than
one series of certificates.
If you are the beneficiary of any particular form of credit support,
that credit support may not protect you against all risks of loss and will not
guarantee payment to you of all amounts to which you are entitled under your
certificates. If losses or shortfalls occur that exceed the amount covered by
that credit support or that are of a type not covered by that credit support,
you will bear your allocable share of deficiencies. Moreover, if that credit
support covers the offered certificates of more than one class or series and
total losses on the related mortgage assets exceed the amount of that credit
support, it is possible that the holders of offered certificates of other
classes and/or series will be disproportionately benefited by that credit
support to your detriment.
If you are the beneficiary of any particular form of credit support,
we will include in the related prospectus supplement a description of the
following:
o the nature and amount of coverage under that credit support;
o any conditions to payment not otherwise described in this
prospectus;
o any conditions under which the amount of coverage under that
credit support may be reduced and under which that credit
support may be terminated or replaced; and
o the material provisions relating to that credit support.
Additionally, we will set forth in the related prospectus supplement certain
information with respect to the obligor, if any, under any instrument of
credit support.
Subordinate Certificates
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If and to the extent described in the related prospectus supplement,
one or more classes of certificates of any series may be subordinate to one or
more other classes of certificates of that series. If you purchase subordinate
certificates, your right to receive distributions out of collections and
advances on the related trust assets on any payment date will be subordinated
to the corresponding rights of the holders of the more senior classes of
certificates. If and to the extent described 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. In the related prospectus
supplement, we 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 that subordination will be available.
If the mortgage assets in any trust established us 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 those mortgage assets prior to
distributions on subordinate certificates evidencing interests in a different
group of those mortgage assets. We will describe in the related prospectus
supplement the manner and conditions for applying any cross-support
provisions.
Insurance or Guarantees with Respect to Mortgage Loans
The mortgage loans included in any trust established by us may be
covered for certain default risks by insurance policies or guarantees. If so,
we will describe in the related prospectus supplement the nature of such
default risks and the extent of such coverage.
Letter of Credit
If and to the extent described in the prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates
or certain classes of those certificates will be covered by one or more
letters of credit, issued by a bank or other financial institution specified
in the related prospectus supplement (the "Letter of Credit Bank"). Under a
letter of credit, the Letter of Credit Bank will be obligated to honor draws
under the letter of credit in an aggregate fixed dollar amount, net of
unreimbursed payments under the letter of credit, 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 as of the date
the related trust was formed or of the initial aggregate principal balance of
one or more classes of certificates of the applicable series. The letter of
credit may permit draws only in the event of certain types of losses and
shortfalls. The amount available under the letter of credit will, in all
cases, be reduced to the extent of the unreimbursed payments thereunder and
may otherwise be reduced as described in the related prospectus supplement.
The obligations of the Letter of Credit Bank under the letter of credit for
any series of offered certificates will expire at the earlier of the date
specified in the related prospectus supplement or the termination of the
related trust.
Certificate Insurance and Surety Bonds
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates
or certain classes of those certificates will be covered by insurance policies
or surety bonds provided by one or more insurance companies or sureties. Those
instruments may cover, with respect to one or more classes of the offered
certificates of the related series, timely distributions of interest and
principal or timely distributions of interest and distributions of principal
on the basis of a
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schedule of principal distributions set forth in or determined in the manner
specified in the related prospectus supplement. We will describe in the
related prospectus supplement any limitations on the draws that may be made
under any such instrument.
Reserve Funds
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates
or certain classes of those certificates 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 of the
foregoing, will be deposited, in the amounts specified in the related
prospectus supplement. If and to the extent described in the related
prospectus supplement, the reserve fund for the related series of offered
certificates may also be funded over time.
Amounts on deposit in any reserve fund for a series of offered
certificates will be applied for the purposes, in the manner, and to the
extent specified in the related prospectus supplement. If and to the extent
described in the related prospectus supplement, reserve funds may be
established to provide protection only against certain types of losses and
shortfalls. Following each payment date for the related series of offered
certificates, amounts in a reserve fund in excess of any required balance may
be released from the reserve fund under the conditions and to the extent
specified in the related prospectus supplement.
Credit Support with Respect to MBS
If and to the extent described in the related prospectus supplement,
any mortgage-backed security included in one of our trusts and/or the mortgage
loans that back that security may be covered by one or more of the types of
credit support described in this prospectus. We will specify in the related
prospectus supplement, as to each such form of credit support, the information
indicated above with respect to that mortgage-backed security, to the extent
that the information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
However, most, if not all, of the underlying mortgage loans will be
secured by multifamily and commercial properties in the United States. Some
mortgage loans underlying a series of offered certificates may be secured by
multifamily and commercial properties outside the United States.
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by multifamily and commercial properties in
the United States. Because these legal aspects are governed by applicable
state law and these 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 jurisdictions in which the security for the mortgage
loans underlying the offered certificates is situated. Accordingly, you should
be aware that the summaries are qualified in their entirety by reference to
the applicable laws of those states. See "Description of the Trust
Assets--Mortgage Loans."
If a significant percentage of mortgage loans underlying a series of
offered certificates, are secured by properties in a particular state, we will
discuss the relevant state laws, to the extent they vary materially from this
discussion, in the related prospectus supplement. For purposes of this
discussion, "mortgage loan"
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means a multifamily or commercial mortgage loan that directly or indirectly
backs a series of offered certificates.
General
Each mortgage loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property. The instrument
granting a security interest in real property 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 by the mortgage, 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. The priority of the lien, in some cases, will depend on--
o the terms of separate subordination agreements or
intercreditor agreements with others that hold interests in
the real property,
o the knowledge of the parties to the mortgage, and
o in general, 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--
o a mortgagor, who is the owner of the encumbered interest
into the subject property and usually the borrower, and
o a mortgagee, who is the lender.
In contrast, a deed of trust is a three-party instrument. The parties
to a deed of trust are--
o the trustor, the equivalent of a mortgagor,
o the trustee to whom the real property is conveyed, and
o the beneficiary who is for whose benefit the conveyance is
made, who is the lender.
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.
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A deed to secure debt typically has two parties. Pursuant to a deed
to secure debt, the grantor, who is the equivalent of a mortgagor, conveys
title to the real property to the grantee, who is the lender, generally with a
power of sale, until the debt is repaid.
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:
o the express provisions of the related instrument,
o the law of the state in which the real property is located,
o certain federal laws, and
o 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. Under an assignment of rents and leases, the
borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived from each lease, while
retaining a revocable license to collect the rents, provided there is no
default and the rents are not directly paid to the lender. 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 (the "UCC"). Room rates are
generally pledged by the borrower as additional security for the loan when a
hotel or motel is loan security. 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
that perfection. Mortgage loans secured by hotels or motels may be included in
one of our trusts even if the security interest in the room rates was not
perfected or the requisite UCC filings were allowed to lapse. A lender will
generally be required to commence a foreclosure action or otherwise take
possession of the property in order to enforce its rights to collect the room
rates following a default, even if the lender's security interest in room
rates is perfected under applicable nonbankruptcy law.
In the bankruptcy setting, the lender will be stayed from enforcing
its rights to collect hotel and motel room rates. However, the room rates will
constitute "cash collateral" and cannot be used by the bankrupt borrower
without a hearing or the lender's consent or unless the lender's interest in
the room rates is given adequate protection, such as a 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 bankrupt
borrower proposes to use. See "--Bankruptcy Laws" in this prospectus.
Personalty
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Certain types of mortgaged properties, such as hotels, motels and
nursing homes, may include personal property which may, to the extent owned by
the borrower and not previously pledged, 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 in the
personal property 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 one of our trusts even if the
security interest in the 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. The two (2) primary
methods of foreclosing a mortgage are--
o judicial foreclosure, involving court proceedings, and
o 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. A
foreclosure action 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. The court generally issues a judgment of foreclosure and
appoints a referee or other officer to conduct a public sale of the mortgaged
property upon successful completion of a judicial foreclosure proceeding. The
proceeds of such public sale 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:
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o alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression
or overreaching;
o 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;
o require the lender to reinstate a loan or recast a payment
schedule in order to accommodate a borrower that is
suffering from a temporary financial disability; or
o limit 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.
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 its mortgage loan 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 a nonjudicial public 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 mortgage
property at a public sale because of--
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o the difficulty in determining the exact status of title to
the property due to, among other things, redemption rights
that may exist, and
o 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 and
become the owner thereof, subject to the borrower's right in some states to
remain in possession during a redemption period. In that case, the lender will
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 repairs 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. Whether, the ultimate proceeds of the sale of
the property equal the lender's investment in the property depends upon market
conditions. 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.
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 exercising 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, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property after sale pursuant to a deed of trust
or foreclosure of a mortgage. 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. A
statutory right of redemption will 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.
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Anti-Deficiency Legislation. Some or all of the mortgage loans may be
nonrecourse loans. Therefore, recourse in the case of default on such a
mortgage loan 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 the security, but in doing
so, the lender may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders will
usually proceed first against the security in states where an election of
remedy provision exists. 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 under 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:
o requires the lessor to give the leasehold mortgagee notices
of lessee defaults and an opportunity to cure them,
o permits the leasehold estate to be assigned to and by the
leasehold mortgagee or the purchaser at a foreclosure sale,
and
o contains certain other protective provisions typically
included in a "mortgageable" ground lease.
Certain mortgage loans, however, may be secured by ground leases
which do not contain these provisions.
Cooperative Shares. Mortgage loans may be secured by a security
interest on the borrower's ownership interest in shares, and the proprietary
leases belonging to those shares, allocable to cooperative dwelling units that
may be vacant or occupied by nonowner tenants. Loans secured in this manner
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of a borrower in real property. The 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 is subject to
various regulations as well as to restrictions under the governing documents
of the cooperative. 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, that the lender may cure a default under a
proprietary lease.
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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 corporation to
receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the U.S. 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 U.S.
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 of the delay caused by an automatic stay can be
significant. Also, under the U.S. 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 the junior lien.
Under the U.S. bankruptcy code, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances provided that substantive and procedural safeguards protective
of the lender are met. A bankruptcy court may, among other things--
o reduce the secured portion of the outstanding amount of the
loan to the then-current value of the property, thereby
leaving the lender a general unsecured creditor for the
difference between the then-current value of the property
and the outstanding balance of the loan;
o reduce 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;
o extend or shorten the term to maturity;
o permit the bankrupt borrower to cure of a mortgage loan
default by paying the arrearage over a number of years; or
o permit the bankrupt borrower, 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.
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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. A lender may
be stayed from enforcing the assignment under the U.S. bankruptcy code. In
addition, the legal proceedings necessary to resolve the issue could be
time-consuming, and result in delays in the lender's receipt of the rents.
However, recent amendments to the U.S. bankruptcy code 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 above, the amendments provide that a
pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further
action, such as commencing foreclosure or obtaining a receiver prior to
activation of the assignment of rents.
A borrower's ability to make payment on a mortgage loan may be
impaired by the commencement of a bankruptcy case relating to the tenant under
a lease of the related property. Under the U.S. bankruptcy code, the filing of
a petition in bankruptcy by or on behalf of a tenant 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 tenant's bankruptcy petition. In addition, the U.S.
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, 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. These remedies may be insufficient, and any assurances
provided to the lessor may be inadequate. If the lease is rejected, the lessor
will be treated, except potentially to the extent of any security deposit, as
an unsecured creditor with respect to its claim for damages for termination of
the lease. The U.S. bankruptcy code also limits a lessor's damages for lease
rejection to:
o the rent reserved by the lease without regard to
acceleration for the greater of one (1) year, or 15%, not to
exceed three (3) years, of the remaining term of the lease,
plus
o 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.
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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 the mortgaged
property or the operations of the borrower. 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,
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 LiabilityAct") 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--
o it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling
and disposal practices, or
o 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. These laws, as well as common law standards,
may impose liability for releases of or exposure to asbestos-containing
materials and may provide for third parties to seek recovery from owners or
operators of real properties for personal injuries associated with such
releases.
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Recent federal legislation will 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 disclose. 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 these circumstances exist may be held liable for injuries and
for the costs of removal or encapsulation of the lead-based paint.
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 related to hazardous environmental conditions on a property,
such as actions based on nuisance or on toxic tort resulting in death,
personal injury or damage to property. While it may be more difficult to hold
a lender liable under common law causes of action, 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. These 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. However, that individual or entity may
be without substantial assets. Accordingly, it is possible that the costs
could become a liability of the related trust and occasion a loss to the
related certificateholders.
If the operations on a foreclosed property are subject to
environmental laws and regulations, the lender will be required to operate the
property in accordance with those laws and regulations. This compliance may
entail substantial expense, especially in the case of industrial or
manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers,
including prospective buyers at a foreclosure sale or following foreclosure.
This disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially.
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 series of offered 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
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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 a
mortgaged property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce these
clauses in many states. However, the Garn-St Germain Depository Institutions
Act of 1982 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 prescribed in that Act and
the regulations promulgated thereunder.
Junior Liens; Rights of Holders of Senior Liens
Any of our trusts may include mortgage loans secured by junior liens,
and the loans secured by the related senior liens may not be included in that
trust. 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
loans and the junior 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 as
follows:
o first, to the payment of court costs and fees in connection
with the foreclosure;
o second, to real estate taxes;
o 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; and
o last, in satisfaction of all principal, interest, prepayment
and acceleration penalties, if any, and any other sums due
and owing to the holder of the junior mortgage loan.
Subordinate Financing
The terms of certain of the mortgage loans underlying the offered
certificates may not restrict the ability of the borrower to use the mortgaged
property as security for one or more additional loans, or the restrictions may
be unenforceable. Where a borrower encumbers a mortgaged property with one or
more junior liens, the senior lender is subjected to the following additional
risks:
o the borrower may have difficulty servicing and repaying
multiple loans;
o 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;
o acts of the senior lender that prejudice the junior lender
or impair the junior lender's security, such the senior
lender's agreeing to an increase in the principal amount of
or the interest rate payable on the senior loan, may create
a superior equity in favor of the junior lender;
o 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; and
o the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
Default Interest and Limitations on Prepayments
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Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made.
They may also contain provisions that prohibit prepayments for a specified
period and/or condition prepayments upon the borrower's payment of prepayment
premium, fee or charge. 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
premiums, fees and charges 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
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.
Certain Laws and Regulations
The multifamily and commercial properties are subject to compliance
with various federal, state and local statutes and regulations. Failure to
comply, together with an inability to remedy any failure, could result in
material diminution in the value of a mortgaged property.
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, the altered portions are readily accessible to
and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose 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.
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Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of the 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 the 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
underlying the offered certificates. 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 certificates 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 the certificates. In addition, the Relief Act imposes
limitations that would impair the ability of a 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 after the active duty status ceases.
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, those 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--
o its mortgage was executed and recorded before commission of
the crime upon which the forfeiture is based, or
o 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.
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FEDERAL INCOME TAX CONSEQUENCES
General
This is a general discussion of the material federal income tax
consequences of owning the offered certificates. To the extent it relates to
matters of law or legal conclusions, it represents the opinion of counsel to
the depositior, subject to any qualifications as may be expressed in this
discussion. Unless otherwise specified in the related prospectus supplement,
counsel to the depositor for each series will be Sidley & Austin.
This discussion is directed to certificateholders that hold the offered
certificates as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (for purposes of this "Federal Income Tax
Consequences" section, the "Code"). It does not purport to discuss all federal
income tax consequences that may be relevant to owners of the offered
certificates, particularly as to investors subject to special treatment under
the Code, such as:
o banks,
o insurance companies and
o foreign investors.
Further, this discussion and the opinion referred to below are based on
authorities that can change, or be differently interpreted, with possible
retroactive effect. No rulings have been or will be sought from the Internal
Revenue Service ("IRS") with respect to any of the federal income tax
consequences discussed below. Accordingly, the IRS may take contrary positions.
Investors 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, even if this discussion addresses an issue regarding the tax
treatment of the owner of certificates, investors should consult their own tax
advisors regarding that issue. Investors should do so not only as to federal
taxes, but also under state and local taxes. See "State and Other Tax
Consequences".
The following discussion addresses securities of two general types:
(i) certificates representing interests in
a trust, or a portion thereof, as to which a designated
party under the related Governing Document (the "REMIC
Administrator") will make a real estate mortgage investment
conduit ("REMIC") election under Sections 860A through 860G
of the Code, and
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(ii) certificates ("Grantor Trust Certificates") representing
interests in a trust or a portion thereof (a "Grantor Trust
Fund"), as to which no 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 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 the offered
certificates. Moreover, this discussion applies only to the extent that mortgage
assets held by a trust consist solely of mortgage loans. To the extent that
other trust assets, including mortgage-backed securities, are to be held by a
trust, the tax consequences associated with the inclusion of such assets will be
disclosed in the related prospectus supplement.
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").
It is also based on the rules governing REMICs in Sections 860A-860G of the Code
and in the Treasury regulations issued under those statutes (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 offered certificates.
REMICs
Classification of REMICs. With respect to each series as to which the
REMIC administrator will make a REMIC election, counsel to depositor will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Governing Document and certain other documents, and
subject to certain assumptions set forth therein, the related trust, 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
"regular interests" (such certificates, the "REMIC Regular Certificates") or the
sole class of "residual interests" (such certificates, the "REMIC Residual
Certificates") in that REMIC within the meaning of sections 860A-860G of the
Code.
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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 related trust's income
for the period in which the requirements for the status are not satisfied. The
Governing Document with respect to each REMIC will include provisions designed
to maintain the related trust's status as a REMIC under the Code. It
is not anticipated that the status of any trust as a REMIC will be inadvertently
terminated.
Characterization of Investments in REMIC Certificates. In general,
unless we specify otherwise in the related prospectus supplement, the REMIC
Certificates will be in the same proportion that the assets of the REMIC are:
o "real estate assets" within the meaning of Section 856(c)(5)(B) of
the Code, and
o assets described in Section 7701(a)(19)(C) of the Code.
However, to the extent that the REMIC assets constitute mortgages on property
not used for residential or certain other prescribed purposes, the REMIC
Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such certificates are treated as "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code. In addition, the REMIC Regular
Certificates will be:
o "qualified mortgages" within the meaning of Section 860G(a)(3) of
the Code in the hands of another REMIC, and
o "permitted assets" under Section 860L(c)(1)(G) for a "financial
asset securitization investment trust" or "FASIT".
The REMIC Administrator will determine the percentage of the REMIC's
assets that constitute assets described in the foregoing sections of the Code
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
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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, we will describe in the related prospectus
supplement 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.
To the extent an offered certificate represents ownership of an
interest in any mortgage loan that is secured in part by the related borrower's
interest in an account containing any holdback of loan proceeds, a portion of
the certificate may not represent ownership of assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code. Also the interest on the certificate may not constitute "interest
on obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two
or more separate elections may be made to treat designated portions of the
related trust as separate REMICs ("Tiered REMICs") for federal income tax
purposes. As to each such series of REMIC Certificates, in the opinion of our
counsel, assuming compliance with all provisions of the related Governing
Document, the Tiered REMICs will each qualify as a REMIC, and the REMIC
Certificates issued by the Tiered REMICs will be considered "regular interests"
or the sole class of "residual interests" to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the Code.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(B) 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.
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
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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 we 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.
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 date of initial
issuance (the "Issue Date"), the issue price for such class will be its fair
market value on the related Issue 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:
o a single fixed rate,
o a "qualified floating rate",
o an "objective rate",
o a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse
floating rate", or
o a combination of "qualified floating rates" that does
not operate in a manner that accelerates or defers interest
payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such certificates, we will describe in the related prospectus supplement the
manner in which such rules will be applied with respect to those certificates in
preparing information returns to the certificateholders and the IRS.
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Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to those 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 payment 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 payment
date is computed with respect to a period that begins prior to the related Issue
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 related Issue 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 payment date, and
that portion of the interest paid on the first payment date in excess of
interest accrued for a number of days corresponding to the number of days from
the related Issue Date to the first payment 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 payment 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 (i) the total amount of such de
minimis original issue discount and (ii) 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
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on a constant yield method. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" below for a description of such election under
the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, the holder of such certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless we state otherwise in the
related prospectus supplement, each period that begins on a date that
corresponds to a payment date, or in the case of the first such period, begins
on the Issue Date, and ends on the day preceding the immediately following
payment 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 the certificate, increased by the aggregate amount of
original issue
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discount that accrued with respect to the certificate in prior accrual periods,
and reduced by the amount of any distributions made on the 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 the 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 that certificate at the beginning
of the accrual period which includes such day, plus
(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. A "Stripped
Interest Certificate" is a certificate that entitles the holder to payment of
interest, with disproportionate, little or no payments of principal.
Market Discount. A certificateholder that purchases a REMIC Regular
Certificate at a market discount, other than a de minimis amount, that is, in
the case of a REMIC Regular Certificate issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original issue discount, at a
purchase price less than its adjusted issue price, will recognize gain upon
receipt of each distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a certificateholder generally
will be required to allocate the portion of each such
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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 the 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,
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(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.
The Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder, however, has elected to include market discount in income currently as
it accrues, the interest deferral rule described above would not apply.
Premium. A REMIC Regular Certificate purchased at a cost, (excluding
any portion of such cost attributable to accrued qualified stated interest),
that is greater than its remaining stated redemption price will be considered to
be purchased at a premium. The holder of such a REMIC Regular Certificate may
elect under Section 171 of the Code to amortize such premium under the constant
yield method over the life of the certificate. If a holder elects to amortize
bond premium, bond premium would be amortized on a constant yield method and
would be applied as an offset against qualified stated interest. If made, such
an election will apply to all debt instruments having
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amortizable bond premium that the holder owns or subsequently acquires. The IRS
recently finalized new regulations on the amortization of bond premium. However,
the regulations do not specifically apply to holders of REMIC Regular
Certificates. 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 the 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 (that is, until its 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 related mortgage loans, until it can be established that
any such reduction ultimately will not be recoverable. As a result, the amount
of taxable income reported in any period by the holder of a REMIC Regular
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of a REMIC Regular Certificate
eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as the result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the mortgage loans or as debt
instruments issued by the REMIC.
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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.
A holder of a REMIC Residual Certificate that purchased the certificate
from a prior holder thereof 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, it is recommended that
holders of REMIC Residual Certificates 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
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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--Federal Tax Considerations
Regarding REMIC Residual Certificates".
Taxable Income of the REMIC. The taxable income of the REMIC will
equal:
o the income from the mortgage loans and other assets of the
REMIC, plus
o any cancellation of indebtedness income due to the allocation
of realized losses to REMIC Regular Certificates, less
o the deductions allowed to the REMIC for interest, including
original issue discount, less
o any premium on issuance,
o of the REMIC Regular Certificates, and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not
offered hereby,
o for amortization of any premium on the mortgage loans, for bad
debt losses with respect to the mortgage loans and,
o 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.
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A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the mortgage
loans. Premium on any mortgage loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption.
A REMIC will be allowed deductions for interest, including original
issue discount, on the REMIC Regular Certificates, including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby, equal to the deductions that would be allowed if the REMIC Regular
Certificates, including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby, were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates, including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby, described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code, which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income, will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
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Basis Rules, Net Losses and Distributions. The adjusted basis of a
REMIC Residual Certificate will be equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the holder
of a REMIC Residual Certificate and decreased, but not below zero, by
distributions made, and by net losses allocated, to such holder.
A holder of a REMIC Residual Certificate is not allowed to take into
account any net loss for any calendar quarter to the extent such net loss
exceeds such holder'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 the holders of REMIC Residual Certificates to deduct
net losses may be subject to additional limitations under the Code, as to which
it is recommended that REMIC Residual Certificateholders 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 holder of a REMIC Residual
Certificate 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 holder 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.
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Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of:
(i) the daily portions of REMIC taxable income allocable to such
REMIC Residual Certificate, over
(ii) the sum of the "daily accruals" (as defined below) for each
day during such quarter that such REMIC Residual Certificate
was held by such REMIC Residual Certificateholder.
The daily accruals of a REMIC Residual Certificateholder will be determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term Federal rate" in
effect on the Issue 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:
o the issue price of the REMIC Residual Certificate,
o increased by the sum of the daily accruals for all prior
quarters and
o 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".
o 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, and
o 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.
In the related prospectus supplement we 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 we will make no representation that a REMIC Residual
Certificate will have "significant value" for purposes of the above-described
rules.
For holders of REMIC Residual Certificates, excess inclusion:
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(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.
Furthermore, for purposes of the alternative minimum tax:
(i) excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction and
(ii) alternative minimum taxable income may not be less than the
taxpayer's excess inclusions. This last rule has the effect of
preventing non-refundable tax credits from reducing the
taxpayer's income tax to an amount lower than the alternative
minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced, but not below zero, by the real estate
investment trust taxable income, within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain, will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents:
(1) the present value of the expected future distributions,
discounted using the "applicable Federal 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
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(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 Governing Document 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.
We will disclose in the related prospectus supplement 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 we 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. It is recommended that prospective
purchasers of a REMIC Residual Certificate consult their tax advisors regarding
the Mark-to-Market Regulations.
Unless we state otherwise in the related prospectus supplement,
transfers of REMIC Residual Certificates to investors that are not United States
Persons (as defined below in "--Foreign Investors in REMIC Certificates") will
be prohibited under the related Governing Document. If transfers of REMIC
Residual Certificates to investors that are not United States Persons are
permitted pursuant to the related Governing Document, we will describe in the
related prospectus supplement any additional restrictions applicable to
transfers of certain REMIC Residual Certificates to such persons.
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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 we state otherwise 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, and
(ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income
reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may
be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, REMIC Residual Certificates
will generally not be appropriate investments for:
o individuals,
o estates or trusts, or
o pass-through entities beneficially owned by one or more
individuals, estates or trusts.
It is recommended that such prospective investors 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
o the cost of such REMIC Regular Certificate to such
certificateholder,
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increased by income reported by such certificateholder with
respect to such REMIC Regular Certificate (including original
issue discount and market discount income), and
o 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 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.
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A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a mortgage loan,
the receipt of income from a source other than a mortgage loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the mortgage loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions as to
which it would be subject to a material Prohibited Transaction Tax.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Governing Document will include provisions designed
to prevent the acceptance of any contributions that would be subject to such
tax.
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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 conduct
activities with respect to a real property acquired by a trust that causes the
trust to incur this tax if doing so would, in the reasonable discretion of the
special servicer, maximize the net after-tax proceeds to certificateholders.
However, under no circumstance will the special servicer cause the acquired real
property to cease to be a "permitted investment" under Section 860G(a)(5) of the
Code.
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 we state otherwise 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 Governing Document. Any
such tax not borne by a REMIC Administrator, master servicer, special servicer,
manager or trustee would be charged against the related trust 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:
o events that have occurred up to the time of such transfer,
o the Prepayment Assumption and
o 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
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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 Governing Document, 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:
o 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
o a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an
"electing large partnership" holds a Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
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),
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(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. An "electing large
partnership" means any partnership having more than 100 members during the
preceding tax year (other than certain service partnerships and commodity
pools), which elect to apply simplified reporting provisions under 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 payment 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 holders of REMIC
Residual Certificates 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. Holders of REMIC Residual Certificates generally will be
required to report such REMIC items consistently with their treatment on the
related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the REMIC Administrator, as tax matters person, and
the IRS concerning any such REMIC item. Adjustments made to the REMIC's tax
return may require a holder of a REMIC Residual Certificate 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 the
return of a holder of a REMIC Residual Certificate.
No REMIC will be registered as a tax shelter pursuant to Section 6111
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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--
o corporations,
o trusts,
o securities dealers and
o 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 REMIC Residual Certificates, including--
o income,
o excess inclusions,
o investment expenses and
o 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 we state otherwise 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.
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Foreign Investors in REMIC Certificates. A holder of a REMIC Regular
Certificate 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, in general, 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:
o a citizen or resident of the United States,
o a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any
political subdivision thereof,
o 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
o 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 Persons have the
authority 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 holder of
a REMIC Residual Certificate that owns directly or indirectly a 10% or greater
interest in the 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.
It is possible, under regulations promulgated under Section 881 of the
Code concerning conduit financing transactions, that the exemption from
withholding taxes described above may not be available to a holder who is not
a United States person and (i) owns 10% or more of one or more underlying
Mortgagors or, (ii) if the holder is a controlled foreign corporation, is
related to one or more Mortgagors.
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, it is recommended that
certificateholders who are nonresident alien individuals consult their tax
advisors concerning this question.
Unless we state otherwise in the related prospectus supplement,
transfers of REMIC Residual Certificates will be prohibited under the related
Governing Document to any investor that is not
o a United States Person or
o a United States Person, if classified as a partnership under
the Code, unless all of its beneficial owners are United
States Persons.
Grantor Trust Funds
Classification of Grantor Trust Funds. With respect to each series of
certificates as to which no REMIC election will be made, counsel to the
depositor will deliver its opinion to the effect that, assuming compliance with
all provisions of the related Governing Document, the related Grantor Trust Fund
will be classified
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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.
For purposes of the following discussion, a certificate representing an
undivided equitable ownership interest in the principal of the mortgage loans
constituting the related Grantor Trust Fund, together with interest thereon at a
pass-through rate, will be referred to as a "Grantor Trust Fractional Interest
Certificate". A Grantor Trust Certificate representing ownership of all or a
portion of the difference between interest paid on the mortgage loans
constituting the related Grantor Trust Fund (net of normal administration fees)
and interest paid to the holders of Grantor Trust Fractional Interest
Certificates issued with respect to such Grantor Trust Fund will be referred to
as a "Grantor Trust Strip Certificate". A Grantor Trust Strip Certificate may
also evidence a nominal ownership interest in the principal of the mortgage
loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related prospectus supplement, our counsel 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;
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(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)(5)(B) 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
o 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
o mortgage loans that are "real estate assets" within the meaning
of Section 856(c)(5)(B) of the Code, and
o 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. It is recommended that prospective purchasers to
which such characterization of an investment in Grantor Trust Strip Certificates
is material 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:
o "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,
o 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
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income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of Grantor Trust Fractional Interest Certificates
who are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Further, certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust 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) we or any
of our 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. We will include in the
related prospectus supplement 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
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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 us, a master servicer, a 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.
Recent legislation extends the scope of that section to any pool of debt
instruments the yield on which may be affected by reason of prepayments,
effective for taxable years beginning after enactment. The precise application
of the new legislation is unclear in certain respects. For example, it is
uncertain whether a prepayment assumption will be applied collectively to all a
taxpayer's investments in pools of debt instruments or will be applied on an
investment-by-investment basis. Similarly, as to investments in Grantor Trust
Fractional Interest Certificates, it is not clear whether the assumed prepayment
rate is to be determined based on conditions at the time of the first sale of
the Grantor Trust Fractional Interest Certificate or, with respect to any
holder, at the time of purchase of the Grantor Trust Fractional Interest
Certificate by that holder. It is recommended that certificateholders 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 and
disclosed in the related prospectus supplement, 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
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hereunder, and on a constant yield computed using a representative initial
offering price for each class of certificates. However, neither we 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 1.1286-1, 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:
o (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, we will disclose that fact in the related
prospectus supplement. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate
determined under the stripped bond rules is less than this
product of 0.25%
o the stated redemption price and
o 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. 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
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determination as to whether original issue discount will be considered to be de
minimis will be calculated using the same test as in the REMIC discussion. See
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount"
above.
In the case of mortgage loans bearing adjustable or variable interest
rates, we will describe in the related prospectus supplement 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
recent legislation, 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. 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. It
is recommended that certificateholders consult their own tax advisors concerning
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates and 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 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, 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
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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 we 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:
o in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated
redemption price (as defined above), or
o 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 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 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 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
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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.
Under recent legislation, 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 any pool of debt instruments, the yield on which may be
affected by prepayments. Because the mortgage loans will be such a pool, it
appears that 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. However, 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 of
a taxpayer's investments in pools of debt instruments or will be applied on an
investment-by-investment basis. Similarly, it is not clear whether the assumed
prepayment rate is to be determined:
o at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or,
o with respect to any holder, at the time of that holder's
purchase of the Grantor Trust Fractional Interest Certificate.
Moreover, because the regulations referred to in the preceding 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. It is recommended that certificateholders consult their
own tax advisors concerning accrual of market 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 market discount will apply to mortgage loans purchased at a
market discount in such series.
To the extent that the mortgage loans 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
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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).
It appears that a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code similar to that
described for calculating the accrual of market discount of Grantor Trust
Fractional Interest Certificates. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates -- Market Discount", 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, it is recommended that
holders of Grantor Trust Strip Certificates 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.
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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.
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 we nor any other person will make any representation that the mortgage
loans will in fact prepay at a rate conforming to the Prepayment Assumption or
at any other rate or that the Prepayment Assumption will not be challenged by
the IRS on audit. Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that such information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial certificateholders of each series who bought at
that price. It is recommended that prospective purchasers of the Grantor Trust
Strip Certificates 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
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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 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 we 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
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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.
On August 13, 1998, the Service published proposed regulations, which
will, when effective, establish a reporting framework for interests in "widely
held fixed investment trusts" similar to that for regular interests in REMICs. A
widely-held fixed investment trust is defined as any entity classified as a
"trust" under Treasury Regulation Section 301.7701-4(c) in which any interest is
held by a middleman (which includes, but is not limited to, a custodian of a
person's account, a nominee, and a broker holding an interest for a customer in
street name). These regulations are proposed to be effective for calendar years
beginning on or after the date that the final regulations are published in the
Federal Register.
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
"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, it is
recommended that prospective investors consult their tax advisors with respect
to the various tax consequences of investments in the offered certificates.
ERISA CONSIDERATIONS
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General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Section 4975 of the Internal Revenue Code of 1986 (the "Internal
Revenue Code") impose certain requirements on certain employee benefit plans,
and on other retirement plans and arrangements, as well as on Fund or entities
in which these plans, accounts or arrangements are invested including--
o individual retirement accounts and annuities,
o Keogh plans,
o collective investment funds,
o separate accounts, and
o insurance company general accounts.
ERISA and the Internal Revenue copy code also impose certain requirements on
fiduciaries of these plans, accounts or arrangements, in connection with the
investment of the assets of the related plan, account or arrangement.
Employee benefit plans, such as governmental plans, and church plans
which have not made an election under the U.S. tax code are not subject to ERISA
requirements. Accordingly, assets of these plans may be invested in the offered
certificates without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal and state law. Any plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Internal Revenue Code, however, is subject to the prohibited transaction rules
in Section 503 of the Code.
ERISA imposes certain general fiduciary requirements on fiduciaries,
including--
o investment prudence and diversification, and
o the investment of the assets of the related plan, account or
arrangement in accordance with the documents governing the
plan, account or arrangement.
Section 406 of ERISA and Section 4975 of the U.S. tax code also
prohibit a broad range of transactions involving assets of a plan, account or
arrangement and persons who have certain specified relationships to the plan,
account or arrangement, unless a statutory or administrative exemption is
available. The types of transactions that are prohibited include:
o sales, exchanges or leases of property;
o loans or other extensions of credit; and
o the furnishing of goods and services.
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Certain persons that participate in a prohibited transaction may be
subject to an excise tax imposed under Section 4975 of the U.S. tax code or a
penalty imposed under Section 502(i) of ERISA, unless a statutory or
administrative exemption is available. In addition, the persons involved in the
prohibited transaction may have to cancel the transaction and pay an amount to
the plan, account or arrangement for any losses realized by the plan, account or
arrangement or profits realized by these persons. In addition, individual
retirement accounts involved in the prohibited transaction may be disqualified
which would result in adverse tax consequences to the owner of the account.
Regulation of Assets Included in a Plan, Account or Arrangement
A fiduciary's investment of the assets of a plan, account or
arrangement in offered certificates may cause the underlying mortgage assets and
other trust assets to be deemed assets of the plan, account or arrangement.
Section 2510.3-101 of the regulations of the United States Department of Labor
provides that when a plan, account or arrangement acquires an equity interest in
an entity, the assets of the plan, account or arrangement include both the
equity interest and an undivided interest in each of the underlying assets of
the entity, unless an exception applies. The underlying assets will not be
included if the equity participation in the entity is not "significant". 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. The percentage owned benefit plan investors is
determined by excluding the investments of persons:
(i) with discretionary authority or control over the assets of
the entity,
(ii) who provide investment advice directly or indirectly for a fee
with respect to the assets, and
(iii) who are affiliates of the persons in (i) and (ii).
In the case of a trust, investments by us or by the related trustee, master
servicer, special servicer, any other party with discretionary authority over
the trust assets and the affiliates of these persons will be excluded.
A fiduciary of an investing plan is any person who in connection with
the assets of the plan, account or arrangement--
o has discretionary authority or control over the management or
disposition of assets, or
o provides investment advice for a fee.
If the mortgage loans and other trust assets constitute assets of a plan,
account or arrangement, then any party exercising management or discretionary
control regarding those assets, such as the
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related trustee, master servicer or special servicer, any sub-servicer or
affiliates of these parties may be deemed to be a "fiduciary" with respect to
the investing plan, account or arrangement and be subject to the fiduciary
responsibility provisions of ERISA. In addition, if the trust assets constitute
assets of a plan, account or arrangement, transactions involving the trust
assets, may involve prohibited transactions under ERISA or the Internal Revenue
Code. For example, if a person who has a relationship to a plan, account or
arrangement is a borrower under a mortgage loan included in the trust assets,
the purchase of certificates by the plan, account or arrangement could
constitute a prohibited loan between the plan, account or arrangement and the
party in interest.
The Department of Labor regulations provide that where a plan, account
or arrangement purchases a "guaranteed governmental mortgage pool certificate",
the assets of the plan, account or arrangement include the certificate but do
not include any of the mortgages underlying the certificate. The 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 these
types of mortgaged-backed securities other than FAMC certificates included in
the trust assets were deemed to be assets of the investors of a plan, account or
arrangement, the underlying mortgages other than the mortgages underlying any
FAMC certificates, would not be treated as assets of the plan, account or
arrangement. 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
regulations.
In addition, the acquisition or holding of offered certificates by or
on behalf of a plan, account or arrangement could give rise to a prohibited
transaction if we or the related trustee, master servicer or special servicer or
any related underwriter, sub-servicer, REMIC administrator, manager, borrower or
obligor under any credit enhancement mechanism, or certain of their affiliates,
has, or acquires, a relationship to an investing plan, account or arrangement.
If you invest on behalf of a plan, account or arrangement, you should
consult your counsel and review the ERISA discussion in the related prospectus
supplement before purchasing any certificates.
Prohibited Transaction Exemptions
If you are a fiduciary of a plan, account or arrangement, before
purchasing any offered certificates, you should consider the availability of one
of the Department of Labor's prohibited transaction exemptions, which include:
o Prohibited transaction class exemption 75-1, which exempts
certain transactions involving plans, accounts and
arrangements and certain broker-dealers, reporting dealers and
banks;
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o Prohibited transaction class exemption 90-1, which exempts
certain transactions between insurance company separate
accounts and parties in interest;
o Prohibited transaction class exemption 91-38, which exempts
certain transactions between bank collective investment funds
and parties in interest;
o Prohibited transaction class exemption 84-14, which exempts
certain transactions effected on behalf of a plan, account or
arrangement by a "qualified professional asset manager";
o Prohibited transaction class exemption 95-60, which exempts
certain transactions between insurance company general
accounts and parties in interest; and
o Prohibited transaction class exemption 96-23, which exempts
certain transactions effected on behalf of a plan, account or
arrangement by an "in-house asset manager".
We cannot provide any assurance that any of these class exemptions will
apply with respect to any particular investment on behalf of a plan, account or
arrangement 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 the
investment. The prospectus supplement with respect to the offered certificates
of any series may contain additional information regarding the availability of
other exemptions, such as the one discussed below.
Underwriters Exemptions
It is expected that Donaldson Lufkin & Jenrette Securities Corporation
will be the sole, lead or co-lead underwriter in each unwritten offering of
certificates. The Department of Labor has issued an individual prohibited
transaction exemption to Donaldson Lufkin & Jenrette Securities Corporation
which generally exempts from the application of the prohibited transaction
provisions of ERISA and the Internal Revenue Code certain transactions relating
to, among other things, the servicing and operation of certain trust assets
pools, and the purchase, sale and holding of certain certificates that are
underwritten by Donaldson Lufkin & Jenrette Securities Corporation or any person
under common control with Donaldson Lufkin & Jenrette Securities Corporation.
In order for the exemption to apply, certain requirements must be
satisfied, including -
o the acquisition of the certificate by a plan, account or
arrangement must be on terms that are at least as favorable to
the plan, account or arrangement as they would be in an
arm's-length transaction with an unrelated party;
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o the rights and interests evidenced by the certificates must
not be subordinated to
the rights and interests evidenced by the other certificates;
o at the time of its acquisition by the plan, account or
arrangement, the certificate must be rated in one of the three
highest generic rating categories;
o the trustee cannot be an affiliate of us, the servicer and
certain other persons
o the sum of all payments made to and retained by the trustee,
the servicer and certain other persons must represent not more
than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by
us must represent not more than the fair market value of
obligations deposited in the trust; 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 and
reimbursement of such person's reasonable expenses in
connection therewith; and
o the investing plan, account or arrangement must be an
accredited investor.
The prospectus supplement with respect to the offered certificates of
any series may contain additional information regarding the availability of this
exemption.
Insurance Company General Accounts
The Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides relief from the fiduciary and prohibited
transaction provisions of ERISA and the U.S. tax code for transactions involving
an insurance company general account. This exemption is in addition to any
exemption that may be available under prohibited transaction class exemption
95-60 for the purchase and holding of offered certificates by an insurance
company general account.
Pursuant to Section 401(c) of ERISA, the Department of Labor was
required to issue final regulations no later than December 31, 1997, providing
guidance for determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a plan, account or
arrangement on or before December 31, 1998, which general account assets
constitute assets of the plan, account or arrangement. The Department of Labor
has not yet issued such final regulations. 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 U.S. tax code on the basis of a claim that the
assets of an insurance company general account constitute assets of a plan,
account or arrangement, unless--
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(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, account or arrangement after December 31,
1998 or issued to a plan, account or arrangement on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as assets of the plan, account or arrangement. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as assets of any plan, account or arrangement
invested in the separate account. If you are contemplating the investment of
general account assets in offered certificates, you should consult your legal
counsel as to the applicability of Section 401(c) of ERISA.
Consultation With Counsel
If you are a Plan fiduciary which proposes to purchase offered
certificates on behalf of or with assets of a plan, account or arrangement, you
should consider your general fiduciary obligations under ERISA and you should
consult with your legal counsel as to the potential applicability of ERISA and
the Internal Revenue Code to any investment and the availability of any
prohibited transaction exemption in connection with any investment.
Tax Exempt Investors
A plan, account or arrangement that is exempt from federal income
taxation pursuant to Section 501 of the Internal Revenue Code will be subject to
federal income taxation to the extent that its income is "unrelated business
taxable income" within the meaning of Section 512 of the Internal Revenue Code.
All "excess inclusions" of a REMIC allocated to a REMIC residual certificate
held by a tax-exempt plan, account or arrangement will be considered "unrelated
business taxable income" and will be subject to federal income tax.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates-Excess Inclusions" in this prospectus.
LEGAL INVESTMENT
If and to the extent specified in the related prospectus supplement,
the offered certificates of any series will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). "Mortgage related securities" are legal investments to the same
extent that, under applicable law, obligations issued by or guaranteed as
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to principal and interest by the United States or any of its agencies or
instrumentalities constitute legal investments for entities, the authorized
investments of which are subject to state regulation.
Prior to December 31, 1996, classes of offered certificates would be
"mortgage related securities" for purposes of SMMEA only if they:
o were rated in one of the two highest rating categories by one
or more Rating Agencies; and
o were part of a series evidencing interests in a trust asset
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.
Further, under SMMEA as originally enacted, if a state enacted
legislation prior to October 3, 1991 that specifically limited the legal
investment authority of any 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 the
legislation only to the extent provided in the legislation.
Effective December 31, 1996, the definition of "mortgage related
securities" was modified to include among the types of loans to which the
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:
o 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 by those securities; and
o federal credit unions may invest in "mortgage related
securities" and national banks may purchase "mortgage related
securities" for their own account without regard to the
limitations generally applicable to investment securities
prescribed in 12 U.S.C. 24 (Seventh),
subject in each case to the regulations that the applicable federal regulatory
authority may prescribe.
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Effective December 31, 1996, the Office of the Comptroller of the
Currency (the "OCC") amended 12 C.F.R. Part 1 to authorize national banks to
purchase and sell for their own account, without limitation as to a percentage
of the bank's capital and surplus (but subject to compliance with certain
general standards concerning "safety and soundness" and retention of credit
information in 12 C.F.R. ss. 1.5), certain "Type IV securities", defined in 12
C.F.R. ss. 1.2(1) to include certain "commercial mortgage-related securities"
and "residential mortgage-related securities". As 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.
The National Credit Union Administration (the "NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities, residual interests in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval fro the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. ss. 703.140. The Office of
Thrift Supervision (the "OTS") has issued Thrift Bulletin 13a (December 1,
1998), "Management of Interest Rate Risk, Investment Securities, and Derivatives
Activities", which thrift institutions subject to the jurisdiction of the OTS
should consider before investing in any of the Offered Certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation (the "FDIC"), the OCC and the OTS effective May 26, 1998,
and by the NCUA effective October 1, 1998. The 1998 Policy Statement sets forth
general guidelines which depository institutions must follow in managing risks,
including market, credit, liquidity, operational (transaction), and legal risks,
applicable to all securities, including mortgage pass-through securities and
mortgage-derivative products used for investment purposes.
There may be other restrictions on your ability either to purchase
certain classes of offered certificates or to purchase any class of offered
certificates representing more than a specified percentage of you assets. We
make no representations as to the proper characterization of any class of
offered certificates for legal investment or other purposes. Also, we make no
representations 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, if your investment activities are subject
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to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities you should consult with your legal advisor 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.
USE OF PROCEEDS
Unless otherwise specified in the related prospectus supplement, the
net proceeds to be received from the sale of the offered certificates of any
series will be applied by us to the purchase of assets for the related trust or
will be used by us to cover expenses related to these purchases. We expect 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 us, prevailing interest rates, availability of funds
and general market conditions.
METHOD OF DISTRIBUTION
The certificates offered by this prospectus and 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 the
offered certificates and will state the net proceeds to us from the sale of the
offered certificates.
We intend 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 us with institutional investors through
dealers; and
3. by direct placements by us 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 related trust assets for the
certificates. Furthermore, the related trust assets 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, the offered
certificates will be acquired by the underwriters
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for their own account. These certificates 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 described on the cover of the prospectus supplement relating to the
series and the members of the underwriting syndicate, if any, will be named in
the relevant prospectus supplement.
Underwriters may receive compensation from us 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 the
certificates, and any discounts or commissions received by them from us 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 the certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, we will indemnify the several
underwriters and the underwriters will indemnify us against certain civil
liabilities, including liabilities under the Securities Act, or will contribute
to payments required to be made in respect of any liabilities.
The prospectus supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of the
offering and any agreements to be entered into between us and purchasers of
offered certificates of the series.
We anticipate 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 the 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 reoffer or sale.
Only those classes rated in an investment grade rating category by any
rating agency will be offered by this prospectus. Any unrated class may be
initially retained by us, and may be sold by us at any time to one or more
institutional investors.
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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 us by
Sidley & Austin, our counsel.
FINANCIAL INFORMATION
A new trust asset will be formed with respect to each series, and no
trust asset 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 asset will be included in this
prospectus or in the related prospectus supplement. We have determined that our
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 will 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 of the certificates of all collections on the underlying
mortgage assets to which the holders are entitled. These ratings address the
structural, legal and issuer-related aspects associated with the 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 the prepayments might differ from those originally
anticipated. As a result, if you purchase any offered certificates, you might
suffer a lower than anticipated yield. In addition, if you purchase Stripped
Interest Certificates you might, in certain cases, fail to recoup your initial
investment. Furthermore, ratings on mortgage pass-through certificates do not
address the price of the certificates or the suitability of the certificates to
you as an investment.
In particular, ratings on the offered certificates of any series will not
represent any assessment of--
o the tax attributes of those certificates or of the
related trust;
o whether or to what extent prepayments of principal
may be received on the underlying mortgage loans;
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o the likelihood or frequency of prepayments of
principal on the underlying mortgage loans.;
o the degree to which the amount or frequency of
prepayments on the underlying mortgage loans might
differ from those originally anticipated;
o whether or to what extent the interest distributable
on any class of offered certificates may be reduced
in connection with interest shortfalls resulting from
the timing of voluntary prepayments;
o the likelihood that prepayment premiums, fees and
charges or interest in excess of interest at the
related mortgage interest rates will be received with
respect to the underlying mortgage loans; or
o whether the holders of any Stripped Interest
Certificates, despite receiving all distributions of
interest to which they are entitled, would or would
not ultimately recover their initial investments in
those certificates.
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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The attached diskette contains one spreadsheet file (the "spreadsheet file")
that can be put on a user-specified hard drive or network drive. This file is
"______________.XLS". The file "______________.XLS" is a Microsoft Excel(1),
Version 5.0 spreadsheet. The file provides, in electronic format, certain
statistical information that appears under the caption "Description of the
Mortgage pool" in, and on Exhibits A-1 and A-2 to, the prospectus supplement.
Defined terms used in the spreadsheet file but not otherwise defined therein
shall have the respective meanings assigned to them in the prospectus
supplement. All the information contained in the spreadsheet file is subject to
the same limitations and qualifications contained in the prospectus supplement.
Prospective investors are strongly urged to read the prospectus supplement and
accompanying prospectus in its entirety prior to accessing the spreadsheet file.
- --------------------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
===============================================================================
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Important notice about the information contained in this prospectus
supplement and the accompanying prospectus................................S-2
FORWARD-LOOKING STATEMENTS................................................S-3
EXECUTIVE SUMMARY.........................................................S-6
SUMMARY OF PROSPECTUS SUPPLEMENT..........................................S-8
RISK FACTORS.............................................................S-38
DESCRIPTION OF THE MORTGAGE POOL.........................................S-47
SERVICING OF THE MORTGAGE LOANS..........................................S-82
DESCRIPTION OF THE OFFERED CERTIFICATES.................................S-111
YIELD AND MATURITY CONSIDERATIONS.......................................S-139
USE OF PROCEEDS.........................................................S-146
FEDERAL INCOME TAX CONSEQUENCES.........................................S-146
CERTAIN ERISA CONSIDERATIONS............................................S-150
LEGAL INVESTMENT........................................................S-154
METHOD OF DISTRIBUTION..................................................S-155
LEGAL MATTERS...........................................................S-156
RATINGS.................................................................S-157
Exhibit A-1 -- Certain Characteristics of
mortgage loans and mortgaged properties...............................A-1-1
Exhibit A-2 -- Mortgage pool Information................................A-2-1
Exhibit B -- Form of Trustee Report.......................................B-1
Exhibit C -- Decrement Tables for Certain Classes
of offered certificates ................................................C-1
Exhibit D -- Price/Yield Tables for the Class S certificates ............D-1
Exhibit E -- Summary Term Sheet...........................................E-1
Prospectus
Available Information; Incorporation by Reference...........................3
Summary of Prospectus.......................................................4
Risk Factors...............................................................13
Description of the Trust Assets............................................33
Yield and Maturity Considerations..........................................56
DLJ Commercial Mortgage Corp. .............................................63
Description of the Certificates............................................63
Description of the Governing Documents.....................................72
Description of Credit Support..............................................81
Certain Legal Aspects of Mortgage Loans....................................83
Federal Income Tax Consequences............................................97
State and Other Tax Consequences..........................................129
ERISA Considerations......................................................129
Legal Investment..........................................................133
Use of Proceeds...........................................................136
Method of Distribution....................................................136
Legal Matters.............................................................137
Financial Information.....................................................137
Rating....................................................................138
Until ______, all dealers that effect transactions in the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and the accompanying prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a prospectus supplement
and the accompanying prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
===============================================================================
===============================================================================
$________________
(Approximate)
DLJ Commercial Mortgage Corp.
(Depositor)
_____________________,
and
______________________
(Mortgage Loan Sellers)
Class ________
DLJ Commercial Mortgage Trust
Commercial Mortgage Pass-
Through Certificates
----------------------
Prospectus Supplement
----------------------
---------------
===============================================================================
<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 $939,200.25*
Legal Fees and Expenses 900,000.00**
Accounting Fees and Expenses 350,000.00**
Trustee's Fees and Expenses
(including counsel fees) 100,000.00**
Blue Sky Fees and Expenses 25,000.00**
Printing and Engraving Fees 350,000.00**
Rating Agency Fees 5,000,000.00**
Miscellaneous 350,000.00**
Total $8,014,200.25
* Includes $105,200.25 in filing fees paid with respect to $356,611,000 of
securities carried forward from Registration Statement on Form S-3 (File
No. 333-59167)
** Based on 3 offerings
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3)
The pooling and servicing agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the trust 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 and servicing 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 and servicing 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.
<PAGE>
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 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,
<PAGE>
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--
<TABLE>
<S> <C>
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
the Registration Statement as first filed).
</TABLE>
* 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.
<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.
<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 1st day of July, 1999.
DLJ COMMERCIAL MORTGAGE CORP.
By: /s/ N. Dante LaRocca
------------------------
Name: N. Dante LaRocca
Title: Senior Vice President
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
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Leon M. Pollack President and Director July 1, 1999
- ------------------------------- (principal executive officer)
Leon M. Pollack
/s/ Steven L. Kantor Senior Vice President July 1, 1999
- ------------------------------- and Director
Steven L. Kantor
/s/ Marjorie S. White Secretary July 1, 1999
- ------------------------------- and Director
Marjorie S. White
/s/ Thomas E. Siegler Director July 1, 1999
- ------------------------------
Thomas E. Siegler
/s/ Charles J. Hendrickson Treasurer (principal July 1, 1999
- ------------------------------- financial officer)
Charles J. Hendrickson
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
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
the Registration Statement as first filed).
</TABLE>
* 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 1, 1999
DLJ Commercial Mortgage Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Commercial Mortgage Corp.
Commercial 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 Commercial 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
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
<PAGE>
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.
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,
(ii) (a) each party to the Pooling and Servicing Agreement
with respect to such Series of Certificates has the power and authority
to enter into and perform all of such party's obligations thereunder,
(b) such Pooling and Servicing Agreement has been duly authorized by
all necessary action, executed and delivered by each party thereto and
(c) such Pooling and Servicing Agreement constitutes the valid and
binding obligation of each party thereto, enforceable against such
party in accordance with its terms, and
(iii) 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,
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
-2-
<PAGE>
"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
-------------------
Sidley & Austin
-3-
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN]
July 1, 1999
DLJ Commercial Mortgage Corp.
277 Park Avenue
New York, New York 10172
Re: DLJ Commercial Mortgage Corp.
Commercial 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 Commercial 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 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
<PAGE>
documents of all 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.
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
-------------------
Sidley & Austin
