<PAGE>
Filed Pursuant to Rule 424(b)5
Registration File No.: 33-49370-06
PROSPECTUS SUPPLEMENT DATED OCTOBER 24, 1997
(TO PROSPECTUS DATED OCTOBER 24, 1997)
[NOMURA CAPITAL LOGO]
$1,610,665,222 (APPROXIMATE)
ASSET SECURITIZATION CORPORATION, DEPOSITOR
NOMURA ASSET CAPITAL CORPORATION, MORTGAGE LOAN SELLER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-D5
The Commercial Mortgage Pass-Through Certificates, Series 1997-D5 (the
"Certificates") will represent beneficial ownership interests in a trust fund
(the "Trust Fund") to be created by Asset Securitization Corporation (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of 156 fixed-rate mortgage loans (which will include one participation
interest) with original terms to maturity of generally not more than thirty
years (the "Mortgage Loans") secured by first liens on 219, and a first and
second lien on one, commercial and multifamily residential properties (the
"Mortgaged Properties"). The Mortgaged Properties consist of anchored and
unanchored retail properties, office buildings, full and limited service
hotels, multifamily residential housing, industrial properties, mobile home
parks and healthcare facilities. The characteristics of the Mortgage Loans
and the Mortgaged Properties are more fully described herein under
"Description of the Mortgage Pool." The Mortgage Loans were either purchased
or originated by Nomura Asset Capital Corporation (the "Mortgage Loan
Seller") and will be sold to the Depositor on or prior to the date of initial
issuance of the Certificates.
(cover page continued)
----------------------
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE (1) RATE DESCRIPTION
--------------- -------------- -----------------
<S> <C> <C> <C>
Class A-1A(2) . $165,018,148 6.50000% Fixed Rate
Class A-1B(2) . 172,648,684 6.66000% Fixed Rate
Class A-1C(2) . 712,971,079 6.75000% Fixed Rate
Class A-1D(2) . 229,793,503 6.85000% Fixed Rate
Class
A-CS1(2)...... (3) 1.83408%(4) Variable Rate IO
Class PS-1(2) . (3) 1.36707%(4) Variable Rate IO
Class A-1E .... 52,620,469 6.93000% Fixed Rate
Class A-2...... 87,700,781 6.81408%(4) Variable Rate
Class A-3...... 52,620,469 6.86408%(4) Variable Rate
Class A-4...... 26,310,234 6.91408%(4) Variable Rate
Class A-5...... 39,465,351 6.93408%(4) Variable Rate
Class A-6...... 43,850,390 7.18408%(4) Variable Rate
Class A-7...... 21,925,195 7.42408%(4) Variable Rate
Class A-8Z..... 5,740,919 10.115%(5) Fixed Rate Accrual
</TABLE>
- --------------
(1) Approximate, subject to adjustment as described herein.
(2) In addition to distributions of principal and interest, holders of
certain Classes of the Offered Certificates will be entitled to
receive a portion of the Prepayment Premiums received from the
borrowers. See "Description of the Offered Certificates --
Distributions" herein.
(3) The Class A-CS1 and Class PS-1 Certificates will not have a
Certificate Balance and will not be entitled to receive distributions
of principal. Interest will accrue on such Classes of Certificates at
the Pass-Through Rates thereof on the Notional Balances thereof
(subject to adjustment in certain limited circumstances described
herein with respect to the Class PS-1 Certificates). The Notional
Balance of the Class PS-1 Certificates is initially $1,754,015,636,
which is equal to the aggregate principal balance of the Mortgage
Loans (other than the Comsat Junior Loan and the SC Junior Portion of
the Saul Centers Retail Pool Loan) as of the Cut-off Date. The
Notional Balance of the Class A-CS1 Certificates is initially
$165,018,148, which is equal to the initial Certificate Balance of
the Class A-1A Certificates. See "Description of the Offered
Certificates" herein.
(4) The Pass-Through Rates shown on the table above for the Class A-CS1,
PS-1, A-2, A-3, A-4, A-5, A-6 and A-7 Certificates are the rates for
the Distribution Date occurring in November 1997. The Pass-Through
Rates for such Classes for each subsequent Distribution Date will be
calculated as provided herein. See "Summary of Prospectus Supplement
-- Pass-Through Rates" herein.
(5) The Class A-8Z Certificates will not be entitled (assuming no
prepayments or defaults with respect to the Comsat Junior Loan) to
receive distributions of interest or principal until the Class A-8Z
Scheduled Distribution Date. Instead, on each Distribution Date prior
to the Class A-8Z Scheduled Distribution Date, an amount equal to the
accrued and unpaid interest on the Class A-8Z Certificates will be
added to the principal thereof. On the Class A-8Z Scheduled
Distribution Date, the entire outstanding principal balance of the
Class A-8Z Certificates will be paid in full, to the extent of funds
available therefor as provided herein. See "Description of the
Offered Certificates -- Distributions" herein.
-----------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MORTGAGE LOAN SELLER, THE ORIGINATOR, THE SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE, THE FISCAL AGENT OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Offered Certificates will be purchased by Nomura Securities
International, Inc. (the "Underwriter") from the Depositor and will be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Offered Certificates
will be approximately 112.48% of the initial aggregate principal balance
thereof as of the date on which the Certificates are issued plus accrued
interest from such date as described herein before deducting expenses payable
by the Depositor.
There is currently no secondary market for the Offered Certificates. The
Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if issued, delivered to and accepted by the Underwriter.
It is expected that delivery of the Offered Certificates will be made through
the facilities of The Depository Trust Company ("DTC") in the United States
and Centrale de Livraison de Valeurs Mobiliers S.A. ("CEDEL") and The
Euroclear System ("Euroclear") in Europe, on or about October 24, 1997.
NOMURA SECURITIES INTERNATIONAL, INC.
<PAGE>
ANNEX E
ASSET SECURITIZATION CORPORATION
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1997 - D5
The following graphic material is included in the paper and electronic
versions of this Prospectus Supplement.
A. The inside front cover contains a map of the contiguous United States
and the British West Indies showing the concentration of the Mortgaged
Properties in the pool by state or country as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
STATE PROPERTIES VALUE OF TOTAL
- ----------------------- ------------ -------------- ------------
<S> <C> <C> <C>
Alabama 3 $ 71,729,934 4.1%
Arkansas 1 $ 3,865,000 0.2%
Arizona 5 $ 24,825,648 1.4%
California 19 $ 99,641,390 5.7%
Colorado 3 $ 19,366,767 1.1%
Connecticut 2 $ 12,556,691 0.7%
Delaware 2 $ 14,590,484 0.8%
Florida 11 $ 45,879,661 2.6%
Georgia 3 $ 80,501,075 4.6%
Illinois 4 $ 60,997,252 3.5%
Indiana 2 $ 9,046,136 0.5%
Kansas 1 $ 2,196,838 0.1%
Kentucky 3 $ 21,624,879 1.2%
Maine 1 $ 2,392,170 0.1%
Maryland 15 $177,827,466 10.1%
Massachusetts 12 $ 65,511,181 3.7%
Michigan 10 $ 41,047,548 2.3%
Minnesota 2 $ 11,634,857 0.7%
Mississippi 1 $ 2,000,000 0.1%
Missouri 1 $ 23,832,128 1.4%
Montana 2 $ 3,870,617 0.2%
Nebraska 1 $ 2,500,000 0.1%
New Hampshire 1 $ 1,479,009 0.1%
New Jersey 19 $183,844,113 10.5%
New York 10 $113,973,430 6.5%
North Carolina 7 $ 48,937,821 2.8%
Ohio 25 $181,936,742 10.4%
Oregon 1 $ 10,880,000 0.6%
Pennsylvania 10 $ 28,155,727 1.6%
Rhode Island 1 $ 14,400,000 0.8%
South Carolina 3 $ 15,869,450 0.9%
Tennessee 2 $ 8,136,485 0.5%
Texas 25 $166,436,070 9.5%
Virginia 9 $126,795,808 7.2%
Washington 2 $ 5,876,126 0.3%
NUMBER OF PERCENTAGE
OTHER PROPERTIES VALUE OF TOTAL
- ----------------------- ------------ -------------- ------------
British Cayman Islands,
British West Indies 1 $ 49,857,134 2.8%
</TABLE>
B. The inside front cover contains a chart showing the percentage of
allocated loan amounts by property type as follows.
<TABLE>
ALLOCATED LOAN AMOUNT BY PROPERTY TYPE
<S> <C>
Retail ............ 29%
Office ............ 29%
Multifamily ....... 19%
Hotel ............. 14%
Healthcare ........ 3%
Industrial ........ 3%
Mobile Home Park .. 2%
</TABLE>
<PAGE>
C. There are photographs of certain of the Mortgaged Properties(1)
contained on the inside front cover as follows:
AmSouth Building: Birmingham, AL. The photograph shows the high-rise office
building.
Westin Peachtree: Atlanta, GA. The photograph shows the modern high-rise,
full-service hotel overlooking the surrounding buildings and city streets.
Saul Centers - Seven Corners Center: Falls Church, VA. The photograph shows
a portion of the suburban outdoor retail mall and a portion of the parking lot
in front of Best Buy, one of the four anchor tenants.
3 Penn Plaza: Newark, NJ. The photograph shows the sixteen-story office
building as well as a portion of the surrounding city street.
Dayton Mall: Dayton, OH. The photograph shows a portion of the enclosed mall
with the storefront for tenant McAlpins.
The Century Building: Crystal City, VA. The photograph shows a portion of the
office building, including its entrance.
The Comsat Building: Clarksburg, MD. The photograph shows the office building
and a portion of the parking area.
West Casuarina Resort: Grand Cayman, British West Indies. The photograph
shows the full-service, luxury hotel and a portion of the surrounding
beachfront.
- ------------
(1) The photographs of the Mortgaged Properties included in this Prospectus
Supplement are not representative of all of the Mortgaged Properties included
in any pool loan or of any particular type of Mortgaged Property.
<PAGE>
There are photographs of certain of the Mortgaged Properties(2) contained
on the inside back cover as follows:
Market Square Shopping Center: Wilmington, DE. The photograph shows a portion
of the shopping center, including tenant T.J. Maxx, and a portion of the
parking area.
Oceana Suites Hotel: Santa Monica, CA. The photograph shows the entrance
to the full-service hotel.
The Wales Hotel: New York, NY. The photograph shows the full-service hotel
overlooking a surrounding city street.
Swiss Bank Tower: New York, NY. The photograph shows the 32-story corporate
office building overlooking surrounding buildings.
Wells Fargo Building: Oakland, CA. The photograph shows the office building
and surrounding trees.
Best Western-Colorado River Inn: Needles, CA. The photograph shows a portion
of the front of the full-service hotel.
Comfort Inn: Olive Branch, MS. The photograph shows a portion of the
limited-service hotel.
Avanti Business Center: Cerritos, CA. The photograph shows a portion of the
office building and surrounding landscaped area.
330 Clematis: West Palm Beach, FL. The photograph shows a portion of the
retail property, including an adjacent city street.
Springhouse Apartments: Lexington, KY. The photograph shows a portion of the
three story apartment complex, including the balconies located off some of
the rooms.
Bellair Congregate Care: Riverview, MI. The photograph shows a portion of the
congregate care facility, including a portion of a surrounding fence.
Pine Grove MHP: Melbourne, FL. The photograph shows a portion of the mobile
home park and surrounding grass area.
Autumn Woods: Hoover, AL. The photograph shows a portion of the two-story
apartment complex, including a small grass area in front of the apartments.
30 Oak Hollow: Southfield, MI. The photograph shows a portion of the office
building and its parking lot.
Main Street Galleria: Newark, DE. The photograph shows an entrance to the
shopping center and a portion of the parking lot.
The Village at Townridge: Raleigh, NC. The photograph shows the outdoor retail
shopping center and a portion of the parking lot.
The Hybridon: Cambridge, MA. The photograph shows an aerial view of the
office building, including a portion of the parking lot, and the surrounding
city streets.
Lakeview Apartments: Prescott, AZ. The photograph shows a portion of the
two-story apartment complex and the parking lot.
Cressona Mall: Pottsville, PA. The photograph shows a portion of the low-rise
outdoor retail mall and a portion of the parking lot.
North Main Market: Summerville, SC. The photograph shows a portion of the
outdoor retail mall, including tenant Wal-Mart, and a portion of
the surrounding parking lot.
Pointe O' Woods: Grand Rapids, MI. The photograph shows a portion of the
red brick, three-story apartment complex and a portion of the parking lot.
Cliffside Apartments: Sunderland, MA. The photograph shows a portion
of the three-story apartment complex and its landscaped entrance.
- ------------
(2) The photographs of the Mortgaged Properties included in this Prospectus
Supplement are not representative of all of the Mortgaged Properties included
in any pool loan or of any particular type of Mortgaged Property.
<PAGE>
(continuation of cover page)
The Certificates will consist of twenty-seven classes (each, a "Class"),
designated as the Class A-1A Certificates, Class A-1B Certificates, Class
A-1C Certificates, Class A-1D Certificates, Class A-CS1 Certificates, Class
PS-1 Certificates, Class A-1E Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates, Class A-6
Certificates, Class A-7 Certificates, Class A-8Z Certificates, Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates, Class B-3SC
Certificates, Class B-4 Certificates, Class B-5 Certificates, Class B-6
Certificates, Class B-7 Certificates, Class B-7H Certificates, Class V-1
Certificates, Class V-2 Certificates, Class LR Certificates and Class R
Certificates. Only the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class
A-CS1, Class PS-1, Class A-1E, Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6, Class A-7 and Class A-8Z Certificates (collectively, the "Offered
Certificates") are offered hereby; the Class B-1, Class B-2, Class B-3, Class
B-3SC, Class B-4, Class B-5, Class B-6, Class B-7, Class B-7H, Class V-1,
Class V-2, Class R, and Class LR Certificates (collectively, the "Private
Certificates") are not offered hereby.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTIONS "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" HEREIN COMMENCING ON
PAGE S-34 AND "SPECIAL CONSIDERATIONS" IN THE PROSPECTUS COMMENCING ON PAGE
13.
Distributions on the Offered Certificates will be made, to the extent of
Available Funds, on the 14th day of each month, or, if any such 14th day is
not a business day, on the next succeeding business day, beginning on
November 14, 1997 (each, a "Distribution Date"); provided, however, the
Distribution Date will be no earlier than the third business day following
the 11th day of each month and, provided, further, that if the 11th day of
any month is not a business day, the Distribution Date will be the fourth
business day following the 11th day of such month. Distributions allocable to
interest on the Offered Certificates on each Distribution Date will be based
on the pass-through rate for the respective Class as described herein (the
"Pass-Through Rate") and the aggregate principal balance (the "Certificate
Balance") or notional balance (the "Notional Balance") as applicable of such
Class outstanding immediately prior to such Distribution Date. Distributions
in respect of principal of the Offered Certificates will be made as described
herein under "Description of the Offered Certificates -- Distributions --
Payment Priorities."
THE YIELD TO INVESTORS, IN PARTICULAR INVESTORS IN SUBORDINATE CLASSES,
WILL BE SENSITIVE TO THE TIMING OF PREPAYMENTS, REPURCHASES OR PURCHASES OF
MORTGAGE LOANS, AND THE MAGNITUDE OF LOSSES ON THE MORTGAGE LOANS DUE TO
LIQUIDATIONS. NO REPRESENTATION IS MADE AS TO THE RATE OF PREPAYMENTS ON, OR
RATE OR AMOUNT OF LIQUIDATIONS OF, THE MORTGAGE LOANS OR AS TO THE
ANTICIPATED YIELD TO MATURITY OF ANY OFFERED CERTIFICATE. THE YIELD TO
MATURITY ON EACH CLASS OF THE OFFERED CERTIFICATES WILL BE SENSITIVE TO, AND
THE YIELD TO MATURITY OF THE CLASS A-CS1 AND CLASS PS-1 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO, THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
BOTH VOLUNTARY AND INVOLUNTARY PREPAYMENTS, DEFAULTS AND LIQUIDATIONS) ON THE
MORTGAGE LOANS AND PAYMENTS WITH RESPECT TO REPURCHASES THEREOF THAT ARE
APPLIED IN REDUCTION OF THE CERTIFICATE BALANCE OR NOTIONAL BALANCE OF SUCH
CLASS. A RAPID RATE OF SUCH PRINCIPAL PAYMENTS COULD RESULT IN THE FAILURE OF
INVESTORS IN THE CLASS A-CS1 OR CLASS PS-1 CERTIFICATES TO RECOVER THEIR
INITIAL INVESTMENT. SEE "PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN.
AMRESCO Services, L.P. will act as servicer of the Mortgage Loans (the
"Servicer"). The obligations of the Servicer with respect to the Certificates
will be limited to its contractual servicing obligations and the obligation
under certain circumstances to make Advances in respect of the Mortgage
Loans. In certain limited circumstances, AMRESCO Management, Inc., in its
capacity as the initial special servicer (the "Special Servicer"), may be
required to make Property Advances. If the Servicer is not the Special
Servicer and the Special Servicer fails to make the required Advance, the
Servicer, subject to a recoverability determination, will be required to make
the Advance. The Servicer will not act as an insurer or credit enhancer of
the Mortgage Pool. If the Servicer fails to make a required Advance, LaSalle
National Bank (the "Trustee"), subject to a recoverability determination,
will be required to make such Advance. If the Trustee fails to make a
required Advance, ABN AMRO Bank N.V., as the fiscal agent of the Trustee (the
"Fiscal Agent"), subject to a recoverability determination, will be required
to make the Advance. See "The Pooling and Servicing Agreement -- Advances"
herein.
It is a condition to the issuance of the Offered Certificates that (i) the
Class A-1A, Class A-1B, Class A-1C and Class A-1D Certificates be rated "AAA"
by each of Standard & Poor's Rating Services ("S&P") and Fitch Investors
Service, L.P. ("Fitch") and "Aaa" by Moody's Investors Service, Inc.
("Moody's," and together with S&P and Fitch, the "Rating Agencies"), (ii) the
Class A-CS1 and Class PS-1 Certificates be rated "AAA" by Fitch and be rated
"Aaa" by Moody's, (iii) the Class A-1E Certificates be rated "AAA" by Fitch,
"AA+" by S&P and "Aa1" by Moody's, (iv) the Class A-2 Certificates be rated
"AA" by Fitch, "A+" by S&P and "A1" by Moody's, (v) the Class A-3
Certificates be rated "A+" by Fitch and "A-" by S&P, (vi) the Class A-4
Certificates be rated "A" by Fitch and "BBB+" by S&P, (vii) the Class A-5
Certificates be rated "BBB+" by Fitch and "BBB" by S&P, (viii) the Class A-6
Certificates be rated "BBB-" by each of Fitch and S&P, (ix) the Class A-7
Certificates be rated "BBB-" by Fitch and (x) the Class A-8Z Certificates be
rated "BBB-" by S&P. For a description of the limitations of the ratings of
the Offered Certificates, see "Rating" herein. The Rated Final Distribution
Date of each Class of Offered Certificates is February 14, 2043.
Elections will be made to treat designated portions of the Trust Fund
(other than the Excess Interest and the Default Interest (each as defined
herein)) (such portions of the Trust Fund, the "Trust REMICs") as two
separate "real estate mortgage investment conduits" (each a "REMIC" or,
alternatively, the "Upper-Tier REMIC" and the "Lower-Tier REMIC,"
respectively) for federal income tax purposes. The Class A-1A, Class A-1B,
Class A-1C, Class A-1D, Class A-CS1, Class PS-1, Class A-1E, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8Z, Class B-1, Class
B-2, Class B-3, Class B-3SC, Class B-4, Class B-5, Class B-6, Class B-7 and
Class B-7H Certificates will constitute "regular interests" in the Upper-Tier
REMIC, and the Class R and Class LR Certificates will constitute the sole
Class of "residual interests" in the Upper-Tier REMIC and Lower-Tier REMIC,
respectively. The Offered Certificates, together with the Class B-1, Class
B-2, Class B-3, Class B-3SC, Class B-4, Class B-5, Class B-6, Class B-7 and
Class B-7H Certificates, are sometimes collectively referred to herein as the
"Regular Certificates." The Class V-1 Certificates will represent the right
to receive Net Default Interest and the Class V-2 Certificates will represent
the right to receive Excess Interest, which portions of the Trust Fund will
be treated as a grantor trust for federal income tax purposes. See "Certain
Federal Income Tax Consequences" herein and "Federal Income Tax Consequences"
in the Prospectus.
(cover page continued)
S-2
<PAGE>
(continuation of cover page)
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE
BEING OFFERED PURSUANT TO ITS PROSPECTUS DATED OCTOBER 24, 1997, OF WHICH
THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED
TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE
OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The distribution of this Prospectus Supplement and the Prospectus dated
October 24, 1997, and the offer or sale of the Offered Certificates may be
restricted by law in certain jurisdictions. Persons into whose possession
this Prospectus Supplement and the Prospectus or any Offered Certificates
come must inform themselves about, and observe, any such restrictions. In
particular, there are restrictions on the distribution of this Prospectus
Supplement and the Prospectus and the offer or sale of the Offered
Certificates in the United Kingdom (see "Method of Distribution" herein).
The Depositor does not intend to register the Offered Certificates under
the Securities and Exchange Law of Japan (the "SEL"). Accordingly, the
Certificates may not be offered or sold directly or indirectly in Japan, and
this Prospectus Supplement and the Prospectus may not be distributed or
circulated in Japan, except in circumstances that do not constitute an offer
to the public within the meaning of the SEL.
S-3
<PAGE>
EXECUTIVE SUMMARY
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Executive Summary does not include
all relevant information relating to the securities and collateral described
herein, particularly with respect to the risks and special considerations
involved with an investment in such securities, and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the Prospectus. Prior to making an investment
decision, a prospective investor should carefully review this Prospectus
Supplement and the Prospectus. Capitalized terms used and not otherwise
defined herein have the respective meanings assigned to them in this
Prospectus Supplement and the Prospectus. See "Index of Significant
Definitions" in this Prospectus Supplement and "Index of Principal
Definitions" in the Prospectus.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
PERCENT OF CREDIT
TOTAL* SUPPORT CERTIFICATE SUMMARY
<S> <C> <C> <C> <C> <C>
CLASS PS-1 $1,754,015,636 (AAA/nr/Aaa)
(approx.)
(Notional)
- -------------------------------------------------------------------------------
9.4% 27.00% CLASS A-1A $ 165,018,148 (AAA/AAA/Aaa) CLASS A-CS1
$165,018,148
(Notional)
(AAA/nr/Aaa)
- -------------------------------------------------------------------------------
9.8% 27.00% CLASS A-1B $ 172,648,684 (AAA/AAA/Aaa)
- -------------------------------------------------------------------------------
40.6% 27.00% CLASS A-1C $ 712,971,079 (AAA/AAA/Aaa)
- -------------------------------------------------------------------------------
13.1% 27.00% CLASS A-1D $ 229,793,503 (AAA/AAA/Aaa)
- -------------------------------------------------------------------------------
3% 24.00% CLASS A-1E $ 52,620,469 (AAA/AA+/Aa1)
- -------------------------------------------------------------------------------
5% 19.00% CLASS A-2 $ 87,700,781 (AA/A+/A1)
- -------------------------------------------------------------------------------
3% 16.00% CLASS A-3 $ 52,620,469 (A+/A-/nr)
- -------------------------------------------------------------------------------
1.5% 14.50% CLASS A-4 $ 26,310,234 (A/BBB+/nr)
- -------------------------------------------------------------------------------
2.25% 12.25% CLASS A-5 $ 39,465,351 (BBB+/BBB/nr)
- -------------------------------------------------------------------------------
2.5% 9.75% CLASS A-6 $ 43,850,390 (BBB-/BBB-/nr)
- -------------------------------------------------------------------------------
1.25% 8.50% CLASS A-7 $ 21,925,195 (BBB-/nr/nr)
- -------------------------------------------------------------------------------
2.25% 6.25% CLASS B-1 $ 39,465,351 (BB+/BB+/nr)
- -------------------------------------------------------------------------------
2.25% 4.00% CLASS B-2 $ 39,465,351 (BB/nr/nr)
- -------------------------------------------------------------------------------
0.5% 3.50% CLASS B-3 $ 8,770,078 (BB-/nr/nr)
- -------------------------------------------------------------------------------
0.75% 2.75% CLASS B-4 $ 13,155,117 (B+/nr/nr)
- -------------------------------------------------------------------------------
0.75% 2.00% CLASS B-5 $ 13,155,117 (B/nr/nr)
- -------------------------------------------------------------------------------
1.25% 0.75% CLASS B-6 $ 21,925,195 (B-/nr/nr)
- -------------------------------------------------------------------------------
0.75% n/a CLASS B-7 AND $ 13,155,124 (unrated)
CLASS B-7H (approx.)
- -------------------------------------------------------------------------------
</TABLE>
Offered Certificates Rating Agencies: (Fitch, S&P, Moody's)
Certificates Not Offered Hereby
Class A-8Z and Class B-3SC are not shown here.
* Total does not include the Class A-8Z Certificates or the Class B-3SC
Certificates.
S-4
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
INITIAL AGGREGATE PASS-THROUGH AVG.
CERTIFICATE PRINCIPAL OR % OF RATE AS LIFE** PRINCIPAL
CLASS RATINGS NOTIONAL AMOUNT TOTAL* DESCRIPTION OF CUT-OFF DATE (YRS.) WINDOW*
- ---------------------------------------------------------------------------------------------------------------------------------
Offered Certificates (Investment Grade Certificates)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1A (AAA/AAA/Aaa) $ 165,018,148 9.4% Fixed Rate 6.50000% 3.47 11/97 -1/04
- ---------------------------------------------------------------------------------------------------------------------------------
A-1B (AAA/AAA/Aaa) $ 172,648,684 9.8% Fixed Rate 6.66000% 7.83 1/04 -4/07
- ---------------------------------------------------------------------------------------------------------------------------------
A-1C (AAA/AAA/Aaa) $ 712,971,079 40.6% Fixed Rate 6.75000% 9.96 4/07 -3/09
- ---------------------------------------------------------------------------------------------------------------------------------
A-1D (AAA/AAA/Aaa) $ 229,793,503 13.1% Fixed Rate 6.85000% 12.20 3/09 -12/11
- ---------------------------------------------------------------------------------------------------------------------------------
A-1E (AAA/AA+/Aa1) $ 52,620,469 3% Fixed Rate 6.93000% 14.36 12/11 -4/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-2 (AA/A+/A1) $ 87,700,781 5% Coupon 6.81408% 14.66 4/12 -7/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-3 (A+/A-/nr) $ 52,620,469 3% Coupon 6.86408% 14.81 7/12 -9/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-4 (A/BBB+/nr) $ 26,310,234 1.5% Coupon 6.91408% 14.95 9/12 -10/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-5 (BBB+/BBB/nr) $ 39,465,351 2.25% Coupon 6.93408% 14.97 10/12 -10/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-6 (BBB-/BBB-/nr) $ 43,850,390 2.5% Coupon 7.18408% 14.97 10/12 -10/12
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average
A-7 (BBB-/nr/nr) $ 21,925,195 1.25% Coupon 7.42408% 14.97 10/12 -10/12
- ---------------------------------------------------------------------------------------------------------------------------------
A-8Z (nr/BBB-/nr) $ 5,740,918.77*** na Fixed Rate; Accrual 10.11500% 9.89 9/07 -9/07
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Only: Weighted
A-CS1 (AAA/nr/Aaa) $ 165,018,148 na Average Coupon 1.83408% 2.25**** na
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Only: Weighted
PS-1 (AAA/nr/Aaa) $1,754,015,636.33 na Average Coupon 1.36707% 6.11**** na
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Offered Private Certificates***** (Non-Investment Grade Certificates)
- ---------------------------------------------------------------------------------------------------------------------------------
B-1 (BB+/BB+/nr) $ 39,465,351 2.25% Fixed Rate 6.93000% 15.00 10/12 -12/12
- ---------------------------------------------------------------------------------------------------------------------------------
B-2 (BB/nr/nr) $ 39,465,351 2.25% Fixed Rate 6.93000% 15.46 12/12 -3/14
- ---------------------------------------------------------------------------------------------------------------------------------
B-3 (BB-/nr/nr) $ 8,770,078 0.5% Fixed Rate 6.93000% 16.75 3/14 -11/14
- ---------------------------------------------------------------------------------------------------------------------------------
B-3SC (pr/nr/nr) $ 26,000,000*** na Principal Only 0.00000% 6.78 11/97 -5/11
- ---------------------------------------------------------------------------------------------------------------------------------
B-4 (B+/nr/nr) $ 13,155,117 0.75% Fixed Rate 6.93000% 17.53 11/14 -10/15
- ---------------------------------------------------------------------------------------------------------------------------------
B-5 (B/nr/nr) $ 13,155,117 0.75% Fixed Rate 6.93000% 18.39 10/15 -8/16
- ---------------------------------------------------------------------------------------------------------------------------------
B-6 (B-/nr/nr) $ 21,925,195 1.25% Fixed Rate 6.93000% 19.43 8/16 -10/17
- ---------------------------------------------------------------------------------------------------------------------------------
B-7 and Weighted Average
B-7H Unrated $ 13,155,124.33 0.75% Coupon 8.33408% 20.98 10/17 -3/20
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rating Agencies (Fitch, S&P, Moody's)
* Total does not include the Class A-8Z or the B-3SC Certificates.
** Based on 0% CPR with all ARD Loans prepaying on the related
Anticipated Repayment Date. See "Prepayment and Yield
Considerations" herein.
*** The principal balances of the Comsat Junior Loan and the SC Junior
Portion of the Saul Centers Retail Pool Loan which support the Class
A-8Z and Class B-3SC Certificates, respectively, are not part of the
Initial Pool Balance.
**** Calculated on a cash flow basis. Average life data is for
illustrative purposes only, as the Class A-CS1 and Class PS-1
Certificates are not entitled to any distributions of principal and
do not have average lives.
***** Not offered hereby.
pr Private Rating.
S-5
<PAGE>
OVERVIEW OF THE OFFERED CERTIFICATES:
DISTRIBUTION DATE ............. The 14th day of each month, or if such 14th
day is not a business day, the business day
immediately following such 14th day,
commencing on November 14, 1997; provided,
that the Distribution Date will be no
earlier than the third business day
following the 11th day of each month;
provided, further that if the 11th day of
any month is not a business day, the
Distribution Date will be the fourth
business day following the 11th day of such
month.
SCHEDULED FINAL DISTRIBUTION
DATE .......................... February 14, 2041.
RATED FINAL DISTRIBUTION DATE . As to each Class of Offered Certificates,
February 14, 2043.
OPTIONAL TERMINATION .......... The Trust Fund is subject to early
termination if less than 1% of the Initial
Pool Balance remains outstanding, or if the
outstanding Mortgage Loans in the Mortgage
Pool consist only of the Swiss Bank Tower
Loan, the Kmart Loans and/or the Circuit
City Loans. See "The Pooling and Servicing
Agreement -- Optional Termination" herein.
FEDERAL TAX STATUS ............ Elections will be made to treat designated
portions of the Trust Fund, exclusive of the
Reserve Accounts, Lock Box Accounts, Cash
Collateral Accounts, the Excess Interest (as
defined herein) and the Default Interest (as
defined herein), as two separate "real
estate mortgage investment conduits" (each a
"REMIC"). The Offered Certificates will be
"regular interests" in the Upper-Tier REMIC
and generally will be taxed in the same
manner as debt instruments. Those portions
of the Trust Fund consisting of Excess
Interest and Default Interest will be
treated as a grantor trust for federal
income tax purposes.
ERISA ......................... The Underwriter believes that the purchase
and holding of the Class A-1A, Class A-1B,
Class A-1C, Class A-1D, Class A-CS1 and
Class PS-1 Certificates will generally meet
the applicable conditions to qualify for
relief from certain of the prohibited
transaction provisions of ERISA and the Code
pursuant to an individual prohibited
transaction exemption issued to the
Underwriter. The other Classes of Offered
Certificates should not be acquired by, or
with the assets of, employee benefit plans
or other retirement arrangements subject to
Title I of ERISA, Section 4975 of the Code
or any Similar Law (as defined herein),
unless, subject to certain conditions
described herein, the source of funds used
to purchase such Certificates is an
"insurance company general account." See
"ERISA Considerations" and "Description of
the Offered Certificates -- Transfer
Restrictions" herein and "ERISA
Considerations" in the Prospectus.
SMMEA ......................... Any Class of Certificates rated in the
category of "AAA" or "AA" (or the
equivalent) by at least one Rating Agency
will constitute "mortgage related
securities" pursuant to the Secondary
Mortgage Market Enhancement Act of 1984 so
long as the Mortgage Loans are secured by
liens on real estate. See "Legal Investment"
herein.
CLOSING DATE .................. On or about October 24, 1997.
CUT-OFF DATE .................. October 24, 1997.
STRUCTURAL SUMMARY:
INTEREST PAYMENTS ............. On each Distribution Date, each Class of
Offered Certificates (other than for the
Class A-8Z and Class B-3SC Certificates)
will be entitled to receive the Interest
S-6
<PAGE>
Distribution Amount for such Class and such
Distribution Date, together with any unpaid
Interest Shortfalls previously allocated to
such Class, in each case to the extent of
Available Funds remaining after making
distributions of principal and interest to
each outstanding Class of Sequential
Certificates more senior to such Class. See
"Description of the Offered Certificates --
Distributions" herein.
PRINCIPAL PAYMENTS ............ The Principal Distribution Amount for each
Distribution Date will be distributed
sequentially, first, to the Class A-1A
Certificates, second, to the Class A-1B
Certificates, third, to the Class A-1C
Certificates, and fourth, to the Class A-1D
Certificates, in each case until the
Certificate Balance thereof has been reduced
to zero, and then sequentially to the other
Classes of Offered Certificates (other than
the Class A-CS1, Class PS-1, Class A-8Z and
Class B-3SC Certificates) until their
respective Certificate Balances are reduced
to zero, in each case to the extent of
Available Funds remaining after making
distributions to each outstanding Class of
Certificates more senior to such Class. The
Classes of Regular Certificates other than
the Class A-8Z and Class B-3SC Certificates
are referred to herein as the "Sequential
Classes". Notwithstanding the foregoing, on
each Distribution Date occurring on or after
the Crossover Date, the Principal
Distribution Amount will be distributed to
the Class A-1A, Class A-1B, Class A-1C and
Class A-1D Certificates pro rata, based on
their respective Certificate Balances, in
reduction of their respective Certificate
Balances, until the Certificate Balance of
each such Class is reduced to zero. The
"Crossover Date" is the Distribution Date on
which the Certificate Balance of each Class
of Certificates other than the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class
A-8Z and Class B-3SC Certificates has been
reduced to zero. See "Description of the
Offered Certificates -- Distributions"
herein.
CREDIT ENHANCEMENT ............ The Class A-1A, Class A-1B, Class A-1C,
Class A-1D, Class A-CS1 and Class PS-1
Certificates are credit enhanced by the
Classes of subordinate Certificates, which
consist of the Class A-1E, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6 and
Class A-7 Certificates and certain of the
Private Certificates. Each other Class of
Sequential Certificates will likewise be
protected by the subordination offered by
the other Classes of Sequential Certificates
that bear a later sequential designation.
See "Description of the Offered Certificates
--Subordination" herein.
The Class A-8Z Certificates will be entitled
solely to payments received on the Comsat
Junior Loan, and the Class B-3SC
Certificates will be entitled solely to
payments received on the Saul Centers Retail
Pool Loan to the extent remaining after
distribution of the Senior SC Distribution
Amount. Neither the Class A-8Z Certificates
nor the Class B-3SC Certificates will be
senior or subordinate to any other Class of
Certificates. However, the Comsat Junior
Loan, which is the sole source of
distributions on the Class A-8Z
Certificates, is subordinate to the Comsat
Senior Loan. See "Description of the
Mortgage Pool -- Significant Mortgage Loans
-- The Comsat Loan and Property" herein. In
addition, the Class B-3SC Certificates, the
sole source of distributions on which is the
Saul Centers Retail Pool Loan, are
subordinate with respect to the other
Classes of Certificates in that they are
entitled to receive distributions on any
Distribution Date only after the Senior SC
Distribution Amount has been distributed in
full. See "Description of the Mortgage Pool
-- Significant Mortgage Loans --The Saul
Centers Retail Pool Loan and Property" and
"Description of the Offered Certificates --
Distributions" herein.
S-7
<PAGE>
P&I ADVANCES .................. Subject to the limitations described herein,
the Servicer is required to make advances
(each such amount, a "P&I Advance") in
respect of delinquent Monthly Payments (but
not Balloon Payments) on the Mortgage Loans.
The Servicer will make only one P&I Advance
with respect to each Mortgage Loan for the
benefit of the most subordinate Class of
Sequential Certificates then outstanding
(unless the related defaulted Monthly
Payment is received prior to the following
Due Date). If the Servicer fails to make an
Advance required to be made, the Trustee
shall then be required to make such Advance.
If both the Servicer and the Trustee fail to
make such Advance, the Fiscal Agent shall be
required to make such Advance. See "The
Pooling and Servicing Agreement -- Advances"
herein.
COLLATERAL OVERVIEW:
THE MORTGAGE POOL ............. The following tables set forth certain
summary information regarding the Mortgage
Loans, excluding the Comsat Junior Loan and
the SC Junior Portion of the Saul Centers
Retail Pool Loan. The Mortgage Pool
described in such tables consists of 155
Mortgage Loans evidenced by 159 Notes. Two
of such Mortgage Loans are evidenced by
multiple Notes. The Mortgage Loan known as
the McBride Portfolio is evidenced by four
Notes. The Mortgage Loan known as GSS
Investments is evidenced by two mortgage
Notes. In addition, the Comsat Loan is
evidenced by one Note for the Comsat Senior
Loan, and another for the Comsat Junior
Loan, and the Saul Centers Retail Pool Loan
is deemed to consist of two portions, the SC
Senior Portion and the SC Junior Portion.
See "Description of the Mortgage Pool"
herein for certain additional information
regarding the Mortgage Loans and the Notes.
See Annex A and Annex B hereto for certain
characteristics of Mortgage Loans, the Notes
and Mortgaged Properties on a
property-by-property basis. All percentages
of Initial Pool Balances used herein are
based upon the Cut-off Date Principal
Balance of the related Mortgage Loan or,
with respect to Mortgage Loans secured by
more than one Mortgaged Property (each, a
"Pool Loan"), are based upon the Allocated
Loan Amount (as defined herein) of the
related Mortgaged Property. All weighted
average information regarding the Mortgage
Loans reflects weighting of the Mortgage
Loans by their Cut-off Date Principal
Balances or, with respect to Pool Loans,
Allocated Loan Amounts, with the exception
of Weighted Average DSCR for which the 20
Credit Lease Loans were excluded, the
"Cut-off Date Principal Balance" of each
Mortgage Loan is equal to the unpaid
principal balance thereof as of the Cut-off
Date, after application of all payments of
principal due on or before such date,
whether or not received. The Initial Pool
Balance does not include the principal
balances of the Comsat Junior Loan and the
SC Junior Portion of the Saul Centers Retail
Pool Loan, and the characteristics thereof
are not reflected in the following tables or
the other statistical information in this
Prospectus Supplement. All numerical
information provided herein with respect to
the Mortgage Loans is provided on an
approximate basis. Certain statistical
information set forth herein 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. No Mortgage Loan
represents more than 7% of the entire pool
of Mortgage Loans. See "Description of the
Mortgage Pool -- Changes in Mortgage Pool
Characteristics" herein.
DEAL INFORMATION/ANALYTICS .... It is anticipated that certain Mortgage Loan
and certificate information will be
available from the following services:
Bloomberg, L.P., Intex Solutions, Inc.,
Charter Research Corporation (www.cmbs.com),
Wall Street Analytics, Inc., the Trepp Group
and through the Servicer's website at
www.amresco.com.
S-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GENERAL CHARACTERISTICS
Initial Pool Balance (1) ................................................ $1,754,015,636
Number of Mortgage Loans ................................................ 155
Number of Mortgaged Properties .......................................... 220
Average Mortgage Loan Balance ........................................... 11,316,230
Weighted Average Mortgage Rate .......................................... 8.372%
Weighted Average Remaining Term to the Earlier of Maturity or
Anticipated Repayment Date ............................................. 153 Mos.
Weighted Average DSCR (2) ............................................... 1.43
ARD Loans (3) ........................................................... 86%
Fully Amortizing Loans (other than ARD Loans) ........................... 13%
Balloon Loans ........................................................... 0%
</TABLE>
- --------------
(1) Subject to a permitted variance of plus or minus 5%. This amount does
not include the principal balance of the Comsat Junior Loan or the SC
Junior Portion of the Saul Centers Retail Pool Loan.
(2) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to
the Net Cash Flow from the related Mortgaged Property divided by the
Annual Debt Service for such Mortgaged Property (as such terms are
defined under "Description of the Mortgage Pool -- Additional Mortgage
Loan Information"). Weighted Average DSCR excludes the 20 Credit Lease
Loans.
(3) "ARD Loans" are Mortgage Loans that substantially fully amortize by
their respective maturity dates but provide for an "Anticipated
Repayment Date" on which a substantial amount of principal will be due
if the borrower elects to prepay the Mortgage Loan in full on such
date. An ARD Loan provides for the imposition of a lock box if one is
not already in place, the application of all cash flow not used to pay
scheduled amounts due on the Mortgage Loan and operating expenses to
reduce the principal balance of the Mortgage Loan and an increased
interest rate after the Anticipated Repayment Date. See "Description of
the Mortgage Pool -- Certain Terms and Conditions of the Mortgage
Loans" herein.
CUT-OFF DATE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
CUT-OFF DATE PRINCIPAL BALANCE POOL BALANCE LOANS
------------------------------ ------------ -----
<S> <C> <C>
$ less than 1,000,000 ............. 0% 5
$1,000,000-4,999,999 .............. 14% 81
$5,000,000-9,999,999 .............. 12% 29
$10,000,000-14,999,999 ............ 10% 14
$15,000,000-19,999,999 ............ 8% 8
$20,000,000-24,999,999 ............ 3% 2
$35,000,000-39,999,999 ............ 8% 4
$40,000,000-44,999,999 ............ 2% 1
$45,000,000-49,999,999 ............ 11% 4
$50,000,000-54,999,999 ............ 3% 1
$55,000,000-59,999,999 ............ 3% 1
$60,000,000-64,999,999 ............ 4% 1
$70,000,000-74,999,999............. 4% 1
$85,000,000-89,999,999 ............ 5% 1
$100,000,000-124,999,999 (1) ...... 13% 2
</TABLE>
- --------------
(1) Although the Saul Centers Retail Pool Loan has a Cut-off Date principal
balance of $147,000,000, only the payments in respect of the SC Senior
Portion thereof (which has an assigned Cut-off Date principal balance
of $121,000,000) are available for distributions on the Classes of
Certificates other than the Class B-3SC Certificates. Distributions on
the Class B-3SC Certificates may only be made on any Distribution Date
from payments in respect of the SC Junior Portion thereof (which has an
assigned Cut-off Date principal balance of $26,000,000), and only after
the Senior SC Distribution Amount has been distributed in full.
S-9
<PAGE>
GEOGRAPHICAL CONCENTRATION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
----- ------------ ----------
<S> <C> <C>
New Jersey .. 10% 19
Ohio ......... 10% 15
Maryland ..... 10% 25
Texas ........ 9% 25
Virginia ..... 7% 9
New York ..... 6% 10
California.... 6% 19
</TABLE>
DEBT SERVICE COVERAGE RATIOS (1)
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
RANGE OF DEBT SERVICE COVERAGE RATIOS POOL BALANCE LOANS
------------------------------------- ------------ -----
<S> <C> <C>
Credit Leases............................. 10% 20
1.1-1.199 ................................ 1% 2
1.2-1.299 ................................ 30% 38
1.3-1.399 ................................ 22% 32
1.4-1.499 ................................ 10% 29
1.5-1.599 ................................ 13% 18
1.6-1.699 ................................ 6% 9
1.7-1.799 ................................ 3% 2
1.8-1.899 ................................ 3% 1
1.9-1.999 ................................ 0% 1
2.0-2.099 ................................ 0% 1
2.1-2.199 ................................ 3% 2
</TABLE>
- ------------
(1) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to
the Net Cash Flow from the related Mortgaged Property divided by the
Annual Debt Service for such Mortgaged Property (as such terms are
defined under "Description of the Mortgage Pool -- Additional Mortgage
Loan Information").
LOAN-TO-VALUE RATIOS (1)
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
RANGE OF LOAN TO VALUE RATIOS POOL BALANCE LOANS
----------------------------- ------------ -----
<S> <C> <C>
45%-49.99% ....................... 3% 4
50%-54.99% ....................... 10% 10
55%-59.99% ....................... 12% 11
60%-64.99% ....................... 5% 15
65%-69.99% ....................... 15% 28
70%-74.99% ....................... 19% 36
75%-79.99% ....................... 22% 25
80%-84.99% ....................... 3% 5
85%-89.99% ....................... 2% 2
greater than 95% ................. 7% 19
</TABLE>
- ------------
(1) Excludes Credit Lease Loans. The "Loan-to-Value Ratio" for any Mortgage
Loan is determined as set forth in "Description of the Mortgage Pool --
Additional Mortgage Loan Information" herein.
S-10
<PAGE>
PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGED
PROPERTY TYPES POOL BALANCE PROPERTIES
-------------- ------------ ----------
<S> <C> <C>
Retail ............... 29% 62
Office ............... 29% 37
Multifamily .......... 19% 59
Hotel ................ 14% 27
Healthcare
Facilities........... 3% 6
Industrial ........... 3% 13
Mobile Home .......... 2% 16
</TABLE>
ANTICIPATED REPAYMENT BY YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
YEAR POOL BALANCE NOTES
---- ------------ -----
<S> <C> <C>
2002 ..... 0% 1
2004 ..... 2% 6
2006 ..... 0% 2
2007 ..... 41% 71
2008 ..... 4% 10
2009 ..... 10% 10
2011 ..... 0% 1
2012 ..... 30% 29
2013 ..... 2% 6
2017 ..... 6% 12
2018 ..... 0% 1
2019 ..... 4% 9
2020...... 0% 1
</TABLE>
- ------------
(1) For any Mortgage Loan, the year shown is the related Maturity Date or,
if the Mortgage Loan is an ARD Loan, the year in which the related
Anticipated Repayment Date occurs.
DELINQUENCY STATUS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
STATUS POOL BALANCE LOANS
------ ------------ -----
<S> <C> <C>
NO DELINQUENCIES 100% 155
</TABLE>
S-11
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Summary....................................................................... S-4
Summary of Prospectus Supplement........................................................ S-15
Risk Factors and Other Special Considerations........................................... S-34
The Mortgage Loans..................................................................... S-34
Certain Considerations With Respect to the Westin Casuarina Resort Loan and Property .. S-40
The Certificates....................................................................... S-50
Description of the Mortgage Pool........................................................ S-55
General................................................................................ S-55
Security for the Mortgage Loans........................................................ S-56
The Mortgage Loan Program--Underwriting Standards...................................... S-56
Credit Lease Loans .................................................................... S-58
Significant Mortgage Loans............................................................. S-60
The Saul Centers Retail Pool Loan and Properties...................................... S-60
The Three Penn Plaza Loan and Property................................................ S-63
The Fath Pool Loan and Properties..................................................... S-64
The Westin Peachtree Hotel Loan and Property.......................................... S-66
The Dayton Mall Loan and Property..................................................... S-67
The Am South Loan and Properties...................................................... S-67
The Westin Casuarina Resort Loan Participation and Property........................... S-68
The Comsat Loan and Property.......................................................... S-69
The Swiss Bank Tower Loan and Property................................................ S-70
Certain Terms and Conditions of the Mortgage Loans..................................... S-72
Additional Mortgage Loan Information................................................... S-76
Changes in Mortgage Pool Characteristics............................................... S-87
Description of the Offered Certificates................................................. S-88
General................................................................................ S-88
Distributions.......................................................................... S-89
Realized Losses........................................................................ S-101
Delinquency Reduction Amounts and Appraisal Reduction Amounts.......................... S-102
Prepayment Interest Shortfalls......................................................... S-103
Subordination.......................................................................... S-103
Appraisal Reductions................................................................... S-104
Delivery, Form and Denomination........................................................ S-104
Book-Entry Registration................................................................ S-105
Definitive Certificates................................................................ S-107
Transfer Restrictions.................................................................. S-107
Prepayment and Yield Considerations..................................................... S-109
Yield.................................................................................. S-109
Yield on the Class A-CS1 and Class PS-1 Certificates................................... S-110
Rated Final Distribution Date.......................................................... S-112
Weighted Average Life of Offered Certificates.......................................... S-112
The Pooling and Servicing Agreement..................................................... S-119
General................................................................................ S-119
Assignment of the Mortgage Loans....................................................... S-119
Representations and Warranties; Repurchase............................................. S-119
Servicing of the Mortgage Loans; Collection of Payments................................ S-125
S-12
<PAGE>
PAGE
----
Advances............................................................................... S-126
Accounts............................................................................... S-128
Withdrawals from the Collection Account................................................ S-130
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses.......................... S-130
Inspections............................................................................ S-131
Insurance Policies..................................................................... S-131
Evidence as to Compliance.............................................................. S-132
Certain Matters Regarding the Depositor, the Servicer and the Special Servicer ........ S-133
Events of Default...................................................................... S-134
Rights Upon Event of Default........................................................... S-134
Amendment.............................................................................. S-135
Voting Rights.......................................................................... S-135
Realization Upon Mortgage Loans........................................................ S-136
Modifications.......................................................................... S-141
Optional Termination................................................................... S-142
The Trustee............................................................................ S-143
Duties of the Trustee.................................................................. S-144
The Fiscal Agent....................................................................... S-144
Duties of the Fiscal Agent............................................................. S-144
The Servicer........................................................................... S-145
Servicing Compensation and Payment of Expenses......................................... S-145
Special Servicing...................................................................... S-145
Servicer and Special Servicer Permitted to Buy Certificates............................ S-147
Reports to Certificateholders; Available Information................................... S-147
Trustee Reports........................................................................ S-147
Servicer Reports....................................................................... S-148
Other Information...................................................................... S-149
Use of Proceeds......................................................................... S-149
Certain Federal Income Tax Consequences................................................. S-150
General................................................................................ S-150
ERISA Considerations.................................................................... S-151
Legal Investment........................................................................ S-154
Method of Distribution.................................................................. S-154
Legal Matters........................................................................... S-155
Rating.................................................................................. S-155
Annex A--Characteristics of Mortgage Loans in Pool...................................... A-1
Annex B--Characteristics of Mortgaged Properties in Pool ............................... B-1
Annex C--Global Clearance, Settlement and Tax Documentation Procedures ................. C-1
Annex D--Schedule of Weighted Average Net Mortgage Pass-Through Rates................... D-1
</TABLE>
S-13
<PAGE>
INDEX OF TABLES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Range of Debt Service Coverage......................................................... S-80
Range of Loan-to-Value Ratios.......................................................... S-80
Range of Loan-to-Value Ratios at Earlier of Anticipated Repayment Dates or Maturity ... S-81
Mortgaged Properties By State.......................................................... S-81
Range of Year Built.................................................................... S-82
Cut-off Date Loan Amount By Property Type.............................................. S-83
Range of Loan Amounts or Loan Balances................................................. S-84
Range of Anticipated Remaining Term in Months.......................................... S-84
Range of Remaining Term in Months...................................................... S-85
Anticipated Repayment By Year.......................................................... S-85
Range of Mortgage Rates................................................................ S-86
Range of Remaining Lock-Out Period in Months........................................... S-86
</TABLE>
S-14
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and in the accompanying Prospectus. The following Summary of
Prospectus Supplement does not include all relevant information relating to
the securities and collateral described herein, particularly with respect to
the risks and special considerations involved with an investment in such
securities, and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Prior to making an investment decision, a prospective investor
should carefully review this Prospectus Supplement and the Prospectus.
Capitalized terms used and not otherwise defined herein have the respective
meanings assigned to them in this Prospectus Supplement and in the
Prospectus. See "Index of Significant Definitions" in this Prospectus and
Prospectus Supplement.
TITLE OF CERTIFICATES ......... Asset Securitization Corporation, Commercial
Mortgage Pass-Through Certificates, Series
1997-D5 (the "Certificates").
CERTIFICATE BALANCE AND
NOTIONAL BALANCE ............. Each Class of Offered Certificates has the
approximate aggregate initial Certificate
Balance or Notional Balance set forth on the
cover page of this Prospectus Supplement,
subject to a permitted variance of plus or
minus 5%. The Offered Certificates and the
Private Certificates will be issued pursuant
to a Pooling and Servicing Agreement to be
dated as of October 24, 1997 (the "Pooling
and Servicing Agreement") among the
Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent.
DEPOSITOR ..................... Asset Securitization Corporation, a Delaware
corporation and a wholly owned subsidiary of
Nomura Asset Capital Corporation (the
"Mortgage Loan Seller"), and an affiliate of
Nomura Securities International, Inc. (the
"Underwriter"). See "The Depositor" in the
Prospectus.
SERVICER ...................... AMRESCO Services, L.P., a Delaware limited
partnership (the "Servicer"). See "The
Pooling and Servicing Agreement -- The
Servicer" herein and "Description of the
Agreements -- Subservicers" in the
Prospectus. The Servicer will be permitted
to purchase any Class of Certificates. See
"Risk Factors and Other Special
Considerations -- The Certificates --
Servicer or Special Servicer May Purchase
Certificates" herein.
SPECIAL SERVICER .............. AMRESCO Management, Inc., a Texas
corporation (in such capacity, the "Special
Servicer"). The Special Servicer will be
responsible for servicing Mortgage Loans
that, in general, are in default or as to
which default is imminent and administering
any REO Property (as defined herein). The
holders of greater than 50% of the
Percentage Interests of the most subordinate
Class of Sequential Certificates then
outstanding (provided, however, that for
purposes of determining the most subordinate
Sequential Class, the Class A-1A, Class
A-1B, Class A-1C, Class A-1D, Class A-CS1
and Class PS-1 Certificates collectively and
the Class B-7 and Class B-7H Certificates
together will, in each case, be treated as
one class and the Class A-8Z and Class B-3SC
Certificates will be disregarded and will
not be entitled to remove or appoint a
Special Servicer) will be entitled to remove
the Special Servicer as Special Servicer of
the Mortgage Loans, and appoint a successor
Special Servicer with respect to such
Mortgage Loans, provided that each Rating
Agency confirms in writing that such removal
and appointment, in and of itself, would not
cause a downgrade, qualification or
withdrawal of the then current ratings
assigned to any Class of Certificates. The
Special Servicer will be permitted to
purchase any Class of Certificates. See
S-15
<PAGE>
"Risk Factors and Other Special
Considerations --The Certificates --
Servicer or Special Servicer May Purchase
Certificates" herein.
TRUSTEE ....................... LaSalle National Bank, a nationally
chartered bank (the "Trustee"). See "The
Pooling and Servicing Agreement -- The
Trustee" herein.
FISCAL AGENT .................. ABN AMRO Bank N.V., a Netherlands banking
corporation (the "Fiscal Agent") and the
corporate parent of the Trustee.
REPORTS TO CERTIFICATEHOLDERS . On each Distribution Date, the Trustee will
be required to prepare and forward to each
Certificateholder, the Depositor, the
Servicer, the Special Servicer, each Rating
Agency and, if requested, any potential
investors in the Certificates a Distribution
Date Statement as described under "The
Pooling and Servicing Agreement -- Reports
to Certificateholders; Available Information
-- Trustee Reports." In addition, the
Servicer will be required to deliver to the
Trustee and the Trustee will be required to
deliver to each Certificateholder, the
Depositor, each Rating Agency and, if
requested, any potential investor in the
Certificates, on each Distribution Date, a
Comparative Financial Status Report, a
Delinquent Loan Status Report, a Historical
Loan Modification Report, a Historical Loss
Estimate Report, an REO Status Report and a
Watch List, each as described under "The
Pooling and Servicing Agreement -- Reports
to Certificateholders; Available Information
-- Servicer Reports." Commencing in January
1998, subject to the receipt of necessary
information from any subservicer, such
loan-by-loan listing will be made available
electronically in the form of the standard
CSSA loan file and CSSA property file;
provided, however, the Trustee will provide
Certificateholders with a written copy of
such report upon request. The Trustee will
also be required to make available at its
offices, during normal business hours, for
review by any Holder of a Certificate, the
Depositor, the Special Servicer, the
Servicer, any Rating Agency, any potential
investor in the Certificates or any other
Person to whom the Depositor believes such
disclosure is appropriate, among other
things, the following items: Mortgaged
Property operating statements, rent rolls,
retail sales information, Mortgaged Property
inspection reports and all modifications,
waivers and amendments of the terms of a
Mortgage Loan entered into by the Servicer
or the Special Servicer. See "The Pooling
and Servicing Agreement -- Reports to
Certificateholders; Available Information --
Other Information."
A Current Report on Form 8-K (the "Form
8-K") will be filed by the Depositor,
together with the Pooling and Servicing
Agreement, with the Securities and Exchange
Commission within fifteen days after the
initial issuance of the Offered
Certificates. In the event Mortgage Loans
are removed from the Mortgage Pool, such
removal will be noted in the Form 8-K. Such
Form 8-K will be available to purchasers and
potential purchasers of the Offered
Certificates.
MORTGAGE LOAN SELLER .......... Nomura Asset Capital Corporation, a Delaware
corporation, the parent of the Depositor and
an affiliate of the Underwriter.
ORIGINATORS ................... Nomura Asset Capital Corporation, a Delaware
corporation (the "Mortgage Loan Seller"),
Bloomfield Acceptance Company, LLC, a
Michigan limited liability company
("Bloomfield"), Bostonia America Lending
Group-I ("Bostonia") and Credit Suisse First
Boston Mortgage Capital LLC, a Delaware
limited liability company ("CSFB", and
together with Bloomfield, Bostonia and the
Mortgage Loan Seller, the "Originators").
S-16
<PAGE>
All of the Mortgage Loans were originated
by the Mortgage Loan Seller, Bloomfield,
Bostonia or CSFB as shown in the following
table during the period commencing June 27,
1996, and ending on the Cut-off Date:
ORIGINATORS OF THE MORTGAGE LOANS (1)
<TABLE>
<CAPTION>
% OF
INITIAL NUMBER OF
POOL MORTGAGE
ORIGINATOR BALANCE LOANS
- ---------- ------- -----
<S> <C> <C>
Nomura Asset Capital Corporation ................ 94% 135
Bloomfield Acceptance Company, LLC .............. 2% 14
Bostonia America Lending Group-I................. 3% 5
Credit Suisse First Boston Mortgage Capital LLC 1% 1
</TABLE>
(1) All statistical information set forth in
this and the following tables in the
Summary regarding the "% of Initial Pool
Balance" is based on the Cut-off Date
Principal Balance of the related
Mortgage Loan or Loans.
CUT-OFF DATE .................. October 24, 1997.
CLOSING DATE .................. On or about October 24, 1997.
DISTRIBUTION DATE ............. The 14th day of each month, or if such 14th
day is not a business day, the business day
immediately following such 14th day,
commencing on November 14, 1997; provided,
however, that the Distribution Date will be
no earlier than the third business day
following the 11th day of each month;
provided, further, that if the 11th day of
any month is not a business day, the
Distribution Date will be the fourth
business day following the 11th day of such
month. A business day is any day other than
a Saturday, a Sunday or any day on which
banking institutions in the States of
Georgia, Illinois or New York are authorized
or obligated by law, executive order or
governmental decree to close.
RECORD DATE ................... With respect to each Distribution Date, the
close of business on the 10th day of the
month in which such Distribution Date
occurs, or if such day is not a business
day, the preceding business day; the Record
Date for the Distribution Date occurring in
November 1997 for all purposes other than
the receipt of distributions is the Closing
Date.
INTEREST ACCRUAL PERIOD ....... With respect to any Distribution Date other
than the Distribution Date occurring on
November 14, 1997, the period commencing on
and including the 11th day of the month
preceding the month in which such
Distribution Date occurs and ending on and
including the 10th day of the month in which
such Distribution Date occurs; the Interest
Accrual Period with respect to the
Distribution Date occurring on November 14,
1997 is assumed to consist of 17 days. Each
Interest Accrual Period other than the
Interest Accrual Period with respect to the
Distribution Date occurring on November 14,
1997 is assumed to consist of 30 days.
SCHEDULED FINAL DISTRIBUTION
DATE ......................... As to each Class of Offered Certificates,
February 14, 2041, the next Distribution
Date occurring after the latest maturity
date of any Mortgage Loan.
RATED FINAL DISTRIBUTION DATE . As to each Class of Offered Certificates,
February 14, 2043, the Distribution Date
occurring two years after the latest Assumed
Maturity Date of any of the Mortgage Loans.
The "Assumed Maturity Date" of (a) any
Mortgage Loan that is not a Balloon Loan is
the maturity date of such Mortgage Loan and
(b) any
S-17
<PAGE>
Balloon Loan is the date on which such
Mortgage Loan would be deemed to mature in
accordance with its original amortization
schedule absent its Balloon Payment.
COLLECTION PERIOD ............. With respect to a Distribution Date, the
period beginning on the day after the
preceding Collection Period (or, with
respect to the first Distribution Date, the
day after the Cut-off Date) and ending at
the close of business on the 11th day in the
month in which such Distribution Date occurs
(or, if such day is not a Business Day, the
following Business Day).
DUE DATE ...................... With respect to any Distribution Date and/or
any Mortgage Loan, as the case may be, the
11th day of the month in which such
Distribution Date occurs, or with respect to
the Mortgage Loans known as the Circuit City
Loans, the 25th day of the prior month (or
in the case of certain of the Mortgage
Loans, if such 11th or 25th day is not a
business day, either the next business day
or the first preceding business day).
DENOMINATIONS ................. The Offered Certificates will be issuable in
registered form, in minimum denominations of
Certificate Balance or Notional Balance, as
applicable, of $50,000 and multiples of $1
in excess thereof.
CLEARANCE AND SETTLEMENT ...... Holders of Offered Certificates may elect to
hold their Certificates through any of The
Depository Trust Company ("DTC") (in the
United States) or Centrale de Livraison de
Valeurs Mobiliers S.A. ("CEDEL") or The
Euroclear System ("Euroclear") (in Europe).
Transfers within DTC, CEDEL or Euroclear, as
the case may be, will be in accordance with
the usual rules and operating procedures of
the relevant system. Crossmarket transfers
between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected in DTC through
the relevant Depositaries of CEDEL or
Euroclear. The Depositor may elect to
terminate the book-entry system through DTC
with respect to all or any portion of any
Class of the Offered Certificates. See
"Description of the Offered Certificates --
Delivery, Form and Denomination,"
"--Book-Entry Registration" and
"--Definitive Certificates" herein and
"Description of the Certificates --
Book-Entry Registration and Definitive
Certificates" in the Prospectus.
THE MORTGAGE LOANS ............ The Mortgage Loan Seller will sell the
Mortgage Loans to the Depositor and, in
connection therewith, will make certain
representations and warranties, as more
fully described herein. The Depositor will
assign the Mortgage Loans, together with its
rights and remedies in respect of breaches
of the Mortgage Loan Seller's
representations and warranties to the
Trustee for the benefit of
Certificateholders. With respect to Mortgage
Loans acquired by the Mortgage Loan Seller
from Bloomfield and CSFB, the Mortgage Loan
Seller will also assign to the Depositor and
the Depositor will assign to the Trustee for
the benefit of the Certificateholders, any
rights and remedies in respect of breaches
of representations or warranties made by
such third party. See "The Pooling and
Servicing Agreement -- Representations and
Warranties; Repurchase" herein.
S-18
<PAGE>
Security for the Mortgage Loans
Each Mortgage Loan is secured by one or more
first priority mortgages, deeds of trust, or
other similar security instruments (or with
respect to the Comsat Junior Loan, a second
priority mortgage) on the borrower's
interest (as set forth below) in certain
land used for commercial or multifamily
residential purposes, all buildings and
improvements thereon and certain personal
property located thereon (each a "Mortgaged
Property").
<TABLE>
<CAPTION>
INTEREST OF % OF INITIAL NUMBER OF
BORROWER POOL MORTGAGED
ENCUMBERED BALANCE (1) PROPERTIES
---------- ----------- ----------
<S> <C> <C>
Fee Simple Estate(2) 91% 213
Leasehold Estate(3) . 9% 7
</TABLE>
(1) Based on the principal balance of the
Mortgage Loan or, for any Pool Loan,
Allocated Loan Amount of the related
Mortgaged Property.
(2) For any Mortgaged Property where the
ground lessee and ground lessor are both
parties to the Mortgage, the Mortgaged
Property was categorized as a Fee Simple
Estate.
(3) Includes any Mortgaged Property where a
material portion of such property is
subject to a ground lease and the ground
lessor is not a party to the Mortgage.
Certain of the Mortgage Loans, as described
in the table contained in the section
entitled "Description of the Mortgage Loans
-- Credit Lease Loans", representing 10% of
the Initial Pool Balance of the Mortgage
Loans, are backed by net lease obligations
(a "Credit Lease") of a tenant (each, a
"Tenant", collectively, the "Tenants"), or
net lease obligations guaranteed by an
entity (each, a "Guarantor", collectively,
the "Guarantors"), that is rated or
internally classified "BB-" (or the
equivalent) or higher by one or more of the
Rating Agencies (each, a "Credit Lease
Loan", collectively, the "Credit Lease
Loans"). Scheduled monthly payments (the
"Monthly Rental Payments") under the Credit
Leases by the Tenants under such Credit
Lease Loans are sufficient to pay in full,
and on a timely basis, all interest and
principal and other sums scheduled to be
paid with respect to the related Credit
Lease Loan.
All of the Credit Lease Loans are secured by
assignments of leases and rents (the "Credit
Lease Assignments") on properties (the
"Credit Lease Properties") triple net-leased
to the Tenants pursuant to the Credit
Leases. The Credit Lease Loans generally
provide that the Tenant is responsible for
all costs and expenses incurred in
connection with the maintenance and
operation of the related Mortgaged Property
and that, in the event of a casualty or
condemnation of the related Mortgaged
Property, either (i) the Tenant is obligated
to continue making payments or must offer to
purchase the Mortgaged Property for at least
the full principal balance of the Mortgage
Loan plus accrued interest thereon, or (ii)
the Tenant may terminate the lease or abate
rent. In the latter case, the Trustee on
behalf of the Certificateholders will in
each case have the benefit of certain
non-cancelable credit lease enhancement
insurance policies (the "Lease Enhancement
Policies") obtained to cover certain
casualty and/or condemnation risks resulting
from any such rent abatement or termination
rights that a Tenant under a Credit Lease
may have. See "Description of the Mortgage
Pool --Credit Lease Loans" herein.
Payment Terms
All of the Mortgage Loans provide for
scheduled payments of principal and interest
("Monthly Payments") to be due on the 11th
or 25th day of each month (other than the
Comsat Junior Loan which requires no
payments of principal or
S-19
<PAGE>
interest until its Maturity Date). Each
Mortgage Loan accrues interest at the per
annum rate set forth for such Mortgage Loan
on Annex A (the "Mortgage Rate") that is
fixed for the entire term of such loan,
except that certain of the Mortgage Loans
(as set forth on the table below) accrue
interest at a higher rate during a specified
period ending at maturity (the beginning of
such period referred to herein as the
"Anticipated Repayment Date"). As used
herein, the term "Mortgage Rate" does not
include the portion of the interest rate
attributable to the rate increase; the
excess of interest at such higher rate over
interest at the Mortgage Rate (together with
interest thereon) is referred to herein as
"Excess Interest". As described below, all
of the Mortgage Loans that provide for
Excess Interest permit the related borrower
to prepay the related Mortgage Loan without
payment of a Prepayment Premium for a period
beginning on or, in the case of certain of
these Mortgage Loans one to six months prior
to, the Anticipated Repayment Date and
ending on the related maturity date. The
Mortgage Loans that accrue Excess Interest
are referred to herein as ARD Loans. Such
Mortgage Loans require that on, or up to
three months prior to, the date on which
Excess Interest begins to accrue on such
loans (the "Anticipated Repayment Date") all
Excess Cash Flow (as defined herein) is used
to repay principal. The Anticipated
Repayment Date for each ARD Loan is set
forth on Annex A. The ARD Loans
substantially fully amortize over their
stated terms, which are at least 51 months
longer than the term to their related
Anticipated Repayment Dates. If the related
borrower elects to prepay an ARD Loan in
full on the related Anticipated Repayment
Date, a substantial amount of principal will
be due. With respect to any ARD Loan,
payment of Excess Interest will be deferred
until the principal of such Mortgage Loan
has been paid in full. All of the ARD Loans
for which a Lock Box is not already
established provide that a Lock Box be
established generally three months to one
year prior to the applicable Anticipated
Repayment Date. See "Description of the
Mortgage Pool -- Certain Terms and
Conditions of the Mortgage Loans --Excess
Interest" herein.
Certain of the Mortgage Loans (as set forth
on the following table) provide for Monthly
Payments based on amortization schedules at
least 84 months longer than the remaining
stated terms of such Mortgage Loans (such
Mortgage Loans, the "Balloon Loans"), such
that substantial amounts of principal are
due and payable on the respective maturity
dates (each such amount, after application
of all constant Monthly Payments due on or
prior to the respective maturity date, a
"Balloon Payment"), unless prepaid prior
thereto.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE
LOANS
<TABLE>
<CAPTION>
% OF
INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
------------ ------- -----
<S> <C> <C>
ARD Loans .............. 86% 125
Fully Amortizing Loans
(other than ARD Loans) 13% 26
Balloon Loans .......... 0% 4
</TABLE>
<PAGE>
Lock-Out Characteristics of the Mortgage
Loans
All of the Mortgage Loans prohibit voluntary
prepayment during a period (each, a
"Lock-out Period") commencing on the date of
origination and ending on the date that is
generally up to three months (or for certain
of the Mortgage Loans, up to six months)
prior to its Anticipated Repayment Date or
maturity date, as applicable.
S-20
<PAGE>
OVERVIEW OF LOCK-OUT PERIODS
<TABLE>
<CAPTION>
<S> <C>
Minimum Remaining Lock-out Period.............. 58 months
Maximum Remaining Lock-out Period.............. 265 months
Weighted Average Remaining Lock-out Period .... 150 months
</TABLE>
From and after the expiration of the related
Lock-out Period, no Mortgage Loan requires
the payment of a premium or fee (a
"Prepayment Premium") upon the voluntary
prepayment of such Mortgage Loan. Prepayment
Premiums may be due in connection with
certain involuntary prepayments as described
herein. See "Risk Factors and Other Special
Considerations -- The Certificates --Special
Prepayment and Yield Considerations" and
"Description of the Mortgage Pool -- Certain
Terms and Conditions of the Mortgage Loans
-- Prepayment Provisions" and "--Property
Releases" herein.
All of the Mortgage Loans provide that after
a specified period (a "Defeasance Lock-out
Period"), the applicable borrower may obtain
the release of the related Mortgaged
Property or, in the case of any Pool Loan,
one or more of the related Mortgaged
Properties from the lien of the related
Mortgages (a "Defeasance Option") upon the
pledge to the Trustee of noncallable U.S.
government obligations which provide
payments on or prior to all successive
scheduled payment dates upon which interest
and principal payments are due under the
related Note (or portion thereof in
connection with a Pool Loan) and in amounts
due on such dates, and upon satisfaction of
certain other conditions. The Servicer will
purchase such U.S. government obligations on
behalf of a borrower exercising a Defeasance
Option. The Pool Loans generally require
that prior to a release of less than all of
the Mortgaged Properties a specified
percentage (generally 125%) of the Allocated
Loan Amount be defeased for each Mortgaged
Property released and that certain DSCR
tests be satisfied. The related borrower
will be required to (or in the case of
certain of the Mortgage Loans, the related
borrowers may) transfer the pledged U.S.
government obligations together with the
related Note or portion thereof to a
successor limited purpose borrower and such
successor borrower will assume the
obligations under the Mortgage Loan or
portion thereof.
The Comsat Junior Loan also provides that
the related borrower may obtain the release
of undeveloped portions of the related
Mortgaged Property from the lien of such
Mortgage Loan upon the establishment of
certain specified reserve funds.
The characteristics of each of the Mortgage
Loans are more particularly described in
Annex A.
None of the Mortgage Loans are insured or
guaranteed by the United States, any
governmental agency or instrumentality or
any private mortgage insurer. See
"Description of the Mortgage Pool --
General" herein.
THE UNDERWRITER HAS MADE AVAILABLE AN
ELECTRONIC VERSION OF THIS PROSPECTUS ON THE
WORLD WIDE WEB AT "HTTP://
WWW.NOMURANY.COM". THE PASSWORD FOR ACCESS
TO SUCH WEB SITE IS "CMBS". CERTAIN
STATISTICAL INFORMATION INCLUDED IN THIS
PROSPECTUS SUPPLEMENT CAN BE DOWNLOADED FROM
SUCH WEB SITE.
THE OFFERED CERTIFICATES ...... The Class A-1A Certificates will have an
initial Certificate Balance of $165,018,148.
S-21
<PAGE>
The Class A-1B Certificates will have an
initial Certificate Balance of $172,648,684.
The Class A-1C Certificates will have an
initial Certificate Balance of $712,971,079.
The Class A-1D Certificates will have an
initial Certificate Balance of $229,793,503.
The Class A-CS1 Certificates will have an
initial Notional Balance of $165,018,148.
The Notional Balance of the Class A-CS1
Certificates will at all times be equal to
the Certificate Balance of the Class A-1A
Certificates.
The Class PS-1 Certificates will have an
initial Notional Balance of
$1,754,015,636.33, which is equal to the
aggregate Stated Principal Balance of the
Mortgage Loans (excluding the Comsat Junior
Loan and the SC Junior Portion of the Saul
Centers Retail Pool Loan) as of the Cut-off
Date. With respect to any Distribution Date,
the Notional Balance of the Class PS-1
Certificates will be equal to the aggregate
Stated Principal Balance of such Mortgage
Loans as of the first day of the related
Interest Accrual Period.
The Class A-1E Certificates will have an
initial Certificate Balance of $52,620,469.
The Class A-2 Certificates will have an
initial Certificate Balance of $87,700,781.
The Class A-3 Certificates will have an
initial Certificate Balance of $52,620,469.
The Class A-4 Certificates will have an
initial Certificate Balance of $26,310,234.
The Class A-5 Certificates will have an
initial Certificate Balance of $39,465,351.
The Class A-6 Certificates will have an
initial Certificate Balance of $43,850,390.
The Class A-7 Certificates will have an
initial Certificate Balance of $21,925,195.
The Class A-8Z Certificates will have an
initial Certificate Balance of
$5,740,918.77.
THE PRIVATE CERTIFICATES
(NOT OFFERED HEREBY) ......... The Class B-1 Certificates will have an
initial Certificate Balance of $39,465,351.
The Class B-2 Certificates will have an
initial Certificate Balance of $39,465,351.
The Class B-3 Certificates will have an
initial Certificate Balance of $8,770,078.
The Class B-3SC Certificates will have an
initial Certificate Balance of $26,000,000.
The Class B-4 Certificates will have an
initial Certificate Balance of $13,155,117.
The Class B-5 Certificates will have an
initial Certificate Balance of $13,155,117.
The Class B-6 Certificates will have an
initial Certificate Balance of $21,925,195.
The Class B-7 and Class B-7H Certificates
will, in the aggregate, have initial
Certificate Balances of approximately
$13,155,124.
The Class V-1, Class V-2, Class R and Class
LR Certificates will not have a Certificate
Balance or a Notional Balance.
The Class B-1, Class B-2, Class B-3, Class
B-3SC, Class B-4, Class B-5, Class B-6,
Class B-7, Class B-7H, Class V-1, Class V-2,
Class R and Class LR Certificates are not
offered hereby.
S-22
<PAGE>
SUBORDINATION ................. Except as described below, as a means of
providing protection to the holders of the
Class A-1A, Class A-1B, Class A-1C, Class
A-1D, Class A-CS1 and Class PS-1
Certificates against losses associated with
delinquent and defaulted Mortgage Loans, the
rights of the holders of the Class A-1E,
Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6 and Class A-7 Certificates and
certain of the Private Certificates to
receive distributions of interest and
principal with respect to the Mortgage
Loans, as applicable, will be subordinated
to such rights of the holders of the Class
A-1A, Class A-1B, Class A-1C, Class A-1D,
Class A-CS1 and Class PS-1 Certificates
(other than with respect to Reduction
Interest Distribution Amounts and Reduction
Interest Shortfalls). The Class A-1E
Certificates will likewise be protected by
the subordination of the Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6 and
Class A-7 Certificates and certain of the
Private Certificates. The Class A-2
Certificates will be likewise protected by
the subordination of the Class A-3, Class
A-4, Class A-5, Class A-6 and Class A-7
Certificates and certain of the Private
Certificates. The Class A-3 Certificates
will be likewise protected by the
subordination of the Class A-4, Class A-5,
Class A-6 and Class A-7 Certificates and
certain of the Private Certificates. The
Class A-4 Certificates will likewise be
protected by the subordination of the Class
A-5, Class A-6 and Class A-7 Certificates
and certain of the Private Certificates. The
Class A-5 Certificates will likewise be
protected by the subordination of the Class
A-6 and Class A-7 Certificates and certain
of the Private Certificates. The Class A-6
Certificates will likewise be protected by
the subordination of the Class A-7
Certificates and certain of the Private
Certificates. The Class A-7 Certificates
will likewise be protected by the
subordination of certain of the Private
Certificates. This subordination will be
effected in two ways: (i) by the
preferential right of holders of a Class of
Certificates to receive on any Distribution
Date the amounts of interest and principal
distributable in respect of such
Certificates, on such date (except as
described herein in respect of the Class
PS-1 Certificates and Reduction Interest
Distribution Amounts and Reduction Interest
Shortfalls) prior to any distribution being
made on such Distribution Date in respect of
any Classes of Certificates subordinate
thereto and (ii) by the allocation of
Realized Losses (as defined herein), first,
to certain of the Private Certificates,
second, to the Class A-7 Certificates,
third, to the Class A-6 Certificates,
fourth, to the Class A-5 Certificates,
fifth, to the Class A-4 Certificates, sixth,
to the Class A-3 Certificates, seventh, to
the Class A-2 Certificates, eighth, to the
Class A-1E Certificates, and finally, to the
Class A-1A, Class A-1B, Class A-1C and Class
A-1D Certificates, pro rata, based on their
respective outstanding Certificate Balances.
<PAGE>
For purposes of the foregoing, neither the
Class A-8Z nor the Class B-3SC Certificates
will be considered senior or subordinate to
any other class. However, the Comsat Junior
Loan, which is the sole source of
distributions on the Class A-8Z
Certificates, is subordinate to the Comsat
Senior Loan. See "Description of the
Mortgage Pool -- Significant Mortgage Loans
-- The Comsat Loan and Property" herein. In
addition, the SC Junior Portion of the Saul
Centers Retail Pool Loan is subordinate to
the SC Senior Portion thereof, and
accordingly the Class B-3SC Certificates,
the sole source of distributions on which is
the SC Junior Portion of the Saul Centers
Retail Pool Loan, may be viewed as
effectively subordinate to the other Classes
of Certificates in that they are entitled to
receive distributions on any Distribution
Date only after the Senior SC Distribution
Amount has been distributed in full, but
only with respect to payments on the Saul
Centers Retail Pool Loan. See "Description
of the Mortgage Pool -- Significant Mortgage
Loans -- The Saul Centers Retail Pool
S-23
<PAGE>
Loan and Property" and "Description of the
Offered Certificates -- Distributions"
herein.
No other form of credit enhancement will be
available for the benefit of the holders of
the Offered Certificates. See "Description
of the Offered Certificates" herein.
Shortfalls in Available Funds resulting from
Servicing Compensation other than the
Servicing Fee, interest on Advances (to the
extent not covered by Default Interest),
extraordinary expenses of the Trust Fund
(other than indemnification expenses), a
reduction on the interest rate of a Mortgage
Loan by a bankruptcy court pursuant to a
plan of reorganization or pursuant to any of
its equitable powers, a reduction in
interest rate or a forgiveness of principal
of a Mortgage Loan as described under "The
Pooling and Servicing Agreement --
Modifications" or otherwise will be
allocated in the same manner as Realized
Losses. Shortfalls in Available Funds
resulting from (i) indemnification expenses
of the Trust Fund required to be paid
pursuant to the Pooling and Servicing
Agreement and (ii) Prepayment Interest
Shortfalls in excess of the sum of (x) the
Servicing Fee with respect to the Mortgage
Loan being prepaid (not including the
portion of the Servicing Fee attributable to
the Trustee Fee) and (y) investment income
on the related Principal Prepayment for the
period such amount is held in the Collection
Account during the related Interest Accrual
Period, will be allocated to, and be deemed
distributed to, each Class of Certificates,
pro rata, based upon amounts distributable
to each such Class and, in the case of
unanticipated indemnification expenses, will
be allocated, first, in respect of interest
and, second, in respect of principal. See
"Description of the Offered Certificates --
Distributions -- Payment Priorities" herein.
PASS-THROUGH RATES ............ The per annum rate at which interest accrues
(the "Pass-Through Rate") on the Class A-1A,
Class A-1B, Class A-1C, Class A-1D and Class
A-1E Certificates during any Interest
Accrual Period will be equal to 6.50000%,
6.66000%, 6.75000%, 6.85000% and 6.93000%,
respectively.
The Pass-Through Rate on the Class A-CS1
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 6.50000%.
The Pass-Through Rate on the Class PS-1
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus the Weighted Average
Pass-Through Rate.
The Pass-Through Rate on the Class A-2
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 1.52000%.
The Pass-Through Rate on the Class A-3
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 1.47000%.
The Pass-Through Rate on the Class A-4
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 1.42000%.
The Pass-Through Rate on the Class A-5
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 1.40000%.
The Pass-Through Rate on the Class A-6
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 1.15000%.
S-24
<PAGE>
The Pass-Through Rate on the Class A-7
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus 0.91000%.
The Pass-Through Rate on the Class A-8Z
Certificates is a per annum rate equal to
the Mortgage Pass-Through Rate of the Comsat
Junior Loan.
The Pass-Through Rates on the Class B-1,
Class B-2, Class B-3, Class B-4, Class B-5
and Class B-6 Certificates will be equal to
6.93000%.
The Pass-Through Rate on the Class B-7 and
Class B-7H Certificates is a per annum rate
equal to the Weighted Average Net Mortgage
Pass-Through Rate.
Each of the Class B-3SC, Class V-1, Class
V-2, Class R and Class LR Certificates will
not have a Pass-Through Rate.
The "Weighted Average Pass-Through Rate" for
purposes of calculating the Pass-Through
Rate on the Class PS-1 Certificates, with
respect to any Interest Accrual Period, is
the amount (expressed as a percentage), the
numerator of which is the sum of (i) the sum
of the products of (A) the Pass-Through Rate
with respect to each class of Certificates
having a Pass-Through Rate (other than the
Coupon Strip Certificates, the Class A-8Z
Certificates and the Class B-3SC
Certificates) and (B) the Certificate
Balance of such class as of the first day of
such Interest Accrual Period and (ii) the
product of (A) the Pass-Through Rate on the
Class A-CS1 Certificates and (B) the
Notional Balance of such class as of such
date, and the denominator of which is the
sum of the Certificate Balances of each
class included in clause (i)(A) above as of
such date (provided, in each case, that any
reductions in Certificate Balance or
Notional Balance, as applicable, as a result
of distributions or allocations of Realized
Losses to such Class or the related Class,
respectively, occurring in an Interest
Accrual Period will be deemed to have been
made on the first day of such Interest
Accrual Period).
The "Weighted Average Net Mortgage
Pass-Through Rate" with respect to any
Distribution Date is the amount (expressed
as a percentage) (i) the numerator of which
is the sum for all Mortgage Loans other than
the Comsat Junior Loan and the SC Junior
Portion of the Saul Centers Retail Pool Loan
of the products of (a) the Net Mortgage
Pass-Through Rate of each such Mortgage Loan
and (b) the Stated Principal Balance of such
Mortgage Loan and (ii) the denominator of
which is the sum of the Stated Principal
Balances of all such Mortgage Loans as of
their respective Due Date preceding the
prior Distribution Date.
The "Net Mortgage Pass-Through Rate" with
respect to any Mortgage Loan and any
Interest Accrual Period is a per annum rate
equal to the Mortgage Pass-Through Rate (as
such term is defined below) for such
Mortgage Loan minus, for any Mortgage Loan
other than the Comsat Junior Loan and the SC
Junior Portion of the Saul Centers Retail
Pool Loan, the aggregate of the applicable
Servicing Fee Rate (as such term is defined
herein). No Servicing Fee Rate applies to
the Comsat Junior Loan or the SC Junior
Portion of the Saul Centers Retail Pool
Loan.
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans that provide
for calculations of interest based on twelve
months of 30 days each for any Interest
Accrual Period is equal to the Mortgage Rate
thereof.
<PAGE>
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans (other than
the Mortgage Loan known as the Swiss Bank
Tower Loan) that provide for interest based
on a 360-day year and the actual number of
days elapsed for an
S-25
<PAGE>
Interest Accrual Period is equal to the
Mortgage Rate thereof multiplied by a
fraction, the numerator of which is the
actual number of days in such Interest
Accrual Period and the denominator of which
is 30.
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loan known as the
Swiss Bank Tower Loan for (a) any Interest
Accrual Period commencing in any January,
February, April, June, September and
November, and any December occurring in a
year immediately preceding any year which is
not a leap year, is the Mortgage Rate
thereof, and (b) any Interest Accrual Period
commencing in March, May, July, August and
October (other than October 1997) and any
December occurring in a year immediately
preceding any year which is a leap year, is
equal to the Mortgage Rate thereof
multiplied by a fraction the numerator of
which is the actual number of days in such
Interest Accrual Period and the denominator
of which is 30.
Notwithstanding the foregoing, the Mortgage
Pass-Through Rate with respect to each
Mortgage Loan for the first Interest Accrual
Period is the Mortgage Rate thereof.
The Mortgage Rate for purposes of
calculating the Weighted Average Net
Mortgage Pass-Through Rate will be the
Mortgage Rate of such Mortgage Loan without
taking into account any Excess Interest, any
reduction in the interest rate by a
bankruptcy court pursuant to a plan of
reorganization or pursuant to any of its
equitable powers or any reduction in the
interest rate resulting from a work-out as
described herein under "The Pooling and
Servicing Agreement -- Modifications."
DISTRIBUTIONS ................. On each Distribution Date, each class of
Offered Certificates (other than the Class
A-8Z Certificates) will be entitled to
receive interest distributions in an amount
equal to the Interest Distribution Amount
(and in the case of the Class PS-1
Certificates, the Reduction Interest
Distribution Amount, if applicable) for such
class and Distribution Date, together with
any Interest Shortfalls (and Reduction
Interest Shortfalls, if applicable)
remaining from prior Distribution Dates, in
each case to the extent of Available Funds
(which excludes Class A-8Z Available Funds
and Class B-3SC Available Funds (as defined
herein)), if any, remaining after (i)
payment of the Interest Distribution
Amounts, Interest Shortfalls, Reduction
Interest Distribution Amounts and Reduction
Interest Shortfalls for each outstanding
class of Sequential Certificates, if any,
bearing an earlier sequential designation
than such class, and (ii), if applicable,
payment of the Principal Distribution Amount
for such Distribution Date and an amount
equal to the aggregate unreimbursed Realized
Losses previously allocated to any such
outstanding classes of Sequential
Certificates having an earlier sequential
designation. The Class A-8Z Certificates
will not be entitled (assuming no
prepayments or defaults with respect to the
Comsat Junior Loan) to receive distributions
of interest or principal until the Class
A-8Z Scheduled Distribution Date. Instead,
on each Distribution Date, an amount equal
to the Interest Accrual Amount on the Class
A-8Z Certificates will be added to the
principal balance thereof. References herein
to the earlier (or later) sequential
designation of these classes of Sequential
Certificates means such classes in
alphabetical (and, among Classes with the
same alphabetical designation, numerical)
order (or such classes in reverse
alphabetical and numerical order) (except in
respect of the Class A-CS1, Class PS-1
(except with respect to Reduction Interest
Distribution Amounts and Reduction Interest
Shortfalls), Class A-1A, Class
S-26
<PAGE>
A-1B, Class A-1C and Class A-1D Certificates
which will have the same priority under the
circumstances described herein.
The Trust Fund will include two separate
real estate mortgage investment conduits
(each, a "REMIC"). Collections on the
Mortgage Loans (other than Excess Interest,
Net Default Interest and Servicer and
Trustee Fees) will be used to make payments
of principal and interest on interests (the
"Lower-Tier Interests") in a REMIC (the
"Lower-Tier REMIC"). Those payments in turn
will be used to make distributions on the
Certificates (other than the Class LR, Class
V-1 and Class V-2 Certificates), which
represent interests in a second REMIC (the
"Upper-Tier REMIC"). The Notional Balances
of the Class A-CS1 and Class PS-1
Certificates represent the principal balance
of the regular interest in the Lower-Tier
REMIC corresponding to the Class A-1A
Certificates and the aggregate of the
principal balances of Classes of regular
interests in the Lower-Tier REMIC (other
than the regular interests in the Lower-Tier
REMIC corresponding to the Class A-8Z and
Class B-3SC Certificates), respectively. For
purposes of simplicity, distributions will
generally be described herein as if made
directly from collections on the Mortgage
Loans to the holders of the Certificates.
The "Interest Distribution Amount" with
respect to any Distribution Date and any
class of Offered Certificates (other than
the Class A-8Z Certificates) is equal to
interest accrued during the related Interest
Accrual Period at the Pass-Through Rate for
such class on the Certificate Balance or
Notional Balance, as applicable, of such
class (except that with respect to the Class
PS-1 Certificates, such amount shall be
reduced by the aggregate Reduction Interest
Distribution Amounts for such Distribution
Date).
For purposes of calculating the Interest
Distribution Amount for any class of Offered
Certificates and any Distribution Date, any
distributions in reduction of Certificate
Balance or Notional Balance, as applicable,
and reductions in Certificate Balance or
Notional Balance, as applicable, as a result
of allocations of Realized Losses, Appraisal
Reduction Amounts or Delinquency Amounts (if
applicable) on the Distribution Date
occurring in the related Interest Accrual
Period shall be deemed to have been made on
the first day of such Interest Accrual
Period.
<PAGE>
The Principal Distribution Amount for each
Distribution Date (prior to the Crossover
Date) will be distributed first, to the
Class A-1A Certificates, in reduction of the
Certificate Balance thereof, until the
Certificate Balance of such Class is reduced
to zero, second, to the Class A-1B
Certificates, in reduction of the
Certificate Balance thereof, until the
Certificate Balance thereof is reduced to
zero, third, to the Class A-1C Certificates,
in reduction of the Certificate Balance
thereof, until the Certificate Balance
thereof is reduced to zero, fourth, to the
Class A-1D Certificates, in reduction of the
Certificate Balance thereof until the
Certificate Balance of such Class is reduced
to zero, fifth, to the Class A-1E
Certificates, in reduction of the
Certificate Balance thereof, until the
Certificate Balance thereof is reduced to
zero, sixth, to the Class A-2 Certificates,
in reduction of the Certificate Balance
thereof, until the Certificate Balance
thereof is reduced to zero, seventh, to the
Class A-3 Certificates, in reduction of the
Certificate Balance thereof, until the
Certificate Balance is reduced to zero,
eighth, to the Class A-4 Certificates, in
reduction of the Certificate Balance
thereof, until the Certificate Balance
thereof is reduced to zero, ninth, to the
Class A-5 Certificates in reduction of the
Certificate Balance thereof, until the
Certificate Balance thereof is reduced to
zero, tenth, to the Class A-6 Certifi-
S-27
<PAGE>
cates, in reduction of the Certificate
Balance thereof, until the Certificate
Balance is reduced to zero, eleventh, to the
Class A-7 Certificates in reduction of the
Certificate Balance thereof, until the
Certificate Balance thereof is reduced to
zero, and twelfth, to certain of the Private
Certificates in accordance with the Pooling
and Servicing Agreement, in each case to the
extent of Available Funds remaining after
required distributions of interest to such
Class and after making principal
distributions to any more senior Class of
Certificates.
On each Distribution Date occurring on and
after the Crossover Date, an amount equal to
the Principal Distribution Amount will be
distributed to the Class A-1A, Class A-1B,
Class A-1C and Class A-1D Certificates, pro
rata, based on their respective Certificate
Balances, in reduction of their respective
Certificate Balances, until the Certificate
Balance of each such Class is reduced to
zero. The "Crossover Date" is the
Distribution Date on which the Certificate
Balance of each Class of Certificates other
than the Class A-1A, Class A-1B, Class A-1C,
Class A-1D, Class A-8Z and Class B-3SC
Certificates have been reduced to zero.
The Class A-CS1 and Class PS-1 Certificates
will not be entitled to any distributions of
principal.
The "Principal Distribution Amount" for any
Distribution Date is equal to the sum, for
all Mortgage Loans (exclusive of the Class
A-8Z Principal Distribution Amount and the
Class B-3SC Principal Distribution Amount),
of (i) the principal component of all
scheduled Monthly Payments (other than
Balloon Payments) due on the Mortgage Loans
on or before the related Due Date (if
received or advanced); (ii) the principal
component of all Assumed Scheduled Payments
or Minimum Defaulted Monthly Payments, as
applicable, due on or before the related Due
Date with respect to any Mortgage Loan that
is delinquent in respect of its Balloon
Payment; (iii) the Stated Principal Balance
of each Mortgage Loan that was, during the
related Collection Period, repurchased from
the Trust Fund in connection with the breach
of a representation or warranty or purchased
from the Trust Fund as described herein
under "The Pooling and Servicing Agreement
-- Optional Termination"; (iv) the portion
of Unscheduled Payments allocable to
principal of any Mortgage Loan that was
liquidated during the related Collection
Period; (v) all Balloon Payments and, to the
extent not included in the preceding
clauses, any other principal payment on any
Mortgage Loan received on or after the
Maturity Date thereof, to the extent
received during the related Collection
Period; (vi) to the extent not included in
the preceding clauses (iii) or (iv), all
other Principal Prepayments received in the
related Collection Period; and (vii) to the
extent not included in the preceding
clauses, any other full or partial
recoveries in respect of principal,
including net insurance proceeds, net
liquidation proceeds and Net REO Proceeds
received in the related Collection Period
(in the case of (i) through (vii), net of
any related outstanding P&I Advances
allocable to principal and excluding any
amounts representing recoveries of
Subordinate Class Advance Amounts). The
Class A-8Z Principal Distribution Amount for
any Distribution Date is equal to the sum of
the above amounts attributable solely to the
Comsat Junior Note. The Class B-3SC
Principal Distribution Amount for any
Distribution Date is equal to the sum of the
above amounts attributable solely to the
Saul Centers Retail Pool Loan, but only to
the extent of such amounts in excess of the
Senior SC Distribution Amount (as defined
herein).
<PAGE>
The Class A-8Z Certificates will evidence an
interest in the portion of the Trust Fund
consisting of the Comsat Junior Loan. The
Class A-8Z Certificates will not
S-28
<PAGE>
be entitled (assuming no prepayments or
defaults on the Comsat Junior Loan) to
receive any distributions of principal or
interest until the Distribution Date
occurring in September 2007 (the "Class A-8Z
Scheduled Distribution Date"), which is the
Distribution Date immediately after the
maturity date of the Comsat Junior Loan.
Instead, on each Distribution Date prior to
the Class A-8Z Distribution Date, an amount
equal to the accrued and unpaid interest on
the Class A-8Z Certificates will be added to
the principal balance thereof. On the Class
A-8Z Distribution Date, the entire principal
balance of the Class A-8Z Certificates will
be distributed in full to the extent of
Class A-8Z Available Funds. See "Description
of the Mortgage Pool -- Significant Mortgage
loans -- The Comsat Loan and Property" and
"Description of the Offered Certificates --
Distributions" herein.
Except as described in the next sentence,
the holders of the Class V-1, Class V-2,
Class R and Class LR Certificates will not
be entitled to distributions of interest or
principal. The Class V-1 Certificates will
be entitled to distributions of Net Default
Interest and the Class V-2 Certificates will
be entitled to distributions of Excess
Interest, in each case, to the extent set
forth in the Pooling and Servicing
Agreement. The holders of the Class R
Certificates will be entitled to receive any
Available Funds remaining in the Upper-Tier
Distribution Account on any Distribution
Date after the distribution to the holders
of the Regular Certificates of all amounts
which they are entitled to receive on such
Distribution Date. The Class LR
Certificateholders will be entitled to
receive any funds remaining in the
Distribution Account on any Distribution
Date after all distributions to which the
regular interests in the Lower-Tier REMIC
are entitled on such Distribution Date have
been made and the proceeds of the remaining
assets in the Trust Fund, if any, after the
Certificate Balances of the Regular
Certificates have been reduced to zero and
the holders of the Regular Certificates have
received all other distributions to which
they are entitled. It is not anticipated
that there will be any assets remaining in
the Trust Fund on such date. In addition,
the holders of 100% of the Percentage
Interest in the Class LR Certificates will
have the limited right to purchase ARD Loans
under the circumstances described under
"Description of the Mortgage Pool -- Certain
Terms and Conditions of the Mortgage Loans."
ADVANCES ...................... The Servicer is required to make advances
("P&I Advances") with respect to delinquent
Monthly Payments on the Mortgage Loans,
subject to the limitations described herein.
P&I Advances will generally equal the
delinquent portion of the Monthly Payment as
specified in the related Note. If a borrower
defaults on its obligation to pay amounts
due on the maturity date of the related
Mortgage Loan, the Servicer will be required
on such date and thereafter until final
liquidation thereof, to advance only an
amount equal to the interest and principal
portion of the constant Monthly Payment due
immediately prior to the maturity date, with
interest adjusted to the Mortgage
Pass-Through Rate, to the extent not
received. The Servicer will not be required
or permitted to advance Default Interest or
Excess Interest. The amount required to be
advanced in respect of delinquent Monthly
Payments on a Mortgage Loan that has been
subject to an Appraisal Reduction Event will
equal the product of (a) the amount required
to be advanced by the Servicer without
giving effect to the related Appraisal
Reduction Amount and (b) a fraction, the
numerator of which is (i) the Stated
Principal Balance (as of the last day of the
related Collection Period) of such Mortgage
Loan minus (ii) any Appraisal Reduction
Amount thereof and the denominator of which
is the Stated Principal Balance thereof (as
S-29
<PAGE>
of the last day of the related Collection
Period). In addition, and without
duplication, the Servicer will (i) make only
one P&I Advance with respect to each
Mortgage Loan for the benefit of the most
subordinate Class of Certificates then
outstanding (unless the related delinquent
Monthly Payment is received prior to the
following Due Date) and (ii) not make any
P&I Advance in respect of Reduction Interest
Distribution Amounts and Reduction Interest
Shortfalls. For purposes of determining the
most subordinate Class, (i) the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class
A-CS1 and Class PS-1 Certificates
collectively and (ii) the Class B-7 and
Class B-7H Certificates together will, in
each case, be treated as one Class. Also for
such purposes, neither the Class A-8Z
Certificates nor the Class B-3SC
Certificates will be considered subordinate.
See "The Pooling and Servicing Agreement --
Advances" herein and "Description of the
Certificates -- Advances in Respect of
Delinquencies" in the Prospectus. If the
Servicer fails to make a required P&I
Advance, the Trustee will be required to
make the P&I Advance, and if the Trustee
fails to make a required P&I Advance, the
Fiscal Agent will be required to make such
P&I Advance, in each case subject to a
determination of recoverability. See "The
Pooling and Servicing Agreement -- Advances"
herein.
OPTIONAL TERMINATION .......... The Depositor, and if the Depositor does not
exercise the option, the Servicer and, if
neither the Servicer nor the Depositor
exercises the option, the holders of the
Class LR Certificates representing greater
than a 50% Percentage Interest of the Class
LR Certificates, will have the option to
purchase, at the purchase price specified
herein, all of the Mortgage Loans and all
property acquired through exercise of
remedies in respect of any Mortgage Loan
remaining in the Trust Fund, and thereby
effect termination of the Trust Fund and
early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
of the Mortgage Loans remaining in the Trust
Fund is less than 1% of the Initial Pool
Balance or if the outstanding Mortgage Loans
in the Mortgage Pool consist only of the
Swiss Bank Tower Loan, the Kmart Loans
and/or the Circuit City Loans. Additionally,
the holders of the Class LR Certificates
representing 100% of the Percentage Interest
of the Class LR Certificates, and if the
holder of the Class LR Certificates does not
exercise its option, the holders of the most
subordinate Class of Certificates (not
including the Class B-7H Certificates), will
have the option to purchase at the purchase
price specified herein any Mortgage Loan on
its Anticipated Repayment Date. See "The
Pooling and Servicing Agreement -- Optional
Termination" herein and "Description of the
Certificates -- Termination" in the
Prospectus.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ................. Elections will be made to treat the Trust
REMICs, and the Trust REMICs will qualify,
as two separate real estate mortgage
investment conduits (each, a "REMIC" or, in
the alternative, the "Upper-Tier REMIC" and
the "Lower-Tier REMIC," respectively) for
federal income tax purposes. The Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class
A-CS1, Class PS-1, Class A-1E, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6,
Class A-7, Class A-8Z, Class B-1, Class B-2,
Class B-3, Class B-3SC, Class B-4, Class
B-5, Class B-6, Class B-7 and Class B-7H
Certificates (collectively, the "Regular
Certificates") will constitute "regular
interests" in the Upper-Tier REMIC, and the
Class R and Class LR Certificates
(collectively the "Residual Certificates")
will be designated as the sole Classes of
"residual interests" in the Upper-Tier REMIC
and Lower-Tier REMIC, respectively. The
Class V-1 Certificates will represent the
right to
S-30
<PAGE>
receive Default Interest, subject to the
obligation to reimburse the Servicer, the
Trustee or the Fiscal Agent, as applicable,
for interest on Advances, and the Class V-2
Certificates will represent the right to
receive Excess Interest, which portions of
the Trust Fund will be treated as a grantor
trust for federal income tax purposes.
The Offered Certificates will be treated as
newly originated debt instruments for
federal income tax purposes. Beneficial
owners of the Offered Certificates will be
required to report income thereon in
accordance with the accrual method of
accounting. The Class A-8Z Certificates will
be issued with original issue discount for
federal income tax purposes in an amount
equal to the excess of the initial
Certificate Balance thereof and all interest
expected to accrue thereon over their issue
price (including accrued interest). It is
anticipated that the Class A-CS1 and Class
PS-1 Certificates will be treated as issued
with original issue discount in an amount
equal to all distributions of interest
expected to be received thereon over their
respective issue prices (including accrued
interest). It is also anticipated that the
Class A-1A, Class A-1B, Class A-1C, Class
A-1D, Class A-1E, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 and Class
A-7 Certificates will not be issued with
original issue discount for federal income
tax purposes. See "Certain Federal Income
Tax Consequences" herein and "Federal Income
Tax Consequences -- Federal Income Tax
Consequences for REMIC Certificates" in the
Prospectus. Although not free from doubt, it
is anticipated that any Prepayment Premiums
allocable to the Offered Certificates will
be ordinary income to a Certificateholder as
such amounts accrue. See "Description of the
Offered Certificates -- Distributions"
herein.
ERISA CONSIDERATIONS .......... The United States Department of Labor has
issued to the Underwriter an individual
prohibited transaction exemption, Prohibited
Transaction Exemption 93-32 (the
"Exemption"), which generally exempts from
the application of certain of the prohibited
transaction provisions of Section 406 of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the excise
taxes imposed by Sections 4975(a) and (b) of
the Internal Revenue Code of 1986, as
amended (the "Code"), and the civil
penalties imposed by 502(i) of ERISA,
transactions relating to (i) the purchase,
sale and holding of pass-through
certificates such as the Class A-1A, Class
A-1B, Class A-1C, Class A-1D, Class A-CS1
and Class PS-1 Certificates (the "Senior
Offered Certificates") by employee benefit
plans and certain other retirement
arrangements, including individual
retirement accounts and Keogh plans, which
are subject to Title I of ERISA or Section
4975 of the Code (all of which are
hereinafter referred to as "Plans"),
collective investment funds in which such
Plans are invested, and insurance companies
using assets of separate accounts or general
accounts which include assets of Plans (or
which are deemed pursuant to ERISA to
include assets of Plans) to acquire such
Certificates and (ii) the servicing and
operation of mortgage pools such as the
Mortgage Pool, provided that certain
conditions are satisfied. See "ERISA
Considerations" herein and in the
Prospectus.
<PAGE>
The Underwriter believes that the conditions
to the applicability of the Exemption will
generally be met with respect to the Senior
Offered Certificates, other than possibly
those conditions which are dependent on
facts unknown to the Underwriter or which it
cannot control, such as those relating to
the circumstances of the Plan purchaser or
the Plan fiduciary making the decision to
purchase any such Class of Certificates.
However, before purchasing a Senior Offered
Certificate, a fiduciary of a Plan should
make its own determination as
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to the availability of the exemptive relief
provided by the Exemption or the
availability of any other exemption and
whether the conditions of any such exemption
will be applicable to the Senior Offered
Certificates.
THE CLASS A-1E, CLASS A-2, CLASS A-3, CLASS
A-4, CLASS A-5, CLASS A-6, CLASS A-7 AND
CLASS A-8Z CERTIFICATES (THE "SUBORDINATED
OFFERED CERTIFICATES") ARE SUBORDINATE TO
ONE OR MORE OTHER CLASSES OF CERTIFICATES
AND, ACCORDINGLY, NO TRANSFER OF A
SUBORDINATED OFFERED CERTIFICATE THAT IS A
DEFINITIVE CERTIFICATE MAY BE MADE UNLESS
THE PROSPECTIVE TRANSFEREE HAS (A) DELIVERED
TO THE DEPOSITOR, THE CERTIFICATE REGISTRAR
AND THE TRUSTEE A REPRESENTATION LETTER
STATING THAT THE TRANSFEREE IS NOT A PLAN
(INCLUDING FOR PURPOSES OF THIS PARAGRAPH, A
GOVERNMENTAL PLAN SUBJECT TO ANY SIMILAR
LAW) OR A PERSON ACTING ON BEHALF OF OR
INVESTING THE ASSETS OF A PLAN, OTHER THAN
AN INSURANCE COMPANY INVESTING THE ASSETS OF
ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES
WHEREBY THE PURCHASE AND SUBSEQUENT HOLDING
OF THE OFFERED CERTIFICATE WOULD BE EXEMPT
FROM THE PROHIBITED TRANSACTION RESTRICTIONS
OF ERISA AND THE CODE UNDER SECTIONS I AND
III OF PROHIBITED TRANSACTION CLASS
EXEMPTION ("PTE") 95-60 OR (B) PROVIDED AN
OPINION OF COUNSEL AND SUCH OTHER
DOCUMENTATION AS DESCRIBED UNDER "ERISA
CONSIDERATIONS". THE TRANSFEREE OF A
BENEFICIAL INTEREST IN A SUBORDINATED
OFFERED CERTIFICATE THAT IS NOT A DEFINITIVE
CERTIFICATE SHALL BE DEEMED TO REPRESENT
THAT IT IS NOT A PERSON DESCRIBED IN CLAUSE
(A) ABOVE. SEE "DESCRIPTION OF THE OFFERED
CERTIFICATES -- TRANSFER RESTRICTIONS" AND
"ERISA CONSIDERATIONS" HEREIN AND "ERISA
CONSIDERATIONS" IN THE PROSPECTUS.
RATINGS ....................... It is a condition to the issuance of the
Offered Certificates that (i) the Class
A-1A, Class A-1B, Class A-1C and Class A-1D
Certificates be rated "AAA" by each of
Standard & Poor's Rating Services ("S&P")
and Fitch Investors Service, L.P. ("Fitch")
and "Aaa" by Moody's Investors Service, Inc.
("Moody's", and together with S&P and Fitch,
the "Rating Agencies"), (ii) the Class A-CS1
and Class PS-1 Certificates be rated "AAA"
by Fitch and be rated "Aaa" by Moody's,
(iii) the Class A-1E Certificates be rated
"AAA" by Fitch, "AA+" by S&P and "Aa1" by
Moody's, (iv) the Class A-2 Certificates be
rated "AA" by Fitch, "A+" by S&P and "A1" by
Moody's, (v) the Class A-3 Certificates be
rated "A+" by Fitch and "A-" by S&P, (vi)
the Class A-4 Certificates be rated "A" by
Fitch and "BBB+" by S&P, (vii) the Class A-5
Certificates be rated "BBB+" by Fitch and
"BBB" by S&P, (viii) the Class A-6
Certificates be rated "BBB-" by each of
Fitch and S&P, (ix) the Class A-7
Certificates be rated "BBB-" by Fitch and
(x) the Class A-8Z Certificates be rated
"BBB-" by S&P. For a description of the
limitations of the ratings of the Offered
Certificates, see "Rating" herein. The Rated
Final Distribution Date of each Class of
Offered Certificates is February 14, 2043. 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.
Any such revision, if negative, or
withdrawal of a rating could have a material
adverse effect on the affected Class of
Certificates. The Rating Agencies' ratings
on the Offered Certificates address
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the likelihood of the timely payment of
interest and the ultimate repayment of
principal by the Rated Final Distribution
Date. A security rating does not address the
frequency of prepayments (both voluntary and
involuntary) or the possibility that
Certificateholders might suffer a lower than
anticipated yield, nor does a security
rating address the likelihood of receipt of
Prepayment Premiums, Net Default Interest or
Excess Interest. A security rating does not
represent any assessment of the yield to
maturity that investors may experience or
the possibility that the holders of the
Class A-CS1 and Class PS-1 Certificates
might not fully recover their initial
investment in the event of delinquencies or
rapid prepayments of the Mortgage Loans
(including both voluntary and involuntary
prepayments). As described herein, the
amounts payable with respect to the Class
A-CS1 and Class PS-1 Certificates consist
only of interest. If the entire pool were to
prepay in the initial month, with the result
that the Class A-CS1 and Class PS-1
Certificateholders receive only a single
month's interest and thus suffer a nearly
complete loss of their investment, all
amounts "due" to such holders will
nevertheless have been paid, and such result
is consistent with the rating received on
each of the Class A-CS1 and Class PS-1
Certificates. Accordingly, the ratings of
the Class A-CS1 and Class PS-1 Certificates
should be evaluated independently from
similar ratings on other types of
securities. The ratings do not address the
fact that the Pass-Through Rates of the
Offered Certificates to the extent that they
are based on the Weighted Average Net
Mortgage Pass-Through Rate will be affected
by changes therein. See "Risk Factors and
Other Special Considerations" and "Rating"
herein and "Yield Considerations" in the
Prospectus.
LEGAL INVESTMENT .............. The appropriate characterization of the
Offered Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the Offered
Certificates, may be subject to significant
interpretative uncertainties. Any Class of
Certificates rated in the category of "AAA"
or "AA" (or the equivalent) by at least one
Rating Agency will constitute "mortgage
related securities" within the meaning of
the Secondary Mortgage Market Enhancement
Act of 1984, as amended, for so long as the
Mortgage Loans are secured by liens on real
property. Accordingly, investors should
consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the Prospectus.
RISK FACTORS .................. See "Risk Factors and Other Special
Considerations" immediately following this
Summary of Prospectus Supplement for a
discussion of certain factors that should be
considered in connection with the purchase
of the Offered Certificates.
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<PAGE>
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Prospective holders of Offered Certificates should consider, among other
things, the following factors in connection with the purchase of the Offered
Certificates.
THE MORTGAGE LOANS
Risks Associated with Commercial and Multifamily Lending Generally. The
Mortgage Loans are secured by anchored and unanchored retail properties (as
defined below), office buildings, full and limited service hotels,
multifamily residential housing, nursing homes, industrial properties, mobile
home parks and healthcare facilities. Mortgage Loans secured by commercial
and multifamily properties are markedly different from one-to-four family
residential mortgage loans. Commercial and multifamily lending is generally
viewed as exposing a lender to a greater risk of loss than one-to-four-family
residential lending. The repayment of loans secured by commercial or
multifamily properties is typically dependent upon the successful operation
of the related real estate project, the businesses operated by the tenants
and the creditworthiness of such tenants, i.e., the ability of the applicable
property to produce cash flow. Even the liquidation value of a commercial or
multifamily residential property is determined more by capitalization of the
property's cash flow than any absolute value of buildings and improvements
thereon. Lenders typically look to the debt service coverage ratio (that is
the ratio of net cash flow to debt service) of a loan secured by
income-producing property as an important measure of the risk of default on
such a loan. Commercial and multifamily lending also typically involves
larger loans to a single obligor than one-to-four-family residential lending.
Volatility. Cash flows on commercial and multifamily properties are
subject to volatility and may be sufficient or insufficient to cover debt
service on the related Mortgage Loan at any given time. The volatility of
cash flows available to cover debt service and the property values (which
would affect the ability to refinance the property and proceeds available
upon foreclosure) depend upon a number of factors, including (i) the
volatility of property revenue, and (ii) the property's "operating leverage,"
which generally refers to (a) the percentage of total property operating
expenses in relation to property revenue, (b) the breakdown of property
operating expenses between those that are fixed and those that vary with
revenue and (c) the level of capital expenditures required to maintain the
property and retain or replace tenants. The net operating income and value of
the Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to, national, regional and local economic
conditions (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail space, office space or hotel rooms); changes or
continued weakness in specific industry segments; changes in applicable
healthcare regulations, including reimbursement requirements; perceptions by
prospective tenants and, in the case of retail properties, retailers and
shoppers, of the safety, convenience, services and attractiveness of the
property; the willingness and ability of the property's owner to provide
capable management and adequate maintenance; demographic factors; retroactive
changes to building or similar codes; increases in operating expenses (such
as energy costs); the number of tenants or, if applicable, the diversity of
types of business operated by such tenants; and laws regulating the maximum
rental permitted to be charged to a residential tenant. Properties with
short-term, less creditworthy revenue sources and/or relatively high
operating leverage, such as health care related facilities, hotels and motels
can be expected to have more volatile cash flows than properties with medium
to long-term tenant commitments from creditworthy tenants and/or relatively
low operating leverage. A decline in the real estate market, in the financial
condition of a major tenant or a general decline in the local or national
economy will tend to have a more immediate effect on the net operating income
of such properties and may lead to higher rates of delinquency or defaults.
Historical operating results of the Mortgaged Properties may not be
comparable to future operating results. In addition, other factors may
adversely affect the Mortgaged Properties' value without affecting their
current net operating income, including changes in governmental regulations,
zoning or tax laws; potential environmental or other legal liabilities; the
availability of refinancing; and changes in interest rate levels.
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The negative effects of poor construction quality or
design will increase over time in the form of increased maintenance and the
need for capital improvements. Even good construction will deteriorate over
time if the property managers do not schedule and perform adequate
maintenance in a timely fashion. If, during the terms of the Mortgage Loans,
competing properties of a similar type are built in the areas where the
Mortgaged Properties are located or similar properties in the vicinity of the
Mortgaged Properties are substantially updated and refurbished, the value and
net operating income of such Mortgaged Properties could be reduced. There is
no assurance that the value of any Mortgaged Property during the term of the
related Mortgage Loan will equal or exceed the appraised value
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determined in connection with the origination of such Mortgage Loan. However,
the Mortgage Loans generally provide for deferred maintenance reserves in an
amount sufficient to remediate any deficiencies raised by the engineering
report issued in connection with the origination of the related Mortgage
Loan. In addition, most of the Mortgage Loans contain ongoing capital
expenditure reserve requirements. Such reserves will be funded by, and
therefore are dependent upon, available cash flow before any excess cash is
released to the related Borrower.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. The conversion of healthcare facilities or hotels to
alternative uses would generally require substantial capital expenditures.
Thus, if the operation of any such Mortgaged Properties becomes unprofitable
such that the borrower becomes unable to meet its obligations on the related
loan, the liquidation value of any such property may be substantially less,
relative to the amount owing on the related loan, than would be the case if
such property were readily adaptable to other uses.
Other multifamily residences, hotels, retail properties, office buildings,
mobile home parks, healthcare facilities and industrial properties located in
the areas of the Mortgaged Properties compete with the Mortgaged Properties
of such types to attract residents, retailers, customers, patients and
tenants. Increased competition frequently leads to lowering of rents in a
market and could adversely affect income from and market value of the
Mortgaged Properties.
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Depositor, the Mortgage Loan Seller, the Servicer, the
Special Servicer, Bloomfield, the Trustee, the Fiscal Agent or any of their
respective affiliates.
Each Mortgage Loan is generally a nonrecourse loan as to which, in the
event of a default under such Mortgage Loan, recourse generally may be had
only against the specific properties and other assets that have been pledged
to secure the Mortgage Loan. See "Description of the Mortgage Pool" herein.
Consequently, payment on each Mortgage Loan prior to maturity is dependent
primarily on the sufficiency of the net operating income of the related
Mortgaged Property, and at maturity (whether at scheduled maturity or, in the
event of a default under the related Mortgage Loan, upon the acceleration of
such maturity), upon the then market value of the related Mortgaged Property
(taking into account any adverse effect of a foreclosure proceeding on the
market value of the Mortgaged Property) or the ability of the related
borrower to refinance the Mortgaged Property. All of the Mortgage Loans were
originated within 16 months prior to the Cut-off Date. Consequently, the
Mortgage Loans do not have as long standing a payment history as mortgage
loans originated on earlier dates.
Property Management. The successful operation of a real estate project is
also dependent on the performance and viability of the property manager of
such project. Different property types vary in the extent to which the
property manager is involved in property marketing, leasing and operations on
a daily basis. Properties deriving revenues primarily from short-term sources
(such as hotels) are generally more management intensive than properties
leased to creditworthy tenants under long-term leases. The property manager
is responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments, operating the properties and providing building services, managing
operating expenses and advising the borrowers so that maintenance and capital
improvements can be carried out in a timely fashion. There can be no
assurance that the property managers will at all times be in a financial
condition to continue to fulfill their management responsibilities under the
related management agreements throughout the terms thereof. The property
managers are operating companies and unlike limited purpose entities, may not
be restricted from incurring debt and other liabilities in the ordinary
course of business or otherwise. Moreover, a majority of the properties
secured by the Mortgage Loans are managed by affiliates of the applicable
borrower. Such relationship could raise additional difficulties in connection
with a Mortgage Loan in default or undergoing special servicing and a dispute
between the partners or members of a borrower could disrupt the management of
the underlying property which may cause an adverse effect on cash flow.
However, many of the Mortgage Loans permit the lender to remove the manager
upon the occurrence of an event of default, a decline in cash flow below
specified levels or other specified triggers.
Retail Properties. 29% of the Mortgage Loans, based on Initial Pool
Balance, are secured by retail properties. See "Description of the Mortgage
Pool -- Additional Mortgage Loan Information -- Cut-off Date Loan Amount by
Property Type" herein. Significant factors determining the value of retail
properties are the quality of the tenants as well as fundamental aspects of
real estate such as location and market demographics. The correlation between
the success of tenant businesses and property value is more direct with
respect to retail properties than other types of commercial
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<PAGE>
property because a significant component of the total rent paid by retail
tenants is often tied to a percentage of gross sales. Whether a retail
property is "anchored" or "unanchored" is also an important distinction.
Retail properties that are anchored have traditionally been perceived to be
less risky. While there is no strict definition of an anchor, it is generally
understood that a retail anchor tenant is proportionately large in size and
is vital in attracting customers to the property. 28%, based on Initial Pool
Balance, of the Mortgage Loans secured by retail properties, are "anchored"
and 1% are "unanchored." Furthermore, the correlation between the success of
tenant businesses and property value is increased when the property is a
single tenant property. 5%, based on Initial Pool Balance, of the Mortgage
Loans, are secured by single tenant properties. 95% of the single tenant
retail properties secure Credit Lease Loans. See "Description of the Mortgage
Pool -- Credit Lease Loans" herein.
Unlike office or hotel properties, retail properties also face competition
from sources outside a given real estate market. Catalogue retailers, home
shopping networks, shopping through electronic media, telemarketing and
outlet centers all compete with more traditional retail properties for
consumer dollars. Continued growth of these alternative retail outlets (which
are often characterized by lower operating costs) could adversely affect the
rents collectible at the retail properties included in the Mortgage Pool.
Office Properties. 29% of the Mortgage Loans, based on Initial Pool
Balance, are secured by office properties. See "Description of the Mortgage
Pool -- Additional Mortgage Loan Information -- Cut-off Date Loan Amount by
Property Type" herein. Significant factors determining the value of office
properties are the quality of the tenants in the building, the physical
attributes of the building in relation to competing buildings and the
strength and stability of the market area as a desirable business location.
Office properties may be adversely affected if there is an economic decline
in the business operated by the tenants. The risk of such an adverse effect
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.
13%, based on Initial Pool Balance, of the Mortgage Loans are secured by
single tenant office properties. 26% of the single tenant office properties
secure Credit Lease Loans. See "Description of the Mortgage Pool -- Credit
Lease Loans" herein.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a property's age,
condition, design (e.g. floor sizes and layout), access to transportation and
ability or inability to offer certain amenities to its tenants, including
sophisticated building systems (such as fiberoptic cables, satellite
communications or other base building technological features).
The success of an office property also depends on the local economy. A
company's decision to locate office headquarters in a given area, for
example, may be affected by such factors as labor cost and quality, tax
environment and quality of life issues such as schools and cultural
amenities. A central business district may have an economy which is markedly
different from that of a suburb. The local economy will impact on an office
property's ability to attract stable tenants on a consistent basis. In
addition, the cost of refitting office space for a new tenant is often more
costly than for other property types.
Hotel Properties. 14% of the Mortgage Loans, based on Initial Pool
Balance, are secured by full service hotels or limited service hotels. These
hotels are comprised of hotels associated with national franchise chains,
hotels associated with regional franchise chains and hotels that are not
affiliated with any franchise chain but may have their own brand identity.
See "Description of the Mortgage Pool -- Additional Mortgage Loan Information
- -- Cut-off Date Loan Amount by Property Type" herein for certain statistical
information on the Hotel Properties and Hotel Loans.
Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. The
construction of competing hotels can have similar effects. To meet
competition in the industry and to maintain economic values, continuing
expenditures must be made for modernizing, refurbishing, and maintaining
existing facilities prior to the expiration of their anticipated useful
lives. In connection with such concerns, in certain of the Hotel Loans, the
related borrower is required to fund FF&E reserves. Because hotel rooms
generally are rented for short periods of time, hotels tend to respond more
quickly to adverse economic conditions and competition than do other
commercial properties. Furthermore, the financial strength and capabilities
of the owner and operator of a hotel is likely to have a substantial impact
on such hotel's quality of service and economic performance. Additionally,
the hotel and lodging industry is generally seasonal in nature and this
seasonality can be expected to cause periodic fluctuations in room and other
revenues, occupancy levels, room rates and operating expenses. In connection
with such concerns, in the case of certain of Hotel Loans, the related
borrower is required to fund seasonal reserves. The demand for particular
accommodations may also be affected by changes in travel patterns caused by
changes in energy prices, strikes, relocation of highways, the construction
of additional highways and other factors.
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<PAGE>
Certain of the Hotel Properties are franchisees of national or regional
hotel chains. The viability of any such Hotel Property depends in large part
on the continued existence and financial strength of the franchisor, the
public perception of the franchise service mark and the duration of the
franchise license agreements. The transferability of franchise license
agreements may be restricted and, in the event of a foreclosure on any such
Hotel Property, the mortgagee may not have the right to use the franchise
license without the franchisor's consent. Conversely, a lender may be unable
to remove a franchisor that it desires to replace following a foreclosure.
Further, in the event of a foreclosure on a Hotel Property, it is unlikely
that the Trustee (or Servicer or Special Servicer) or purchaser of such Hotel
Property would be entitled to the rights under any liquor license for such
Hotel Property and such party would be required to apply in its own right for
such license or licenses. There can be no assurance that a new license could
be obtained or that it could be obtained promptly.
Many of the Hotel Properties have liquor licenses. The liquor licenses for
some of such properties may be held by the property manager rather than by
the related borrower. In addition, some states and the Cayman Islands do not
permit liquor licenses to be held other than by a natural person and,
consequently, liquor licenses for hotel properties located in such
jurisdictions are held by an individual affiliated with the related borrower
or manager. Furthermore, the applicable laws and regulations relating to such
licenses (including Cayman Islands law) generally prohibit the transfer of
such licenses to any person without the prior approval of the relevant
licensing authority. In the event of a foreclosure of a Hotel Property, or,
in the case of the Westin Casuarina Resort Property, an exercise of a power
of sale, it is unlikely that the Trustee (or Servicer or Special Servicer) or
purchaser in any such sale would be entitled to the rights under the liquor
license for such hotel property and such party would be required to apply in
its own right for such a license. There can be no assurance that a new liquor
license could be obtained. See "Certain Considerations With Respect to the
Westin Casuarina Resort Loan" and "Description of the Mortgage Pool --
Significant Mortgage Loans -- Westin Casuarina Resort Loan Participation and
Property" herein.
Multifamily Properties. 19% of the Mortgage Loans, based on Initial Pool
Balance, are secured by multifamily apartment buildings. See "Description of
the Mortgage Pool -- Additional Mortgage Loan Information -- Cut-off Date
Loan Amount by Property Type" herein.
Significant factors determining the value and successful operation of a
multifamily property are the location of the property, the number of
competing residential developments in the local market (such as apartment
buildings, manufactured housing communities and site-built single family
homes), the physical attributes of the multifamily apartment building (such
as its age and appearance) and state and local regulations affecting such
property. In addition, the successful operation of an apartment building will
depend upon other factors, such as its reputation, the ability of management
to provide adequate maintenance and insurance, and the types of services it
provides.
Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord
may terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through
mediation or binding arbitration. In many cases, the rent control laws do not
permit vacancy decontrol. Local authority to impose rent control is
pre-empted by state law in certain states, and rent control is not imposed at
the state level in those states. In some states, however, local rent control
ordinances are not pre-empted for tenants having short-term or month-to-month
leases, and properties there may be subject to various forms of rent control
with respect to those tenants. Any limitations on a borrower's ability to
raise property rents may impair such borrower's ability to repay its Mortgage
Loan from its net operating income or the proceeds of a sale or refinancing
of the related Mortgaged Property.
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged and may result in a reduction in timely
rent payments or a reduction in occupancy levels. Occupancy and rent levels
may also be affected by construction of additional housing units, local
military base or factory closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements. In
addition, the level of mortgage
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interest rates may encourage tenants to purchase single-family housing. The
location and construction quality of a particular building may affect the
occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in
relation to newer developments.
Industrial Properties. 3% of the Mortgage Loans, based on Initial Pool
Balance, are secured by industrial properties. See "Description of the
Mortgage Pool -- Additional Mortgage Loan Information -- Types of Mortgaged
Property" herein. Significant factors determining the value of industrial
properties are the quality of tenants, building design and adaptability and
the location of the property. Concerns about the quality of tenants,
particularly major tenants, are similar in both office properties and
industrial properties, although industrial properties are more frequently
dependent on a single tenant.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to an industrial
property include clear heights, column spacing, number of bays and bay
depths, divisibility, truck turning radius and overall functionality and
accessibility.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
Healthcare Properties. 3% of the Mortgaged Properties, based on the
Initial Pool Balance, are operated as healthcare properties, including
nursing homes, a congregate care facility and a hospital. See "Description of
the Mortgage Pool -- Additional Mortgage Loan Information -- Cut-off Date
Loan Amount by Property Type" herein for certain statistical information on
such loans. Significant factors determining the value of nursing homes,
congregate care facility and hospital properties include federal and state
laws, competition with similar properties on a local and regional basis and
the continued availability of revenue from government reimbursement programs,
primarily Medicaid and Medicare.
Hospitals and providers of long-term nursing care and other medical
services are subject to federal and state laws that relate to the adequacy of
medical care, distribution of pharmaceuticals, rate setting, equipment,
personnel, operating policies and additions to facilities and services and,
to the extent dependent on patients whose fees are reimbursed by private
insurers, to the reimbursement policies of such insurers. In addition,
facilities where such care or other medical services are provided are subject
to periodic inspection by governmental authorities to determine compliance
with various standards necessary for continued licensing under state law and
continued participation in the Medicaid and Medicare reimbursement programs.
The failure of any of such borrowers to maintain or renew any required
license or regulatory approval could prevent it from continuing operations at
a Mortgaged Property (in which case no revenues would be received from such
property or portion thereof requiring licensing) or, if applicable, bar it
from participation in government reimbursement programs. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Servicer
or Special Servicer) or purchaser in a foreclosure sale would be entitled to
the rights under such licenses and such party may have to apply in its own
right for such a license. There can be no assurance that a new license could
be obtained.
Under applicable federal and state laws and regulations, Medicare and
Medicaid, only the provider who actually furnished the related medical goods
and services generally may sue for or enforce its rights to reimbursement.
Accordingly, in the event of foreclosure, none of the Trustee, the Servicer,
the Special Servicer or a subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective properties prior to such foreclosure.
The operators of such hospitals, nursing homes and other healthcare
facilities are likely to compete on a local and regional basis with others
that operate similar facilities, some of which competitors may be better
capitalized, may offer services not offered by such operators or may be owned
by non-profit organizations or government agencies supported by endowments,
charitable contributions, tax revenues and other sources not available to
such operators. The successful operation of a Mortgaged Property that is a
hospital, nursing home or other healthcare facility will generally depend
upon the number of competing facilities in the local market, as well as upon
other factors such as its age, appearance, reputation and management, the
types of services it provides and the quality of care and the cost of that
care.
Hospitals, nursing home facilities and other healthcare facilities may
receive a substantial portion of their revenues from government reimbursement
programs, primarily Medicaid and Medicare. Medicaid and Medicare are subject
to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions. Moreover, governmental
payors have employed cost-containment measures that limit payments to health
care providers, and there are currently under consideration various
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<PAGE>
proposals for national health care reform that could further limit those
payments. Accordingly, there can be no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If not, net operating
income of the Mortgaged Properties that receive revenues from those sources,
and consequently the ability of the related borrowers to meet their Mortgage
Loan obligations, could be adversely affected.
Hospitals and nursing homes also receive a substantial portion of their
revenues from other third-party payors such as private health insurance
plans. There can be no assurance that third-party reimbursement will continue
to be available for hospital and nursing home services, or at what such rate
it will be available. Congress and certain state legislatures are considering
reforms in the health care industry that may affect current reimbursement
practices. Further, the development of managed care programs in which the
providers contract to provide comprehensive health care to a patient
population at a fixed cost per person has given rise to similar pressures on
health care providers to lower costs.
Mobile Home Park Properties. 2% of the Mortgaged Properties, based on
Initial Pool Balance, are operated as mobile home parks. See "Description of
the Mortgage Pool -- Additional Mortgage Loan Information -- Cut-off Date
Loan Amount by Property Type" herein, for certain statistical information on
such loans.
Significant factors determining the value of mobile home park properties
are generally similar to the factors affecting the value of multifamily
residential properties. In addition, the mobile home park properties are
"special purpose" properties that could not be readily converted to general
residential, retail or office use. In fact, certain states also regulate
changes in mobile home park use and require that the landlord give written
notice to its tenants a substantial period of time prior to the projected
change. Consequently, if the operation of any of the mobile home park
properties becomes unprofitable due to competition, age of the improvement or
other factors such that the borrower becomes unable to meet its obligation on
the related Mortgage Loan, the liquidation value of that mobile home park
property may be substantially less, relative to the amount owing on the
Mortgage Loan, than would be the case if the mobile home park property were
readily adaptable to other uses.
Credit Lease Properties. 10% of the Mortgage Loans, based on Initial Pool
Balance, are secured by properties backed by net lease obligations ("Credit
Leases") of a tenant (each, a "Tenant", collectively the "Tenants"), or net
lease obligations guaranteed by an entity (each, a "Guarantor", collectively,
the "Guarantors"), that is rated or internally classified "BB-" (or the
equivalent) or higher by one or more of the Rating Agencies (each, a "Credit
Lease Loan", collectively, the "Credit Lease Loans").
Any rating assigned to the Tenant or Guarantor, as applicable, by a Rating
Agency will reflect only such Rating Agency's assessment of the long-term
unsecured debt obligation. Such rating does not imply an assessment of the
likelihood that the Credit Leases will not be terminated or the Credit Lease
Loans prepaid, that Principal Prepayments on the Credit Lease Loans will be
made by the related Borrowers, or that any Prepayment Premium will be paid
or, if paid, will be sufficient to provide the anticipated yield. As a
result, such rating will not address the possibility that a prepayment of a
Mortgage Loan may cause a Certificateholder to experience a lower than
anticipated yield. See "Prepayment and Yield considerations" herein. See
"Description of the Mortgage Pool -- Additional Mortgage Loan Information --
Cut-off Date Loan Amount by Property Type" herein, for certain statistical
information on such Loans.
Tenant Credit Risk. Income from and the market value of retail, office and
industrial Mortgaged Properties would be adversely affected if space in the
Mortgaged Properties could not be leased, if tenants were unable to meet
their lease obligations, if a significant tenant were to become a debtor in a
bankruptcy case under the United States Bankruptcy Code or if for any other
reason rental payments could not be collected. If tenant sales in the
Mortgaged Properties that contain retail space were to decline, rents based
upon such sales would decline and tenants may be unable to pay their rent or
other occupancy costs. Upon the occurrence of an event of default by a
tenant, delays and costs in enforcing the lessor's rights could be
experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew the leases or relet the space on comparable terms. Even if vacated
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, could be substantial
and could reduce cash flow from the Mortgaged Properties.
In the case of retail properties, the failure of an anchor tenant to renew
its lease, the termination of an anchor tenant's lease, the bankruptcy or
economic decline of an anchor tenant, or the cessation of the business of an
anchor (notwithstanding its continued payment of rent) can have a
particularly negative effect on the economic performance of a shopping center
property given the importance of anchor tenants in attracting traffic to
other stores. In addition, the failure of any anchor tenant to operate from
its premises may give certain tenants the right to terminate or reduce rents
under their leases.
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<PAGE>
Credit Quality of Tenants and Guarantors. With respect to each Mortgage
Loan that is a Credit Lease Loan, interest and principal payments are
dependent principally on the payment by each Tenant or Guarantor, if any,
under such Credit Lease, of monthly rent paid under the related Credit Lease
by or on behalf of the Tenant (the "Monthly Rental Payment") and other
payments due under the terms of its Credit Lease. A downgrade in the credit
rating of any of the Tenants and/or the Guarantors may have a related adverse
effect on the rating of the Offered Certificates.
If a Tenant or Guarantor defaults on its obligation to make Monthly Rental
Payments under a Credit Lease or the related guarantee, as the case may be,
the borrower under a Credit Lease Loan may not have the ability to make
required payments on such Credit Lease Loan. If a payment default on the
Credit Lease Loan occurs, the Special Servicer may be entitled to foreclose
upon or otherwise realize upon the related Credit Lease Property to recover
amounts due under the Credit Lease Loan, and will also be entitled to pursue
any available remedies against the defaulting Tenant and any Guarantor, which
may include rights to all future Monthly Rental Payments. If the default
occurs before significant amortization of the Credit Lease Loan has occurred
and no recovery is available from the related borrower, the Tenant or any
Guarantor, it is unlikely in most cases that the Special Servicer will be
able to recover in full the amounts then due under the Credit Lease Loan. See
"Description of the Mortgage Loans --Credit Lease Pool" herein.
Terms of the Credit Leases; Factors Affecting Lease Enhancement Policy
Proceeds. With respect to each Credit Lease Loan which is not secured by the
assignment of a "Bondable Lease," the Trustee is the beneficiary of a
non-cancelable insurance policy (a "Lease Enhancement Policy") obtained to
cover certain lease termination and rent abatement events arising out of a
casualty to, or condemnation of, a Credit Lease Property. A "Bondable Lease"
generally means that the related Tenant has no rights under the terms of the
related Credit Lease to terminate the Credit Leases or abate rent due under
the Credit Lease, including by reason of the occurrence of certain casualty
and condemnation events or the failure of the related Mortgagor, as lessor,
to perform required maintenance, repairs or replacement. The Credit Leases
with respect to the Mortgage Loans known as the Kmart Loans, the Cablevision
Loan and the Comsat Senior Loan, each have a Lease Enhancement Policy. The
Lease Enhancement Policies insuring the Kmart Leases, the Cablevision Lease
and the Comsat Leases, were issued by (i) Chubb Insurance Company, which, as
of the Cut-off Date, is rated "AAA" by S&P, (ii) Lexington Insurance Company,
a subsidiary of American International Group Inc., which as of the Cut-off
Date is rated "AAA" by S&P, and (iii) Chubb Custom Insurance Company, which,
as of the Cut-off Date is rated "AAA" by S&P, respectively. The Lease
Enhancement Policies issued by the Lease Enhancement Insurer for the Kmart
Leases and the Comsat Leases are subject to certain limited exclusions and do
not insure interest on Credit Lease Loans for a period of greater than 75
days past the date of the occurrence of a Casualty or Condemnation Event. The
Lease Enhancement Policy for the Cablevision Lease permits payment in a lump
sum (limited to principal plus accrued interest on the Mortgage Loan through
the date of payment) or payment over time. The Lease Enhancement Insurers are
also not required to pay amounts due under the related Credit Lease Loans
other than principal and, subject to the limitation above, accrued interest,
and therefore, are not required to pay any Prepayment Premium or Yield
Maintenance Charge due thereunder or any amounts the related borrower is
obligated to pay thereunder to reimburse the Servicer or the Trustee for
outstanding Servicing Advances.
Certificateholders may be adversely affected by any failure by a Lease
Enhancement Insurer to pay under the terms of the Lease Enhancement Policies,
and any downgrade of the credit rating of the Lease Enhancement Insurer may
adversely affect the ratings of the Offered Certificates. See "Description of
the Mortgage Pool -- Credit Lease Loans" herein.
Certain Considerations With Respect to the Westin Casuarina Resort Loan and
Property
The Hotel Property known as Westin Casuarina Resort is located in Grand
Cayman, British West Indies. There are certain unique risks associated with
mortgaged property located outside of the United States.
Considerations Relating to Cayman Islands law. The Westin Casuarina Resort
Borrower's right to operate the Westin Casuarina Resort Property is subject
to the continuing effectiveness of a Local Companies (Control) Law license
granted by the Cayman Islands government (the "Operating License"). The
current Operating License expires in 2006 and under the Westin Casuarina
Resort Loan, the Westin Casuarina Resort Borrower is required, in good faith,
to diligently pursue obtaining a new Operating License at least one year
prior to the expiration of the existing Operating License (except that under
certain circumstances the Westin Casuarina Resort Borrower may have an
additional 90 days to obtain such Operating License). No assurance can be
provided that such new or extended Operating License will be obtained. The
Trustee and/or the Servicer may under certain circumstances be required to
obtain an Operating License (and any costs
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<PAGE>
related to obtaining such license will be a Property Advance), register as a
foreign company and/or obtain licenses under the Banks and Trust Companies
Law and the Insurance Law of the Cayman Islands, respectively. There can be
no assurance that the Trustee, Servicer, or owner of the property would be
able to obtain an Operating License or such other licenses.
The Companies Law of the Cayman Islands provides various mechanism for the
liquidation and winding-up of Cayman Islands companies, whether or not
insolvent. Although the commencement of winding-up proceedings need not
generally impair the ability of a secured lender to exercise its power of
sale in respect of Cayman Islands real property securing its loan, the lender
cannot bring an action against the borrower without court approval. Judicial
approval may also be required for a secured lender to rely on certain terms
of the security documents.
The loan agreement relating to the Westin Casuarina Resort Loan provides
that such loan agreement is governed by New York law. However, a borrower has
a statutory right under the Cayman Islands Registered Land Law (the "RLL")
with respect to a loan secured by Cayman Islands real property to redeem the
encumbered real property at any time prior to its sale under the lender's
power of sale upon payment of all money due and owing under the charge. In
addition, creditors of the borrower, sureties for the borrower, and other
persons with an interest in the land may require the lender to transfer its
security interest in the property to them upon payment of the same amount the
borrower would be required to pay in order to effect a redemption.
Accordingly, the prohibition against prepayment, and any prohibitions on or
conditions to releases of collateral provided in the Westin Casuarina Resort
Loan are subject to such borrower's statutory right to redeem under the RLL
and the Cayman Islands court's approval.
Under Cayman Islands law, a lender is not permitted to foreclose against
the real property encumbered by its security interest unless permitted by
court approval, which is rarely given. Instead, it may (i) appoint a receiver
to collect the revenues of the encumbered property, (ii) sell the encumbered
property or (iii) sue the borrower for all amounts due under the loan. Under
the RLL in order to exercise any of these remedies the lender must first give
timely written notice and allow a required cure period, generally three
months. The lender's right to sell a Cayman Islands property would normally
be exercised at public auction. This requirement may be varied by agreement,
but such variation is valid only with court approval. Further, in any sale,
the lender is required to act in good faith and have regard to the interests
of the borrower, and is under a duty to use reasonable endeavors to obtain
the best price reasonably available under the circumstances at the date of
sale. Accordingly, an extensive, and therefore costly, marketing effort may
be required in order for the court to be satisfied that the Trust Fund has
obtained the best price reasonably available in compliance with Cayman
Islands law.
Under Cayman Islands law, a security interest in real property is subject
to certain unrecorded or unregistered interests, including, without
limitation, leases or agreements for leases for a term not exceeding two
years, periodic tenancies, the rights of persons in actual occupation of the
land (unless such persons do not disclose their rights upon inquiry), and
various utility, air, light and water rights. Title insurance is not
customarily obtained for properties in the Cayman Islands. The loan documents
for the Westin Casuarina Resort Loan are filed and registered with the
Registrar of Lands (an officer of the Cayman Islands government) who records
the charge in the appropriate land register. Also under Cayman Islands law,
in certain circumstances the obligations of a Cayman Islands company such as
the Westin Casuarina Resort Borrower to pay health insurance, pension
contributions and employees' severance pay (up to a maximum of twelve weeks
basic pay per employee) will be given priority over all debts of such
company, secured and unsecured.
A debenture creating a floating charge over the business and assets of
Westin Casuarina Resort Borrower (except the Cayman Islands Property and
hotel built on it, which are secured by a statutory fixed legal charge) has
been registered in the Westin Casuarina Resort Borrower's Register of
Mortgages and Charges and at the Cayman Islands Public Record Office pursuant
to the Bills of Sales and Public Recorder Laws. Such registration does not
give the Trustee priority over a subsequent fixed charge over these assets if
the subsequent charge does not have notice of the prohibition on subsequent
charges contained in the debenture. The Depositor has been advised that there
is no Cayman Islands authority on what constitutes notice in such
circumstances, although a prudent subsequent chargee's searches will reveal
the debentures and its terms. Moreover, English authority (which would be of
persuasive effect in the Cayman Islands courts) indicates that a subsequent
chargee who deliberately fails to undertake such searches (including a search
at the Public Record Office, in the Westin Casuarina Resort Borrower's
Register of Mortgages and Charges and at the Land Registry) should be held to
have constructive notice of the Debenture and is terms. However, there can be
no assurance that a Cayman Islands Court would so hold.
Sovereign Risk. The landlord under the ground lease relating to the Westin
Casuarina Resort Loan is the government of the Cayman Islands. A foreign
state has the ability to influence a transaction in many ways, including, but
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<PAGE>
not limited to, the imposition of exchange controls that limit the export of
local or foreign currency, declaration of a moratorium on payments on
external debt, diversion of debt service payments or expropriation of
property. In addition, there is the risk that a country's existing social
structure will be subject to violent upheaval or other crisis. Because the
Westin Casuarina Resort Property is in Grand Cayman, British West Indies, the
Westin Casuarina Resort Loan is subject to these risks, collectively known as
"sovereign risk."
CUT-OFF DATE BALANCES AND CONCENTRATION OF MORTGAGE LOANS
<TABLE>
<CAPTION>
CUT-OFF DATE % OF INITIAL
LOAN NAME PRINCIPAL BALANCE POOL BALANCE
- --------- ----------------- ------------
<S> <C> <C>
Saul Centers Pool Properties (SC Senior Portion only) 121,000,000 7%
Three Penn Plaza Property.............................. 110,000,000 6%
Fath Pool Properties................................... 86,043,583 5%
Westin Peachtree Hotel Property........................ 74,745,084 4%
Dayton Mall Property................................... 61,410,564 4%
Am South Property...................................... 57,170,900 3%
</TABLE>
The six largest Mortgage Loans have Cut-off Date Principal Balances that
represent, in the aggregate, approximately 29% of the Initial Pool Balance.
See "Description of the Mortgage Pool -- Significant Mortgage Loans" herein
for a description of the six largest Mortgage Loans based on Cut-off Date
Principal Balance.
The following table sets forth Mortgage Loans secured by more than one
Mortgaged Property.
MORTGAGE LOANS SECURED BY MORE THAN ONE MORTGAGED PROPERTY
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF % OF INITIAL
LOAN NAME PROPERTIES STATES POOL BALANCE
- --------- ---------- ------ ------------
<S> <C> <C> <C>
Amherst ............................... 2 1 1%
Banzhoff MHP........................... 4 1 0%
Charter One Pool ...................... 4 1 1%
Clematis Corridor Portfolio ........... 2 1 0%
Fath .................................. 17 3 5%
FG Hotels ............................. 10 6 2%
Hermalin Portfolio .................... 3 1 1%
JRK Crossed Multifamily ............... 5 3 2%
Keegan & Willow Shopping Centers* .... 2 1 0%
GSS Investments ....................... 3 1 0%
McBride Portfolio* .................... 10 1 3%
PHP Properties ........................ 6 1 1%
San Malls ............................. 2 1 2%
Saul Centers (SC Senior Portion) ..... 9 3 7%
</TABLE>
- ------------
* Loans entered into with multiple borrowers. See "--Limitations on
the Enforceability of Cross-Collateralization" below and
"Description of the Mortgage Pool -- Certain Terms and Conditions of
the Mortgage Loans -- Cross-Collateralization and Cross-Default of
Certain Mortgage Loans" herein.
In addition there are seven pairs and six groups of three to eight
Mortgage Loans comprising 14% of the Initial Pool Balance that were made to
affiliated borrowers which are not cross-collateralized or cross-defaulted,
no one of which represents more than 3% of the Initial Pool Balance and 7% of
the Initial Pool Balance of which are Credit Lease Loans.
In general, concentrations in a mortgage pool in which one or more loans
that have outstanding principal balances that are substantially larger than
the other mortgage loans in such pool can result in losses that are more
severe, relative to the size of the pool, than would be the case if the
aggregate balance of such pool were more evenly distributed among the
mortgage loans in such pool. Concentrations of Mortgage Loans with the same
borrower or related borrowers can also pose increased risks. For example, if
a person that owns or controls several Mortgaged Properties experiences
financial difficulty at one Mortgaged Property, it could defer maintenance at
one Mortgaged Property in order to satisfy current
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<PAGE>
expenses with respect to another Mortgaged Property, or it could attempt to
avert foreclosure by filing a bankruptcy petition that might have the effect
of interrupting Monthly Payments (subject to the Servicer's obligation to
make Advances) for an indefinite period on all of the related Mortgage Loans.
Limitations on Enforceability of Cross-Collateralization. Fourteen of the
Mortgage Loans representing approximately 25% of the Initial Pool Balance and
having Cut-off Date Principal Balances ranging from approximately $3.2
million to approximately $147 million are secured by more than one Mortgaged
Property. These arrangements seek to reduce the risk that the inability of a
Mortgaged Property securing each such Mortgage Loan to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses.
Cross-collateralization arrangements involving more than one borrower (as
indicated on the chart entitled "Mortgage Loans Secured by More Than One
Mortgaged Property" above) could be challenged as a fraudulent conveyance by
creditors of a borrower or by the representative of the bankruptcy estate of
a borrower, if a borrower were to become a debtor in a bankruptcy case.
Generally, under federal and most state fraudulent conveyance statutes, the
incurring of an obligation or the transfer of property by a person will be
subject to avoidance under certain circumstances if the person did not
receive fair consideration or reasonably equivalent value in exchange for
such obligation or transfer and (i) was insolvent or was rendered insolvent
by such obligation or transfer, (ii) was engaged in business or a
transaction, or was about to engage in business or a transaction, for which
any property remaining with the person was an unreasonably small capital or
(iii) intended to, or believed that it would, incur debts that would be
beyond the person's ability to pay as such debts matured. Accordingly, a lien
granted by a borrower to secure repayment of another borrower's Mortgage Loan
could be avoided if a court were to determine that (i) such borrower was
insolvent at the time of granting the lien, was rendered insolvent by the
granting of the lien, or was left with inadequate capital, or was not able to
pay its debts as they matured and (ii) the borrower did not, when it allowed
its Mortgaged Property to be encumbered by a lien securing the entire
indebtedness represented by the other Mortgage Loan, receive fair
consideration or reasonably equivalent value for pledging such Mortgaged
Property for the equal benefit of the other borrower.
Other Financing. The Mortgage Loans generally prohibit incurring any debt
that is secured by the related Mortgaged Property. The Mortgage Loans do,
however, generally permit the related borrower to incur secured indebtedness
in limited circumstances for the purchase of certain items used in the
ordinary course of business, such as equipment and in the case of certain of
the Mortgage Loans, limited amounts of unsecured debt is permitted for other
purposes. The existence of such other indebtedness could adversely affect the
financial viability of the related borrowers or the security interest of the
lender in the equipment or other assets acquired through such financings or
could complicate bankruptcy proceedings and delay foreclosure on the
Mortgaged Property. See "Certain Legal Aspects of the Mortgage Loans --
Subordinate Financing" in the Prospectus. Additionally, the Mortgage Loan
Seller has made loans to parents of certain of the borrowers ("Mezzanine
Debt") as set forth on the following table:
MEZZANINE DEBT
<TABLE>
<CAPTION>
MORTGAGE MEZZANINE DEBT IN PARENT
MORTGAGE LOAN LOAN BALANCE(1) DEBT BALANCE(2) OR BORROWER FORECLOSEABLE SECURED(4) COMBINED LTV(3)
- ------------- ------------------------------- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Brittany Place ......... $18,560,433 $ 1,416,000 Parent Yes Yes 83%
College Plaza .......... $ 2,439,083 $ 155,276 Parent No No 74%
Longwood Village ....... $ 4,080,905 $ 259,798 Parent No No 82%
Triangle East .......... $ 4,240,000 $ 269,926 Parent No No 64%
Westin Peachtree Hotel $74,745,084 $15,000,000 Parent No No 65%
</TABLE>
- ------------
(1) As of the Cut-off Date.
(2) Initial principal balance.
(3) "Combined LTV" means "LTV" as defined herein, but adding the original
principal balance of the Mezzanine Debt to the numerator.
(4) As used above, secured means by a pledge of a partnership or other such
interest, rather than an interest in the Mortgaged Property.
With respect to the Mortgage Loan secured by the Mortgaged Property known
as 14 Walkup Drive (the "First Mortgage"), an affiliate of the borrower
continues to hold a subordinate note from the borrower in the amount of
$9,140,000 secured by a second mortgage on the 14 Walkup Property (the
"Second Mortgage"). The Second Mortgage is completely subordinate to the
First Mortgage, has no foreclosure rights and has been pledged to the Trust
Fund as additional security for the First Mortgage.
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<PAGE>
Preferred Equity Investments by the Mortgage Loan Seller and/or its
Affiliates. The Mortgage Loan Seller and/or its affiliates (the "Preferred
Interest Holder") has acquired a preferred equity interest in 9 borrowers or
their affiliates, which are the borrowers (or affiliates) with respect to
Mortgage Loans representing approximately 9% of the Initial Pool Balance as
set forth in the following table:
PREFERRED EQUITY (APPROXIMATE) INVESTMENTS IN BORROWERS AND AFFILIATES
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
MORTGAGE LOAN OF PREFERRED EQUITY INTEREST IN BORROWER
MORTGAGE LOAN BALANCE(1) INVESTMENT(2) OR ITS AFFILIATE
- ------------- ---------- ------------- ----------------
<S> <C> <C> <C>
The Century Building ........... $50,775,000 $10,225,000 Borrower
Sheraton Ocean City ............ $16,473,961 $ 2,000,000 Borrower
Roseburg Valley Mall ........... $10,880,000 $ 520,000 Borrower
Mediterranean Apartments ...... $10,052,010 $ 500,000 Borrower
Argossy Apartments ............. $ 8,800,000 $ 450,000 Borrower
5 & 7 East 17th Street ......... $ 4,686,855 $ 725,000 Borrower
Canterbury Townhouses .......... $ 4,122,500 $ 295,000 Borrower
Milford Plaza .................. $ 2,591,331 $ 173,000 Affiliate
Best Western--Old Hickory Inn . $ 2,541,934 $ 450,000 Borrower
</TABLE>
- ------------
(1) As of the Cut-off Date, the total Initial Pool Balance of all Mortgage
Loans in which the Preferred Interest Holder has a preferred equity
interest is approximately $110,923,591.
(2) Initial amount of investment.
In general, with respect to each such borrower, the Preferred Interest
Holder is entitled to receive certain preferred distributions prior to
distributions being made to the other partners or members. No monthly
distribution to the Preferred Interest Holder is permitted to be made until
all required monthly debt service payments, reserve payments, other payments
under the related Mortgage Loan ("Monthly Mortgage Loan Payments") and any
obligations to other creditors have been made when due and all monthly
operating expenses with respect to the related Mortgaged Property ("Monthly
Operating Expenses") have been paid. After payment of such amounts, the
Preferred Interest Holder is entitled to receive a distribution of a
preferred yield and a monthly return of capital equal to either (i) a
scheduled minimum payment or (ii) the greater of a scheduled minimum payment
and specified percentage of certain remaining cash flow from the Mortgaged
Property or Properties, after payment of Monthly Mortgage Loan Payments,
Monthly Operating Expenses and the monthly preferred yield to the Preferred
Interest Holder (or, in each case, if certain breaches have occurred, 100% of
such remaining cash flow).
Under the related partnership agreement, operating agreement or similar
agreement, the Preferred Interest Holder has certain specified rights,
including, in most cases, the right to terminate and replace the manager of
the related Mortgaged Property or Properties upon the occurrence of certain
specified breaches or in some cases, if the DSCR as of certain dates falls
below certain levels generally equal to the DSCR at the time of the
origination of the related Mortgage Loan. However, the right of the Preferred
Interest Holder to terminate any manager is expressly subordinate to the
right of the Servicer to terminate and replace such manager. If the Preferred
Interest Holder is entitled to terminate a manager at a time when the
Servicer does not have such a right, then prior to termination, the Preferred
Interest Holder must receive written confirmation from each of the Rating
Agencies that such termination would not cause such Rating Agency to
withdraw, qualify or downgrade any of its then-current ratings on the
Certificates. Other than the increase in the percentage of the cash flow used
to calculate the monthly return of capital and the right to terminate the
manager as described above, the Preferred Interest Holder has no further
remedies under the relevant partnership, operating or similar agreement in
the event of nonpayment of its monthly preferred yield and return of capital.
In general, the Preferred Interest Holder has the right to approve the
annual budget for the Mortgaged Properties, which right is subject to any
right that the Servicer may have to approve such budgets. The Preferred
Interest Holder also has the right to approve certain actions of the related
borrowers, including certain transactions with affiliates, prepayment or
refinancing of the related Mortgage Loan, transfer of the related Mortgaged
Property, entry into or modification of substantial leases or improvement of
the related Mortgaged Properties to a materially higher standard than
comparable properties in the vicinity of such Mortgaged Properties (unless
approved by the Servicer as described below), and the
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<PAGE>
dissolution, liquidation or the taking of certain bankruptcy actions with
respect to the borrower. With respect to the making of any capital
improvements in addition to those reserved for under the related Mortgage
Loan, the Servicer alone may approve such improvements without the consent of
the Preferred Interest Holder. In such event, the expenditure of amounts to
make such additional capital improvements, rather than to make the monthly
distribution to the Preferred Interest Holder, will not cause a breach which
gives rise to a right to terminate the related manager.
The Loeb-Riverview Center borrower has an option for approximately 24
months to require the Mortgage Loan Seller to make a preferred equity
investment in such borrower of up to $5,000,000.
Other Equity Investments by the Mortgage Loan Seller and/or its
Affiliates. An affiliate of the Mortgage Loan Seller owns a 50% equity
ownership interest in the borrower with respect to the Mortgage Loan known as
the Dayton Mall Loan. Pursuant to the terms of the borrower's operating
agreement, payments made to such affiliate will be prior to the other members
and such affiliate will have certain other preferential rights that are
substantially similar to those described above for the Preferred Interest
Holder.
An affiliate of the Mortgage Loan Seller owns a 100% common equity
ownership interest in the borrower with respect to the Mortgaged Properties
known as San Malls.
An affiliate of the Mortgage Loan Seller owns a 70% ownership interest in
the borrower with respect to the Mortgaged Property known as Security Square
Mall and is currently negotiating the sale of 7.5% of such interest to the
current 30% interest holder. An additional equity investment in the amount of
$5,000,000 has been provided to such borrower by another affiliate of the
Mortgage Loan Seller. Pursuant to the terms of the related borrower's limited
partnership agreement, payments made to such affiliate of the Mortgage Loan
Seller will be paid prior to the other partners and such affiliate will have
certain other preferential rights substantially similar to those described
above for holders of preferred equity. In addition, the borrower has an
option for approximately 12 months to require such affiliate of the Mortgage
Loan Seller to make an additional investment in the borrower of up to
$1,000,000.
The Mortgage Loan Seller owns a 27% membership interest in Westin Hotel
LLC ("Westin"), the owner of Westin Hotels and Resorts Worldwide, Inc.
("Westin Resorts"). Westin Resorts indirectly owns the manager and an
interest in the borrower with respect to the Mortgaged Property known as the
Westin Peachtree Hotel Property. Starwood Lodging Trust and Starwood Lodging
Corporation (collectively, "Starwood") have entered into an agreement to
acquire Westin Resorts (the "Merger"). Starwood is a paired-share hotel real
estate investment trust traded on the New York Stock Exchange. The Merger is
scheduled to close by January 31, 1998. After the Merger, the Mortgage Loan
Seller will own less than 10% of the equity in Starwood. The Mortgage Loan
Seller's membership interests in Westin are non-voting interests.
The four borrowers described above in which the Mortgage Loan Seller
and/or its affiliates have an equity interest represent approximately 11% of
the Initial Pool Balance. Other than with respect to the Mortgaged Properties
known as San Malls, the Mortgage Loan Seller does not actively manage or
control the day-to-day operations of such borrowers.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of building
involved, will subject the Lower-Tier REMIC to federal (and possibly state or
local) tax on such income at the highest marginal corporate tax rate
(currently 35%), thereby reducing net proceeds available for distribution to
Certificateholders. See "Federal Income Tax Consequences -- Federal Income
Tax Consequences for REMIC Certificates -- Taxes That May Be Imposed on the
REMIC Pool -- Net Income From Foreclosure Property" in the Prospectus.
Risk of Different Timing of Mortgage Loan Amortization. As set forth on
the table below, the different types of Mortgaged Properties securing the
Mortgage Loans have varying weighted average terms to maturity. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of properties, types of properties, geographic concentration (see
"--Geographic Concentration" below) and with respect to the number of
borrowers. Because principal on the Certificates is payable in sequential
order, and no Class entitled to distributions of principal receives principal
until the Certificate Balance of the preceding Class or Classes so entitled
has been reduced to zero, Classes that have a later sequential designation
are more likely to be exposed to the risk of concentration discussed in the
preceding sentence than Classes with higher sequential priority.
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<PAGE>
WEIGHTED AVERAGE REMAINING TERM TO MATURITY FOR VARIOUS PROPERTY TYPES
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING TERM TO
EARLIER OF
MATURITY OR
ANTICIPATED
REPAYMENT DATE
PROPERTY TYPE % OF INITIAL POOL BALANCE (IF APPLICABLE)
- ------------- ------------------------- ---------------
<S> <C> <C>
Office .................. 29% 136
Retail (Anchored) ....... 28% 175
Multifamily ............. 19% 128
Hotel (Full Service) ... 13% 173
Industrial .............. 3% 175
Healthcare Facility...... 3% 178
Mobile Home.............. 2% 127
Retail (Unanchored) .... 1% 133
Hotel (Limited Service) 0% 149
Hotel (Extended Stay) .. 0% 144
</TABLE>
Geographic Concentration. The Mortgaged Properties are located in 35
states and the British West Indies. The tables below set forth the states in
which a significant percentage of the Mortgaged Properties are located. See
the table entitled "Geographic Distribution of the Mortgaged Properties" for
a description of geographic location of the Mortgaged Properties. Except as
set forth below, no state contains more than 5% (by Cut-off Date Principal
Balance or Allocated Loan Amount) of the Mortgaged Properties.
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF
STATE % OF INITIAL POOL BALANCE MORTGAGED PROPERTIES
- ----- ------------------------- --------------------
<S> <C> <C>
New Jersey .. 10% 19
Ohio......... 10% 25
Maryland..... 10% 15
Texas........ 9% 25
Virginia..... 7% 9
New York..... 6% 10
California .. 6% 19
</TABLE>
Repayments by borrowers and the market value of the Mortgaged Properties
could be adversely affected by economic conditions generally or in regions
where the borrowers and the Mortgaged Properties are located, conditions in
the real estate markets where the Mortgaged Properties are located, changes
in governmental rules and fiscal policies, acts of nature (which may result
in uninsured losses), and other factors which are beyond the control of the
borrowers.
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other
areas of the country by certain developments affecting industries
concentrated in such state or region. Moreover, in recent periods, several
regions of the United States have experienced significant downturns in the
market value of real estate. To the extent that general economic or other
relevant conditions in states or regions in which concentrations of Mortgaged
Properties securing significant portions of the aggregate principal balance
of the Mortgage Loans are located decline and result in a decrease in
commercial property, housing or consumer demand in the region, the income
from and market value of the Mortgaged Properties may be adversely affected.
Exercise of Remedies. The Mortgage Loans generally contain a due-on-sale
clause, which permits the lender to accelerate the maturity of the Mortgage
Loan if the mortgagor sells, transfers or conveys the related Mortgaged
Property or its interest in the Mortgaged Property. All of the Mortgage Loans
also include a debt-acceleration clause, which permits the lender to
accelerate the debt upon specified monetary or non-monetary defaults of the
mortgagor. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
or permit the acceleration of the indebtedness
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<PAGE>
as a result of a default deemed to be immaterial or if the exercise of such
remedies would be inequitable or unjust or the circumstances would render the
acceleration unconscionable.
Each of the Mortgage Loans is secured by an assignment of leases and rents
pursuant to which the related mortgagor assigned its right, title and
interest as landlord under the leases on the related Mortgaged Property and
the income derived therefrom to the lender as further security for the
related Mortgage Loan, while retaining a license to collect rents for so long
as there is no default. In the event the mortgagor defaults, the license
terminates and the lender is entitled to collect rents. In some cases, such
assignments may not be perfected as security interests prior to actual
possession of the cash flow. In some cases, state law may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect
of the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans -- Leases and Rents"
in the Prospectus.
Environmental Law Considerations. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, adjacent to, or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor is generally not limited under such circumstances and
could exceed the value of the property and/or the aggregate assets of the
owner. Under the laws of certain states, contamination of a property may give
rise to a lien on the property to assure the costs of cleanup. In some such
states this lien has priority over the lien of an existing mortgage against
such property. In addition, the presence of hazardous or toxic substances, or
the failure to properly remediate such property, may adversely affect the
owner's or operator's ability to refinance using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility. Certain laws impose
liability for release of asbestos containing materials ("ACMs") into the air
or require the removal or containment of ACMs and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with ACMs or other exposure to chemicals or other hazardous
substances. For all of these reasons, the presence of, or contamination by,
hazardous substances at, on, under, adjacent to, or in a property can
materially adversely affect the value of the property.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the
Trust Fund) may be liable, as an "owner" or "operator," for the costs of
responding to a release or threat of a release of hazardous substances on or
from a borrower's property regardless of whether the borrower or a previous
owner caused the environmental damage, if (i) agents or employees of a lender
are deemed to have participated in the management of the borrower or (ii) the
Trust Fund actually takes possession of a borrower's property or control of
its day-to-day operations, as for example, through the appointment of a
receiver 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, such legislation has no applicability
to state environmental law. See "Certain Legal Aspects of the Mortgage Loans
- -- Environmental Legislation" in the Prospectus.
All of the Mortgaged Properties have been subject to environmental site
assessments or studies within the eighteen months preceding the Cut-off Date.
There can be no assurance that any such assessment or study revealed all
possible environmental hazards. No assessment or study revealed any
environmental condition or circumstance that the Depositor believes will have
a material adverse impact on the value of the related Mortgaged Property or
the borrower's ability to pay its debt. In the cases where the environmental
assessments revealed the existence of friable and non-friable ACMs and
lead-based paint, the borrowers agreed to establish and maintain operations
and maintenance or abatement programs and/or environmental reserves. The
environmental studies and assessments revealed that a large portion of the
Mortgaged Properties, based on Initial Pool Balance, contained ACMs.
The environmental site assessment of the Mortgaged Property known as the
Avalon Center revealed potential soil and ground water contamination caused
by a gas station owned by Mobil Oil Corporation, located near the Avalon
Center Property. Mobil Oil Corporation, which is rated "Aa2" by Moody's and
"AA" by S&P, has indemnified the related borrower with respect to any losses
resulting from this contamination.
In the case of the Mortgage Loan secured by the Circle Marina Shopping
Center, three underground storage tanks were discovered. The related borrower
has commenced remediation and funds in the amount of $306,600 have been
reserved by the lender for such remediation.
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<PAGE>
In the case of the Mortgage Loan secured by the Gateway Center Property,
such property is located within a Super Fund site as designated by the
Environmental Protection Agency ("EPA"). It has been determined, however,
that the Gateway Center Property is not responsible for the contamination;
rather, it has been determined that such contamination was caused by
Occidental Corporation, an entity rated "BBB" by S&P, which has committed to
pay to the EPA approximately $18,000,000 to cover costs related to
remediation at this Super Fund site.
Certain of the Mortgaged Properties have off-site leaking underground
storage tank sites located nearby which the environmental consultant has
advised are not likely to contaminate the related Mortgaged Properties but
will require future monitoring. The environmental assessments revealed other
adverse environmental conditions such as the existence of storage tanks
needing replacement or removal, PCBs in equipment on-site and elevated radon
levels, in connection with which environmental reserves have been established
and/or removal or monitoring programs have been implemented. There can be no
assurance that all environmental conditions and risks have been identified in
such environmental assessments or studies, as applicable, or that any such
environmental conditions will not have a material adverse effect on the value
or cash flow of the related Mortgaged Property.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers any condition on the
property that causes exposure to lead-based paint. In addition, every
contract for the purchase and sale of any interest in residential housing
constructed prior to 1978 must contain a "Lead Warning Statement" that
informs the purchaser of the potential hazards to pregnant women and young
children associated with exposure to lead-based paint. 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 can be held liable for injuries to their tenants
resulting from exposure to lead-based paint under various state and local
laws and regulations that impose affirmative obligations on property owners
of residential housing containing lead-based paint. The environmental
assessments revealed the existence of lead-based paint at certain of the
multifamily residential properties. In these cases the borrowers have either
implemented operations and maintenance programs or are in the process of
removing the lead-based paint. Additionally, the environmental assessments
revealed the existence of lead in mini-blinds in certain of the multifamily
residential properties. In these cases, the borrowers have planned to replace
the blinds during normal repair and maintenance operations or at tenant
turnover. Based on information received from the environmental consultant,
the Depositor believes that the presence of lead-based paint or mini-blinds
containing lead at the Mortgaged Properties will not have a material adverse
effect on the value of the related Mortgaged Property or ability of the
related borrowers to repay their loans.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its
operation. Such requirement may effectively preclude enforcement of the
security for the related Note until a satisfactory environmental site
assessment is obtained (or until any required remedial action is thereafter
taken), but will decrease the likelihood that the Trust Fund will become
liable under any environmental law. However, there can be no assurance that
the requirements of the Pooling and Servicing Agreement will effectively
insulate the Trust Fund from potential liability under environmental laws.
See "The Pooling and Servicing Agreement -- Realization Upon Mortgage Loans
- -- Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans" herein and "Certain Legal Aspects of Mortgage Loans --
Environmental Legislation" in the Prospectus.
Balloon Payments. Five of the Mortgage Loans are Balloon Loans which will
have substantial payments of principal ("Balloon Payments") due at their
stated maturities unless previously prepaid. One of such Mortgage Loans, the
Comsat Junior Loan, requires no payments of principal or interest prior to
its maturity date; the loan negatively amortizes and is payable in full on
its maturity date. One hundred twenty-five of the Mortgage Loans have
Anticipated Repayment Dates, and have substantial scheduled principal
balances as of such date. Loans that require Balloon Payments involve a
greater risk to the lender than fully amortizing loans because the ability of
a borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property at a
price sufficient to permit the borrower to make the Balloon Payment.
Similarly, the ability of a borrower to repay a loan on the Anticipated
Repayment Date will depend on its ability to either refinance the Mortgage
Loan or to sell the related Mortgaged Property. The ability of a borrower to
accomplish either of these goals will be affected by all of the factors
described above affecting property value and cash flow, as well as a number
of other factors at the time of attempted sale or refinancing, including the
level of available mortgage rates, prevailing economic conditions and the
availability of credit for multifamily or commercial properties (as the case
may be) generally.
S-48
<PAGE>
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ------------ ------------ --------------
<S> <C> <C>
ARD Loans ......................................... 86% 125
Fully Amortizing Loans (other than the ARD Loans) 13% 26
Balloon Mortgage Loans ............................ 0% 4
</TABLE>
One Action Considerations. Several states (including California) have laws
that prohibit more than one "judicial action" to enforce a mortgage
obligation, and some courts have construed the term "judicial action"
broadly. Accordingly, the Pooling and Servicing Agreement will require the
Servicer to obtain advice of counsel prior to enforcing any of the Trust
Fund's rights under any of the Mortgage Loans that include properties where
the rule could be applicable. In addition, in the case of a Pool Loan secured
by Mortgaged Properties located in multiple states, the Servicer may be
required to foreclose first on properties located in states where such "one
action" rules apply (and where non-judicial foreclosure is permitted) before
foreclosing on properties located in states where judicial foreclosure is the
only permitted method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans --Foreclosure" in the Prospectus.
Limitations of Appraisals and Market Studies. In general, appraisals
represent the analysis and opinion of the respective appraisers at or before
the time made and are not guarantees of, and may not be indicative of,
present or future value. There can be no assurance that another appraiser
would not have arrived at a different valuation, even if such appraiser used
the same general approach to and same method of appraising the property.
Moreover, appraisals seek to establish the amount a typically motivated buyer
would pay a typically motivated seller. Such amount could be significantly
higher than the amount obtained from the sale of a Mortgaged Property under a
distress or liquidation sale. Information regarding the values of the
Mortgaged Properties as of the Cut-off Date is presented under "Description
of the Mortgage Pool" herein for illustrative purposes only.
Conflicts of Interest. A substantial number of the Mortgaged Properties
are managed by property managers affiliated with the respective borrowers.
These property managers may also manage and/or franchise additional
properties, including properties that may compete with the Mortgaged
Properties. Moreover, affiliates of the managers, or the managers themselves,
may also own other properties, including competing properties. Accordingly,
the managers of the Mortgaged Properties may experience conflicts of interest
in the management of such properties.
Additionally, as described above under "The Mortgage Loans -- Other
Financing," "--Preferred Equity Investments by the Mortgage Loan Seller
and/or its Affiliates," and "--Other Equity Investments by the Mortgage Loan
Seller and/or its Affiliates," the Mortgage Loan Seller and/or an affiliate
has acquired a preferred equity interest in certain of the borrowers or their
affiliates, which are the borrowers (or affiliates) with respect to Mortgage
Loans representing approximately 9% of the Initial Pool Balance and has an
obligation to fund preferred equity on one additional Loan. In addition, the
Mortgage Loan Seller or an affiliate has an equity interest in the borrower
with respect to the Mortgaged Properties known as the San Malls, Security
Square Mall, Dayton Mall and Westin Peachtree Hotel; such Mortgage Loans
represent approximately 11% of the Initial Pool Balance. In addition, the
Mortgage Loan Seller or an affiliate may have other financing arrangements
with affiliates of the borrowers and may enter into additional financing
relationships in the future. Certain officers and directors of the Depositor
and its affiliates may own equity interests in affiliates of the borrowers.
Conflicts Between the Servicer and the Trust Fund. The Trust Fund has been
advised by the Servicer that it and its affiliates intend to continue to
service existing and new loans for third parties, including portfolios of
loans similar to the Mortgage Loans, in the ordinary course of their
business. These mortgage loans may be in the same markets or have common
owners, obligors and/or property managers as certain of the Mortgage Loans
and the Mortgaged Properties securing the Mortgage Loans. Certain personnel
of the Servicer and its affiliates may, on behalf of the Servicer, perform
services with respect to the Mortgage Loans at the same time as they are
performing services, on behalf of other persons, with respect to other
mortgage loans secured by properties in the same markets as the Mortgaged
Properties securing the Mortgage Loans. In such a case, the interests of the
Servicer and its affiliates and their other clients may differ from and
compete with the interests of the Trust Fund and such activities may
adversely affect the amount and timing of collections on the Mortgage Loans.
Ground Leases. Seven of the Mortgaged Properties, representing security
for approximately 9% of the Initial Pool Balance, are leasehold interests
where a material portion of the Mortgaged Property contains a ground lease
and the
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<PAGE>
ground Lessor is not a party to the Mortgage. For any Mortgaged Property
where the ground Lessee and ground Lessor are both parties to the Mortgage,
the Mortgaged Property has been categorized as a Fee Simple Estate. Each of
the Mortgage Loans secured by mortgages on leasehold estates were
underwritten taking into account payment of the ground lease rent, except in
cases where the Mortgage Loan has a lien on both the ground lessor's and
ground lessee's interest in the Mortgaged Property. Except with respect to
the Westin Casuarina Resort Loan, the following provisions generally apply:
On the bankruptcy of a lessor or a lessee under a ground lease, the debtor
entity has the right to assume (continue) or reject (terminate) the ground
lease. Pursuant to Section 365(h) of the Bankruptcy Code, as it is presently
in effect, a ground lessee whose ground lease is rejected by a debtor ground
lessor has the right to remain in possession of its leased premises under the
rent reserved in the lease for the term (including renewals) of the ground
lease but is not entitled to enforce the obligation of the ground lessor to
provide any services required under the ground lease. In the event a ground
lessee/borrower in bankruptcy rejects any or all of its ground leases, the
leasehold mortgagee may have the right to succeed to the ground
lessee/borrower's position under the lease only if the ground lessor had
specifically granted the mortgagee such right.
In the event of concurrent bankruptcy proceedings involving the ground
lessor and the ground lessee/borrower, the Trustee may be unable to enforce
the bankrupt ground lessee/borrower's obligation to refuse to treat a ground
lease rejected by a bankrupt ground lessor as terminated. In such
circumstances, a ground lease could be terminated notwithstanding lender
protection provisions contained therein or in the mortgage.
Zoning Compliance; Inspections. Due to changes in applicable building and
zoning ordinances and codes ("Zoning Laws") affecting certain of the
Mortgaged Properties which have come into effect after the construction of
improvements on such Mortgaged Properties and to other reasons, certain
improvements may not comply fully with current Zoning Laws, including
density, use, parking and set back requirements, but qualify as permitted
non-conforming uses. Such changes may limit the ability of the borrower to
rebuild the premises "as is" in the event of a substantial casualty loss with
respect thereto and may adversely affect the ability of the borrower to meet
its Mortgage Loan obligations from cash flow. While it is expected that
insurance proceeds would be available for application to the related Mortgage
Loan if a substantial casualty were to occur, no assurance can be given that
such proceeds would be sufficient to pay off such Mortgage Loan in full or
that, if the Mortgaged Property were to be repaired or restored in conformity
with current law, what its value would be relative to the remaining balance
on the related Mortgage Loan, whether the property would have a value equal
to that before the casualty, or what its revenue-producing potential would
be.
Inspections of the Mortgaged Properties were conducted in connection with
the origination of the Mortgage Loans by licensed engineers to assess the
structure, exterior walls, roofing interior construction, mechanical and
electrical systems and general condition of the site, buildings and other
improvements located on the Mortgaged Properties. There can be no assurance
that all conditions requiring repair or replacement have been identified in
such inspections.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the borrowers may to incur costs of complying with
the ADA. In addition, noncompliance could result in the imposition of fines
by the federal government or an award of damages to private litigants.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the
business of or arising out of the ordinary course of business of the
borrowers and their affiliates. There can be no assurance that such
litigation will not have a material adverse effect on the distributions to
Certificateholders.
Obligor Default. In order to maximize recoveries on defaulted Mortgage
Loans, the Special Servicer may, under certain limited circumstances, extend
and/or modify Mortgage Loans that are in default or as to which a payment
default is reasonably foreseeable, including in particular with respect to
Balloon Payments. While the Special Servicer will have a duty to determine
that any such extension or modification is likely to produce a greater
recovery on a present value basis than liquidation, there can be no assurance
that such flexibility with respect to extensions or modifications will
increase the present value of receipts from or proceeds of Mortgage Loans
that are in default or as to which a default is reasonably foreseeable.
THE CERTIFICATES
Limited Assets. If the Trust Fund is insufficient to make payments on the
Offered Certificates, no other assets will be available for payment of the
deficiency.
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<PAGE>
Special Prepayment and Yield Considerations. The yield to maturity on the
Offered Certificates will depend on, among other things, the rate and timing
of principal payments (including both voluntary prepayments, in the case of
the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof
to reduce the Certificate Balances of the Offered Certificates entitled to
distributions of principal. In addition, in the event of any repurchase of a
Mortgage Loan from the Trust Fund by the Mortgage Loan Seller or the
Depositor under the circumstances described under "The Pooling and Servicing
Agreement --Representations and Warranties -- Repurchase" herein or the
purchase of the Mortgage Loans by the holders of the Class LR Certificates or
the most subordinate Class of Certificates then outstanding under the
circumstances described under "The Pooling and Servicing Agreement --
Optional Termination" herein, the repurchase or purchase price paid would be
passed through to the holders of the Certificates with the same effect as if
such Mortgage Loan had been prepaid in full (except that no Prepayment
Premium would be payable with respect to any such repurchase). No
representation is made as to the anticipated rate of prepayments (voluntary
or involuntary) on the Mortgage Loans or as to the anticipated yield to
maturity of any Certificate. See "Prepayment and Yield Considerations"
herein.
In general, if an Offered Certificate is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at
the time of purchase, to the extent that the required Prepayment Premiums are
not received, the investor's actual yield to maturity may be lower than that
assumed at the time of purchase. Conversely, if an Offered Certificate is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity may be lower than assumed at the time of purchase.
The investment performance of the Offered Certificates may vary materially
and adversely from the investment expectations of investors due to
prepayments on the Mortgage Loans that are higher or lower than anticipated
by investors. The actual yield to the holder of an Offered Certificate may
not be equal to the yield anticipated at the time of purchase of the Offered
Certificate or, notwithstanding that the actual yield is equal to the yield
anticipated at that time, the total return on investment expected by the
investor or the expected weighted average life of the Offered Certificate may
not be realized. IN DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES, AN
INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS TO THE APPROPRIATE PREPAYMENT
ASSUMPTIONS TO BE USED. See "Prepayment and Yield Considerations" herein.
All of the Mortgage Loans provide for a Lock-out Period during which
voluntary prepayment is prohibited. The table below sets forth certain
information regarding the Lock-out Periods. For further statistical
information on a loan-by-loan basis, see Annex A hereto.
<TABLE>
<CAPTION>
OVERVIEW OF LOCK-OUT PERIODS
<S> <C>
Minimum Remaining Lock-out Period .............. 58 months
Maximum Remaining Lock-out Period .............. 265 months
Weighted Average Remaining Lock-out Period .... 150 months
</TABLE>
The following table sets forth the number of, and percentages of the
Initial Pool Balance represented by, Mortgage Loans with respect to which the
related Lock-out Period expires (i) on or one to six months prior to their
respective Anticipated Repayment Dates or (ii) no earlier than the last six
months of their loan term. See "Description of the Mortgage Pool -- Certain
Terms and Conditions of the Mortgage Loans -- Prepayment Provisions" and
"--Property Releases" herein.
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ------------ ------------ --------------
<S> <C> <C>
Lock-out Period Ending on/or close to Anticipated Repayment Date 86% 125
Lock-out Period Ending on/or close to Maturity Date ............ 14% 30
--- ---
TOTAL: 100% 155
</TABLE>
The rate at which voluntary prepayments occur on the Mortgage Pool will be
affected by a variety of factors, including, without limitation, the terms of
the Mortgage Loans, the level of prevailing interest rates as compared to the
applicable Mortgage rate, the availability of mortgage credit and economic,
demographic, tax, legal and other factors. In
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<PAGE>
general, however, if prevailing interest rates remain at or above the rates
borne by such Mortgage Loans, such Mortgage Loans may be the subject of lower
principal prepayments than if prevailing rates fall significantly below the
mortgage rates of the Mortgage Loans. The rate of principal payments on the
Offered Certificates may be affected by the rate of principal payments on the
Mortgage Loans and is likely to be affected by the Lock-out Periods and
Prepayment Premium provisions applicable to the Mortgage Loans and by the
extent to which a Servicer is able to enforce such provisions. Mortgage Loans
with a Lock-out Period or Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans without such
provisions, with shorter Lock-out Periods or with lower Prepayment Premiums.
All of the Mortgage Loans provide that after the applicable Defeasance
Lock-out Period, the borrower may obtain the release of the related Mortgaged
Property from the lien of the related Mortgage upon the pledge to the Trustee
of noncallable U.S. Treasury or other noncallable U.S. government obligations
which provide payments on or prior to all successive payment dates through
maturity (or, in the case of the ARD Loans, through the Anticipated Repayment
Date) in the amounts due on such dates (plus, in the case of ARD Loans, the
amount outstanding on the related Anticipated Repayment Date), and upon the
satisfaction of certain other conditions. See "Description of the Mortgage
Pool -- Certain Terms and Conditions of the Mortgage Loans -- Property
Releases" herein.
Provisions requiring Prepayment Premiums may not be enforceable in some
states and under federal bankruptcy law, and may constitute interest for
usury purposes. Accordingly, no assurance can be given that the obligation to
pay a Prepayment Premium will be enforceable under applicable state or
federal law or, if enforceable, that the foreclosure proceeds will be
sufficient to pay such Prepayment Premium. Additionally, although the
collateral substitution provisions related to defeasance are not intended to
be, and do not have the same effect on the Certificateholders as, prepayment,
there can be no assurance that a court would not interpret such provisions as
requiring a yield maintenance charge or Prepayment Premium and thus not
enforceable under applicable law or as being usurious.
See "Prepayment and Yield Considerations" and "Certain Federal Income Tax
Consequences" herein and "Yield Considerations" and "Federal Income Tax
Consequences" in the Prospectus.
Effect of Mortgagor Defaults. The aggregate amount of distributions on the
Offered Certificates, the yield to maturity of the Offered Certificates, the
rate of principal payments on the Offered Certificates and the weighted
average life of the Offered Certificates will be affected by the rate and the
timing of delinquencies and defaults on the Mortgage Loans. Delinquencies on
the Mortgage Loans, unless advanced, may result in shortfalls in
distributions of interest and/or principal to the Offered Certificates for
the current month. See "--Limitations on Advancing" below. Any late payments
received on or in respect of the Mortgage Loans will be distributed to the
Certificates in the priorities described more fully herein, but no interest
will accrue on such shortfall during the period of time such payment is
delinquent. Thus, because the Offered Certificates will not accrue interest
on shortfalls, delinquencies may result in losses and shortfalls being
allocated to the Offered Certificates, which will reduce the amounts
distributable to the Offered Certificates and thereby adversely affect the
yield to maturity of such Certificates.
If a purchaser of an Offered Certificate of any Class calculates its
anticipated yield based on an assumed rate of default and amount of losses on
the Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such losses are allocable to such Class of
Certificates, such purchaser's actual yield to maturity will be lower than
that so calculated and could, under certain scenarios, be negative. The
timing of any loss on a liquidated Mortgage Loan will also affect the actual
yield to maturity of the Offered Certificates to which all or a portion of
such loss is allocable, even if the rate of defaults and severity of losses
are consistent with an investor's expectations. In general, the earlier a
loss borne by an investor occurs, the greater is the effect on such
investor's yield to maturity. Mortgage Loans with higher interest rates may
be more likely to default or result in borrower bankruptcies. See "Prepayment
and Yield Considerations" herein.
As and to the extent described herein, the Servicer, the Special Servicer,
the Trustee or the Fiscal Agent, as applicable, will be entitled to receive
interest on unreimbursed Advances and unreimbursed servicing expenses that
(a) are recovered out of amounts received on the Mortgage Loan as to which
such Advances were made or such servicing expenses were incurred, which
amounts are in the form of reimbursement from the related borrower, late
payments, liquidation proceeds, insurance proceeds, condemnation proceeds or
amounts paid in connection with the purchase of such Mortgage Loan out of the
Trust Fund or (b) are determined to be nonrecoverable Advances. Such interest
will accrue from (and including) the date on which the related Advance is
made or the related expense incurred to (but excluding) the date on which (x)
in the case of clause (a) above, such amounts are recovered and (y) in the
case of clause (b) above, a determination of
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<PAGE>
non-recoverability is made to the extent that there are funds available in
the Collection Account for reimbursement of such Advance. The Servicer's, the
Special Servicer's, the Trustee's or the Fiscal Agent's right, as applicable,
to receive such payments of interest is prior to the rights of
Certificateholders to receive distributions on the Offered Certificates and,
consequently, may result in losses being allocated to the Offered
Certificates that would not otherwise have resulted absent the accrual of
such interest. In addition, certain circumstances, including delinquencies in
the payment of principal and interest, may result in a Mortgage Loan being
specially serviced. The Special Servicer is entitled to additional
compensation for special servicing activities which may result in losses
being allocated to the Offered Certificates that would not otherwise have
resulted absent such compensation. See "The Pooling and Servicing Agreement
- -- Special Servicing" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Offered Certificates, such losses may affect the weighted
average life and yield to maturity of such investor's Certificates. Losses on
the Mortgage Loans, to the extent not allocated to such Class of Offered
Certificates, may result in a higher percentage ownership interest evidenced
by such Certificates than would otherwise have resulted absent such loss. The
consequent effect on the weighted average life and yield to maturity of the
Offered Certificates will depend upon the characteristics of the remaining
Mortgage Loans.
Regardless of whether losses ultimately result, delinquencies and defaults
on the Mortgage Loans may significantly delay the receipt of payments by the
holder of an Offered Certificate, to the extent that Advances or the
subordination of another Class of Certificates does not fully offset the
effects of any such delinquency or default. The Available Funds generally
consist of, as more fully described herein, principal and interest on the
Mortgage Loans actually collected or advanced.
As described under "Description of the Offered Certificates --
Distributions" herein, if the portion of Available Funds distributable in
respect of interest on the Offered Certificates on any Distribution Date is
less than the Interest Distribution Amount then payable for such class, the
shortfall will be distributable without interest on such shortfall to holders
of such Class of Certificates on subsequent Distribution Dates, to the extent
of Available Funds.
Servicer or Special Servicer May Purchase Certificates; Conflict of
Interest. The Servicer or Special Servicer or an affiliate thereof will be
permitted to purchase any Class of Certificates. It is anticipated that the
Special Servicer or an affiliate of the Special Servicer will purchase all or
a majority of the Class B-7 Certificates. However, there can be no assurance
that the Special Servicer or an affiliate of the Special Servicer will
purchase such Certificates. Following any such purchase of Certificates, the
Servicer or Special Servicer will have rights as a holder of Certificates,
including certain Voting Rights, which are in addition to such entity's
rights as Servicer or Special Servicer under the Pooling and Servicing
Agreement. Consequently, any purchase of Certificates by the Servicer or
Special Servicer, as the case may be, could cause a conflict between such
entity's duties pursuant to the Pooling and Servicing Agreement and its
interest as a holder of a Certificate, especially to the extent that certain
actions or events have a disproportionate effect on one or more Classes of
Certificates. Following a default on a Mortgage Loan at the maturity thereof
and upon the satisfaction of certain conditions contained in the Pooling and
Servicing Agreement, the Special Servicer may, if directed to do so by the
holders (including Special Servicer or an affiliate thereof) of greater than
50% of the Percentage Interests of the most subordinate Class or Classes of
Certificates then outstanding (which Class will initially be certain of the
Private Certificates) having an aggregate initial Certificate Balance
representing a minimum of 1.0% of the aggregate initial Certificate Balances
of all Classes of Certificates (or if the Certificate Balance of such Class
or Classes has been reduced to less than 40% of the initial Certificate
Balances thereof, the holders of such Class or Classes together with the
holders of the next most subordinate Class), elect to extend such Mortgage
Loan. See "The Pooling and Servicing Agreement -- Realization Upon Mortgage
Loans -- Defaulted Balloon Payments; Foreclosure Proceedings; Action of
Directing Holders." In addition to the foregoing, the holders of greater than
50% of the Percentage Interests of the most subordinate Class of Certificates
then outstanding (initially certain of the Private Certificates) will be
entitled, at their option, to remove the Special Servicer with or without
cause, and appoint a successor Special Servicer, provided that each Rating
Agency confirms in writing that such removal and appointment, in and of
itself, would not cause a downgrade, qualification or withdrawal of the then
current ratings assigned to any Class of Certificates. The Pooling and
Servicing Agreement provides that the Mortgage Loans shall be administered in
accordance with the servicing standard set forth therein without regard to
ownership of any Certificate by the Servicer, Special Servicer, or any
affiliate thereof. See also "The Pooling and Servicing Agreement --
Amendment" herein.
Consents. Under certain circumstances, the consent or approval of the
holders of a specified percentage of the aggregate Certificate Balance of the
outstanding Certificates will be required to direct, and will be sufficient
to bind all Certificateholders to, certain actions, including amending the
Pooling and Servicing Agreement in certain circumstances. See "The Pooling
and Servicing Agreement -- Amendment" herein.
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<PAGE>
Book-Entry Registration. Each Class of Offered Certificates will be
initially represented by one or more certificates registered in the name of
Cede & Co., as the nominee for DTC, and will not be registered in the names
of the related holders of Certificates or their nominees. As a result,
holders of Offered Certificates will not be recognized as
"Certificateholders" for certain purposes. Hence, those beneficial owners
will be able to exercise the rights of holders of Certificates only
indirectly through DTC, Centrale de Livraison de Valeurs Mobiliers S.A.
("CEDEL") or The Euroclear System ("Euroclear") and their participating
organizations. A beneficial owner holding a certificate through the
book-entry system will be entitled to receive the reports described under
"The Pooling and Servicing Agreement-Reports to Certificateholders; Available
Information" herein and notices only through the facilities of DTC, CEDEL and
Euroclear and their respective participants or from the Trustee (if the
Depositor has provided the name of such beneficial owner to the Certificate
Registrar). For additional information on the book-entry system, see
"Description of the Offered Certificates -- Delivery, Form and Denomination"
and "--Book-Entry Registration" herein and "Description of the Certificates
- -- Book-Entry Registration and Definitive Certificates" in the Prospectus.
Beneficial owners can also receive copies of information made available on
the monthly reports to Certificateholders via facsimile through LaSalle
National Bank's ASAP System by calling (312) 904-2200, and requesting
statement number 289.
Limited Liquidity and Market Value. There is currently no secondary market
for the Offered Certificates. While the Underwriter has advised that it
currently intends to make a secondary market in the Offered Certificates, it
is under no obligation to do so. Accordingly, there can be no assurance that
a secondary market for the Offered Certificates will develop. Moreover, if a
secondary market does develop, there can be no assurance that it will provide
holders of Offered Certificates with liquidity of investment or that it will
continue for the life of the Offered Certificates. The Offered Certificates
will not be listed on any securities exchange. Lack of liquidity could result
in a precipitous drop in the market value of the Offered Certificates. In
addition, market value of the Offered Certificates at any time may be
affected by many factors, including then prevailing interest rates, and no
representation is made by any person or entity as to the market value of any
Offered Certificate at any time.
Pass-Through Rate Considerations. The Pass-Through Rates on the Class
A-CS1, Class PS-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and
Class A-7 Certificates are based on the Weighted Average Net Mortgage
Pass-Through Rates of the Mortgage Loans. Because certain Mortgage Loans will
amortize their principal more quickly than others, such rate will fluctuate
over the lives of the Class A-CS1, Class PS-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6 and Class A-7 Certificates. The weighted average of
the Net Mortgage Pass-Through Rates for each Distribution Date, assuming that
each Mortgage Loan with an Anticipated Repayment Date prepays on such date
and that each other Mortgage Loan does not prepay, is set forth in Annex C
hereto. See "Prepayment and Yield Considerations -- Yield" herein.
Certain Risks Associated with the Class A-8Z Certificates and Class B-3SC
Certificates. The Comsat Junior Loan is the sole source of distributions on
the Class A-8Z Certificates. The Comsat Junior Loan is subordinated in all
respects to the Comsat Senior Loan. No foreclosure or other exercise of
remedies will be undertaken in the event of a default under the Comsat Junior
Loan unless the Comsat Senior Loan is also in default, and the holders of the
Class A-8Z Certificates will have no vote with respect to extension of, or
otherwise with respect to, the Comsat Senior Loan or any other Mortgage Loan.
The Saul Centers Retail Pool Loan is the sole source of distributions on
the Class B-3SC Certificates, and the Class B-3SC Certificates are only
entitled to receive such distributions on any Distribution Date to the extent
that payments in respect of such Mortgage Loan exceed the applicable Senior
SC Distribution Amount on such date. No foreclosure or other exercise of
remedies will be undertaken in the event of a default in the payment of any
amount with respect to the SC Junior Portion of the Saul Centers Retail Pool
Loan, to which the Class B-3SC Certificates correspond, unless there has also
been a default in the payment of amounts in respect of the SC Senior Portion
of such Mortgage Loan. The Class B-3SC Certificates will have no vote with
respect to extension of, or otherwise with respect to, the Saul Centers
Retail Pool Loan or any other Mortgage Loan.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 156 fixed-rate mortgage loans, which
will include a participation interest in a fixed-rate mortgage loan (the
"Mortgage Loans") secured by first liens on 219 multifamily and commercial
properties (the "Mortgaged Properties") and a first and second lien on 1
Mortgaged Property. The Mortgage Pool (excluding the Comsat Junior Loan and
the SC Junior Portion) has an aggregate principal balance as of the Cut-off
Date of approximately $1,754,015,636 (the "Initial Pool Balance"), subject to
a variance of plus or minus 5%. The Comsat Junior Loan and the SC Junior
Portion of the Saul Centers Retail Pool Loan have principal balances as of
the Cut-off Date of $5,740,919 and $26,000,000, respectively. "Mortgage Loan"
with respect to a participation means the related percentage interest in the
underlying mortgage loan. All numerical information provided herein with
respect to the Mortgage Loans is provided on an approximate basis. All
percentages of the Mortgage Pool, or of any specified sub-group thereof,
referred to herein without further description are approximate percentages by
aggregate Cut-off Date Principal Balance. Descriptions of the terms and
provisions of the Mortgage Loans are generalized descriptions of the terms
and provisions of the Mortgage Loans in the aggregate. Many of the individual
Mortgage Loans have specific terms and provisions that deviate from the
general description.
Each Mortgage Loan is evidenced by one or more promissory notes (each, a
"Note") and secured by one or more mortgages, deeds of trust or other similar
security instruments (a "Mortgage"). Each of the Mortgages create a first
lien (or, in the case of one Mortgaged Property as to which the first lien is
in the Trust Fund, a second lien) on the interests of the related borrower in
the related Mortgaged Property, as set forth on the following table:
SECURITY FOR THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF NUMBER OF
INITIAL POOL MORTGAGED
INTEREST OF BORROWER ENCUMBERED BALANCE (1) PROPERTIES
- ------------------------------- ----------- ----------
<S> <C> <C>
Fee Simple Estate (2) ......... 91% 213
Leasehold (3) ................. 9% 7
--- ---
TOTAL ......................... 100% 220
</TABLE>
- ------------
(1) Based on the Allocated Loan Amount of the related Mortgaged Property.
(2) For any Mortgaged Property where the ground lessee and ground lessor
are both parties to the Mortgage, the Mortgaged Property was
categorized as a Fee Simple Estate.
(3) Includes any Mortgaged Property where a material portion of such
property is subject to a ground lease and the ground lessor is not a
party to the Mortgage.
Each Mortgaged Property consists of land improved by (i) a retail property
(a "Retail Property," and any Mortgage Loan secured thereby, a "Retail
Loan"), (ii) an office building (an "Office Property," and any Mortgage Loan
secured thereby, an "Office Loan"), (iii) a full or limited service or
extended stay hotel property (a "Hotel Property," and any Mortgage Loan
secured thereby, a "Hotel Loan"), (iv) an apartment building or complex
consisting of five or more rental units (a "Multifamily Property," and any
Mortgage Loan secured thereby, a "Multifamily Loan"), (v) a hospital, a
nursing home or a congregate care facility (each, a "Healthcare Property,"
and any Mortgage Loan secured thereby, a "Healthcare Loan"), (vi) an
industrial property (an "Industrial Property," and any Mortgage Loan secured
thereby, an "Industrial Loan"), or (vii) a mobile home community (a "Mobile
Home Property," and any Mortgage Loan secured thereby, a "Mobile Home Loan").
Certain statistical information relating to the various types of Mortgaged
Properties is set forth under "--Additional Mortgage Information -- Cut-off
Date Loan Amount by Property Type" herein.
15 of the Mortgage Loans are secured by two or more Mortgaged Properties,
either pursuant to cross-collateralization with other Mortgage Loans in the
Mortgage Pool or pursuant to a single Note by a single borrower secured by
multiple Mortgaged Properties, or both. One Loan is secured by a first and
second lien, on the same Mortgaged Property. See "Risk Factors and Other
Special Considerations -- Cut-off Date Balances and Concentration of Mortgage
Loans" and "--Mortgage Loans Secured by More than One Mortgaged Property"
herein.
None of the Mortgage Loans are insured or guaranteed by the United States,
any governmental agency or instrumentality, any private mortgage insurer or
by the Depositor, the Mortgage Loan Seller, the Originators, the Servicer,
the Special Servicer, the Trustee or the Fiscal Agent or any of their
respective affiliates. All of the Mortgage Loans are non-recourse loans so
that, in the event of a borrower default on any Mortgage Loan, recourse may
generally be had only against the specific Mortgaged Property or Mortgaged
Properties securing such Mortgage Loan and such limited other
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<PAGE>
assets as have been pledged to secure such Mortgage Loan, and not against the
borrower's other assets. However, generally, the Mortgage Loans may become
recourse upon the occurrence of certain events of default under the Mortgage
Loans, including, in most cases, the transfer or voluntary encumbrance of the
Mortgaged Property without the consent of the mortgagee.
The Mortgage Loans were generally underwritten in accordance with the
underwriting criteria described under "The Mortgage Loan Program --
Underwriting Standards." The Depositor will purchase the Mortgage Loans to be
included in the Mortgage Pool on or before the Closing Date from the Mortgage
Loan Seller pursuant to a Mortgage Loan Purchase and Sale Agreement (the
"Mortgage Loan Purchase and Sale Agreement") to be dated as of the Cut-off
Date between the Mortgage Loan Seller and the Depositor. The Mortgage Loan
Seller will be obligated under the Mortgage Loan Purchase and Sale Agreement
to repurchase a Mortgage Loan in the event of a breach of a representation or
warranty of the Mortgage Loan Seller with respect to such Mortgage Loan as
described under "The Pooling and Servicing Agreement -- Representations and
Warranties -- Repurchase" herein. The Depositor will assign the Mortgage
Loans in the Mortgage Pool, together with the Depositor's rights and remedies
against the Mortgage Loan Seller in respect of breaches of representations or
warranties regarding the Mortgage Loans, to LaSalle National Bank, as
Trustee, for the benefit of the Certificateholders, pursuant to the Pooling
and Servicing Agreement. AMRESCO Services, L.P., in its capacity as Servicer,
will service the Mortgage Loans pursuant to the Pooling and Servicing
Agreement. The Depositor will make no representations or warranties with
respect to the Mortgage Loans and will have no obligation to repurchase or
substitute for Mortgage Loans with deficient documentation or which are
otherwise defective. The Mortgage Loan Seller, as seller of the Mortgage
Loans to the Depositor, is selling such Mortgage Loans without recourse, and,
accordingly, in such capacity, will have no obligations with respect to the
Certificates other than pursuant to the limited representations, warranties
and covenants made by it to the Depositor and assigned by the Depositor to
the Trustee for the benefit of the Certificateholders. See "The Pooling and
Servicing Agreement -- Assignment of the Mortgage Loans" herein and
"Description of the Agreements -- Representations and Warranties;
Repurchases" in the Prospectus.
The Mortgage Loan Seller or an affiliate has acquired a preferred equity
interest in 9 borrowers or groups of borrowers, which are the borrowers with
respect to Mortgage Loans representing approximately 9% of the Initial Pool
Balance and has committed to fund preferred equity on 1 additional loan
representing approximately 1% of the Initial Pool Balance. The Mortgage Loan
Seller or an affiliate also has equity interests in 4 borrowers representing
approximately 11% of the Initial Pool Balance. See "Risk Factors and Other
Special Considerations -- The Mortgage Loans -- Preferred Equity Investments
by the Mortgage Loan Seller and/or its Affiliates," "--Other Equity
Investments by the Mortgage Loan Seller and/or its Affiliates" and
"--Conflicts of Interest" herein.
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is generally non-recourse and is secured by one or more
Mortgages encumbering the related borrower's interest in the applicable
Mortgaged Property or Properties. Each Mortgage Loan is also secured by an
assignment of the related borrower's interest in the leases, rents, issues
and profits of the related Mortgaged Properties. In certain instances,
additional collateral exists in the nature of partial indemnities or
guaranties, or the establishment and pledge of one or more reserve or escrow
accounts for, among other things, necessary repairs, replacements and
environmental remediation, real estate taxes and insurance premiums, deferred
maintenance and/or scheduled capital improvements, re-leasing reserves and
seasonal working capital reserves (such accounts, "Reserve Accounts").
Certain Credit Lease Loans have the benefit of Lease Enhancement Policies.
The Mortgage Loans generally provide for the indemnification of the mortgagee
by the borrower for the presence of any hazardous substances affecting the
Mortgaged Property. Each Mortgage constitutes a first lien on a Mortgaged
Property, subject generally only to (i) liens for real estate and other taxes
and special assessments not yet due and payable, (ii) covenants, conditions,
restrictions, rights of way, easements and other encumbrances whether or not
of public record as of the date of recording of the related Mortgage, such
exceptions having been acceptable to the Mortgage Loan Seller in connection
with the purchase or origination of the related Mortgage Loan, and (iii) such
other exceptions and encumbrances on Mortgaged Properties as are reflected in
the related title insurance policies. See "Description of the Mortgage Pool
- -- Certain Terms and Conditions of the Mortgage Loans -- Escrows", herein.
THE MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS
Each Mortgage Loan was originated by the Mortgage Loan Seller, Bloomfield,
Bostonia or CSFB, as set forth above under "Summary of Prospectus Supplement
- -- Originators", and is generally consistent with the underwriting standards
applied by the Mortgage Loan Seller in connection with the purchase or
origination of each of the Mortgage Loans.
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<PAGE>
The Mortgage Loan Seller purchased the Mortgage Loans that it did not
originate pursuant to a purchase and sale agreement with Bloomfield during a
period commencing on January 3, 1997 and ending on the Cut-off Date and
acquired the Mortgage Loans originated by Bostonia and CSFB shortly prior to
the Closing Date.
The Mortgage Loan Seller's underwriting process involves calculations of
Net Cash Flow reflecting certain adjustments. This Net Cash Flow calculation
is used to determine DSCR. "Net Cash Flow" with respect to a given Mortgage
Loan or Mortgaged Property means cash flow available for debt service, as
determined by the Mortgage Loan Seller based upon borrower supplied
information for a recent period that is generally the twelve months prior to
the origination of such Mortgage Loan, adjusted for stabilization. Net Cash
Flow does not reflect debt service, subordinated ground rent, or non-cash
items such as depreciation or amortization, and does not reflect actual
capital expenditures, and may have been adjusted by, among other things, (i)
in the case of the Multifamily Properties and Mobile Home Properties, rental
revenue shown on a recent rent roll was annualized before applying a vacancy
factor without further regard to the terms (including expiration dates) of
the leases shown thereon, (ii) in the case of certain Office Properties,
Industrial Properties and Retail Properties, determining current revenues
from leases in place, (iii) assuming the occupancy rate for the Mortgaged
Property or pool of Mortgaged Properties was less than the actual occupancy
rate, including in the case of certain of the Hotel Properties, to adjust an
above-market occupancy rate or to reflect new construction in the market,
(iv) in the case of the Retail Properties, excluding certain percentage rent,
(v) excluding certain non-recurring income and/or expenses, (vi) assuming
that a management fee of 3% to 5% of revenue and a franchise fee of 3.5% to
6% of room revenue (for Hotel Properties only) was payable with respect to
the Mortgaged Property, (vii) to take into account new tax assessments and
utility savings from the installation of new energy efficient equipment,
(viii) in certain cases, assuming that operating and/or capital expenses with
respect to the Mortgaged Property were greater than actual expenses, (ix)
subtracting from net operating income replacement or capital expenditure
reserves and (x) in the case of the Retail Properties and Office Properties,
(other than such properties securing a Credit Lease Loan) subtracting from
net operating income an assumed allowance for tenant improvements, leasing
commissions and free rent and (xi) in the case of the Credit Lease Loans,
assuming the Net Cash Flow is equal to the rental obligations of the tenants
under the Credit Leases for the time of the Credit Lease Loan.
"Net Cash Flow" reflects the calculations and adjustments used by the
Mortgage Loan Seller for its underwriting process and may or may not reflect
the amounts calculated and adjusted by the Rating Agencies for their own
analysis. In addition, "Net Cash Flow" and the DSCRs derived therefrom are
not a substitute for cash flow as determined in accordance with generally
accepted accounting principles as a measure of the results of the property's
operations or a substitute for cash flows from operating activities
determined in accordance with generally accepted accounting principles as a
measure of liquidity.
Reletting costs and capital expenditures are crucial to the operation of
commercial and multifamily properties. Each investor should make its own
assessment of the level of reletting costs and capital expenditures of the
Mortgaged Properties, and the consequent effect of such costs and
expenditures on the actual net operating income, Net Cash Flow and debt
service coverage ratios of the Mortgage Loans.
If and when the words "expects," "intends," "anticipates," "estimates,"
and analogous expressions are used herein, such statements are subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, among
others, general economic and business conditions, competition, changes in
political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, and various other events,
conditions and circumstances, many of which are beyond the control of the
Depositor and the Underwriter, the Trustee, the Fiscal Agent, the Servicer,
the Special Servicer and the Originators. Any forward-looking statements
speak only as of their date. The Depositor expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in events,
conditions or circumstances on which any such statement is based.
No representation is made as to the future net cash flow of the
properties, nor is "Net Cash Flow" set forth in this Prospectus intended to
represent such future net cash flow.
In underwriting each Mortgage Loan in connection with the origination or
acquisition thereof, income information provided by the related borrower was
examined by the Mortgage Loan Seller. In addition, the operating history of
the property, industry data regarding the local real estate market and the
appraiser's analysis were reviewed and, if conditions warranted, net
operating income with respect to the related Mortgaged Property was adjusted
for purposes of determining whether the Mortgaged Property satisfied the debt
service coverage ratio required by the Mortgage Loan Seller's
S-57
<PAGE>
underwriting guidelines. In accordance with the underwriting guidelines, net
operating income of any Mortgaged Property may have been adjusted by, among
other things, the adjustments listed in the definition of "Net Cash Flow"
described under "--Additional Loan Information." In connection with the
underwriting, net operating income was based upon information provided by the
borrower and neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the accuracy of such information; provided, however,
that, with respect to certain of the Mortgage Loans, the Mortgage Loan Seller
or the borrower engaged independent accountants to review or perform certain
procedures to verify such information.
Each Originator was required to cause each Mortgaged Property to be
inspected to determine whether it was in acceptable physical condition. The
inspection included a review of ongoing maintenance programs, common area
upkeep, mechanical systems and grounds maintenance. In addition, an
engineering study and an environmental review were prepared by appropriate
consultants. With respect to environmental matters, a Phase I environmental
assessment (and, where appropriate, a Phase II environmental assessment) was
conducted for each Mortgaged Property. A credit investigation was completed
for all prospective borrowers, in connection with which a credit report
generally not more than 30 days old as of the date of the loan application
and current financial statements were obtained. The borrowers with respect to
17 of the Mortgage Loans representing, in the aggregate, 42% of the Initial
Pool Balance, provided audited financial statements, agreed upon procedures
or statements certified by an independent accountant. The cash flow and NOI
information presented in Annex B may not correspond to the comparable
information included in the accountants' reports because of adjustments made
by the Mortgage Loan Seller as part of its underwriting procedures.
CREDIT LEASE LOANS
10% of the Mortgage Loans, based on Initial Pool Balance, are backed by
net lease obligations (a "Credit Lease") of a tenant (each, a "Tenant",
collectively, the "Tenants"), or net lease obligations guaranteed by an
entity (each, a "Guarantor", collectively, the "Guarantors") that is rated or
internally classified "BB-" (or the equivalent) or higher by one or more of
the Rating Agencies (each, a "Credit Lease Loan", collectively, the "Credit
Lease Loans"). Scheduled monthly payments ("Monthly Rental Payments") under
the Credit Lease Loans are sufficient to pay in full and on a timely basis,
all interest and principal and other sums scheduled to be paid with respect
to the related Credit Lease Loan.
<TABLE>
<CAPTION>
CUT-OFF DATE TENANT/LEASE
LOAN PRINCIPAL TENANT/LEASE GUARANTOR
NO. PROPERTY NAME BALANCE GUARANTOR RATING (1) LEASE TYPE
--- ------------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
36 Cablevision Net Lease(2) $11,437,915 Cablevision Systems Corp. BB+(S&P) Triple Net
80 Circuit City--CA $ 4,238,872 Circuit City Stores, Inc. NAIC2 Bondable
71 Circuit City--MI $ 4,913,238 Circuit City Stores, Inc. NAIC2 Bondable
81 Circuit City--PA $ 4,238,872 Circuit City Stores, Inc. NAIC2 Bondable
66 Circuit City--TN $ 5,587,604 Circuit City Stores, Inc. NAIC2 Bondable
10 Comsat $47,662,933(3) Comsat Corporation A-(S&P) Triple Net (4)
43 Builders Square--Daytona $ 9,630,924 Kmart Corporation BB-(S&P) Triple Net
48 Builders Square--El Paso $ 8,638,513 Kmart Corporation BB-(S&P) Triple Net
54 Builders Square--Midland $ 7,654,927 Kmart Corporation BB-(S&P) Triple Net
51 Builders Square--San Antonio $ 8,393,222 Kmart Corporation BB-(S&P) Triple Net
38 Super Kmart--San Antonio $11,126,629 Kmart Corporation BB-(S&P) Triple Net
44 Builders Square--New Jersey $ 9,410,131 Kmart Corporation BB-(S&P) Triple Net (5)
26 Value City--2560 Valueway $16,291,287 Value City Department Stores, Inc. NAIC1 Bondable
146 Value City--3140 Westerville $ 1,184,944 Value City Department Stores, Inc. NAIC1 Bondable
127 Value City--Alliance $ 2,389,429 Value City Department Stores, Inc. NAIC1 Bondable
49 Value City--Bay Rd. $ 8,545,353 Value City Department Stores, Inc. NAIC1 Bondable
68 Value City--Carol Stream $ 5,460,858 Value City Department Stores, Inc. NAIC1 Bondable
117 Value City--Euclid $ 2,706,277 Value City Department Stores, Inc. NAIC1 Bondable
87 Value City--Gurnee $ 4,055,107 Value City Department Stores, Inc. NAIC1 Bondable
95 Value City--Indianapolis $ 3,746,136 Value City Department Stores, Inc. NAIC1 Bondable
</TABLE>
- ------------
(1) National Association of Insurance Commissioners ("NAIC") Rating or
long-term credit rating by S&P.
(2) The related Borrower has obtained a Lease Enhancement Insurance
Policy to cover the occurrence of certain rent abatement or
termination rights of the Tenant.
(3) The Cut-off Date Principal Balance of the Comsat Loan is $47,662,933;
only $41,922,013 (the "Comsat Senior Loan") of that amount is secured
by the Comsat Credit Leases.
(4) The Comsat Master Lease and the Comsat Facilities Lease (the "Comsat
Leases") are Triple Net Leases; under each, the tenant has the right
to terminate (i) in the last two years of the lease in the event of a
casualty, but such risk is covered by a business interruption
insurance policy; and (ii) in the event of a condemnation, but such
risk is covered by a lease enhancement policy.
(5) With respect to the Kmart Loan known as Builders Square -- New
Jersey, the related borrower/landlord has an ongoing maintenance
obligation to maintain a sewer system and has put up reserves to
cover such obligation.
S-58
<PAGE>
All of the Credit Leases in the Mortgage Pool, with the exception of the
Credit Lease having Cablevision as the Tenant (the "Cablevision Lease"), the
Credit Leases having Comsat as the Tenant (the "Comsat Leases") and the
Credit Leases having Kmart or Builder Square as the Tenant (the "Kmart
Leases"), are "Bondable" leases, meaning generally that the related Tenant
has no rights to terminate or abate rent due under the Credit Lease,
including by reason of the occurrence of certain casualty and condemnation
events or the failure of the related Mortgagor, as lessor, to perform
required maintenance, repairs or replacements, other than termination by the
Tenant in connection with certain condemnation events so long as the notice
of termination is accompanied by an offer to purchase the related Mortgaged
Property for not less than the outstanding principal balance of the Mortgage
Loan plus accrued interest. Certain of the Credit Leases, however, provide
that the Tenant thereunder may terminate its Credit Lease and/or abate rent
in the event of an environmental condition which existed prior to the
commencement of the Credit Lease or which is not caused by the Tenant. In all
such cases an environmental report was prepared in connection with the
origination of the Credit Lease which indicated no significant environmental
condition.
The Tenants under the Cablevision Lease, the Comsat Leases and the Kmart
Leases have the right to terminate and/or abate rent if certain casualty or
condemnation events occur. With respect to such termination and abatement
rights, the related Mortgagor has obtained an insurance policy (an
"Enhancement Policy") which will make payments to the Servicer on behalf of
the Trustee in certain cases where such Credit Lease Property has been
subjected to property damage on account of a casualty or condemnation event
such that the Tenant is permitted to terminate the Credit Lease or abate rent
thereunder. The insurers issuing the Enhancement Policies for the the
Cablevision Lease, the Kmart Leases and the Comsat Leases are rated "AAA" by
S&P. The full premium relating to each of the Enhancement Policies was fully
paid at the time of issuance of such policy, and such policy is
non-cancelable. The Trustee is a named insured of such Enhancement Policies.
The Enhancement Policies with respect to the Kmart Leases and the Comsat
Leases cover (i) in the event of lease termination, the principal balance of
the Mortgage Loan, (ii) in the event of rent abatement, all abated rent, and
(iii) accrued interest on the Mortgage Loan, subject to a limit of 75 days
(measured from the date of abatement or termination). The Enhancement Policy
for the Cablevision Lease covers all lost rent due to Credit Lease
termination or rent abatement, subject to a right to pay such amount in a
lump sum with a maximum amount equal to the principal balance of this
Mortgage Loan plus accrued interest through the date of payment. The
Enhancement Policies do not cover any Prepayment Premium or yield maintenance
charge due under the related Credit Lease Loan or any amounts the Mortgagor
is obligated to pay thereunder to reimburse the Servicer or the Trustee for
outstanding Property Advances. The Enhancement Policies may also contain
certain exclusions to coverage, including loss arising from damage or
destruction directly or indirectly caused by war, insurrection, rebellion,
revolution, usurped power, pollutants or radioactive matter, or from a taking
(other than by condemnation).
Each Credit Lease has a primary lease term (the "Primary Term") that
expires on or after the scheduled final maturity date of the related Credit
Lease Loan. The Credit Lease Loans are scheduled to be fully repaid from any
payment of rent under the related Credit Lease by or on behalf of the Tenant
with respect to any Mortgaged Property secured by a Credit Lease (the
"Monthly Rental Payments") made over the Primary Term of the related Credit
Lease. Certain of the Credit Leases give the Tenant the right to extend the
term of the Credit Lease by one or more renewal periods after the end of the
Primary Term, but such an extension will not result in an extension on the
related Mortgage Loan. Each borrower under a Credit Lease Loan is a
single-purpose, bankruptcy-remote entity.
Generally, each Credit Lease Loan provides that if the Tenant defaults
beyond applicable notice and grace periods in the performance of any covenant
or agreement of such Credit Lease (a "Credit Lease Default"), then the
Servicer or Special Servicer on behalf of the Trust may exercise rights under
the related Credit Lease Assignment to require the Mortgagor either (i) to
terminate such Credit Lease or (ii) not to terminate such Credit Lease and
exercise any of its rights thereunder. A default under a Credit Lease will
constitute a default under the related Credit Lease Loan.
Pursuant to the terms of each Credit Lease Assignment, the related
Mortgagor has assigned to the mortgagee of the related Credit Lease Loan, as
security for such Mortgagor's obligations thereunder, such Mortgagor's rights
under the Credit Leases and its rights to all income and profits to be
derived from the operation and leasing of the related Credit Lease Property,
including, but not limited to, an assignment of any guarantee of the Tenant's
obligations under the Credit Lease and an assignment of the right to receive
all Monthly Rental Payments due under the Credit Leases. Pursuant to the
terms of the Credit Lease Assignments, each Tenant is obligated under the
Credit Leases to make all Monthly Rental Payments directly to the Servicer.
Repayment of the Credit Lease Loans and other obligations of the Mortgagors
will be funded from such Monthly Rental Payments. Notwithstanding the
foregoing, the Mortgagors will remain liable for all obligations under the
Credit Lease Loans (subject to the non-recourse provisions thereof).
S-59
<PAGE>
Each Credit Lease generally provides that the related Tenant must pay all
real property taxes and assessments levied or assessed against the related
Credit Lease Property, and all charges for utility services, insurance and
other operating expenses incurred in connection with the operation of the
related Credit Lease Property (except, in the case of one of the Kmart
Mortgage Loans, in which the related borrower has obligations to maintain a
sewer, for which a reserve has been established under the related loan
documents). While each Credit Lease requires the Tenant to fulfill its
payment and maintenance obligations during the term of the Credit Lease, in
some cases the Tenant has not covenanted to operate the related Credit Lease
Property for the term of the Credit Lease, and the Tenant may at any time
cease actual operations at the Credit Lease Property, but it remains
obligated to continue to meet all of its obligations under the Credit Lease.
Several of the Credit Leases permit the Tenant, at its own expense, and
generally with the consent of the Mortgagor, to make such alterations and
construct additional buildings or improvements on the Credit Lease Property
as the Tenant may deem necessary or desirable, and the Tenant may demolish
any part of a building, provided that the Tenant restores the building to a
structure whose value is equal to or greater than that of the original
building. Such actions, if undertaken by the Tenant, will not affect the
Tenant's obligations under the Credit Lease.
At the end of the term of the Credit Lease, the Tenants are generally
obligated to surrender the Credit Lease Property in good order and in its
original condition received by the Tenant, except for ordinary wear and tear
and repairs required to be performed by the Mortgagor.
SIGNIFICANT MORTGAGE LOANS
In connection with the origination of each of the Mortgage Loans listed
below (other than the Dayton Mall Loan and the Comsat Loan), the Mortgage
Loan Seller, in addition to its ordinary underwriting procedures, obtained
audited financials or agreed upon procedures for a recent 12 months period
with respect to the related Mortgaged Properties and obtained market rental
analysis for the Office Properties.
The Saul Centers Retail Pool Loan and Properties
The Loan. The largest Mortgage Loan in the Mortgage Pool is the Mortgage
Loan secured by the Mortgaged Properties known as the Saul Centers Retail
Pool Properties (the "Saul Centers Retail Pool Loan"). Such loan had an
original principal balance and a Cut-off Date principal balance of
$147,000,000. Such loan is secured by nine fee mortgages (the "Saul Centers
Mortgages") encumbering nine retail properties located in Maryland, North
Carolina and Virginia. All of the Saul Centers Mortgages are
cross-collateralized and cross-defaulted. The Saul Centers Retail Pool Loan
was originated by the Mortgage Loan Seller on October 1, 1997. The Saul
Centers Retail Pool Loan will require payments as described in the following
paragraphs. After the Anticipated Repayment Date, the Saul Centers Senior
Loan will amortize as described under "Description of the Mortgage Pool --
Certain Terms and Conditions of the Mortgage Loans -- Excess Interest."
Additional payment and prepayment terms for the Saul Centers Retail Pool Loan
are set forth on Annex A and described under "Description of the Mortgage
Pool -- Certain Terms and Conditions of the Mortgage Loans -- Property
Releases" herein.
For purposes of calculating amounts available for distributions on the
Certificates and otherwise under the Pooling and Servicing Agreement, the
Saul Centers Retail Pool Loan will be considered effectively as two separate
loans, a senior loan with a Cut-off Date Principal Balance of $121,000,000
(the "SC Senior Portion"), which represents 7% of the Initial Pool Balance
and a junior loan with a Cut-off Date Principal Balance of $26,000,000 (the
"SC Junior Portion"). Interest will accrue on the SC Senior Portion at an
effective fixed rate equal to 8.640227% per annum. No interest will accrue on
the SC Junior Portion. The SC Senior Portion has an Anticipated Repayment
Date of October 11, 2012 and a maturity date of October 11, 2027. The SC
Junior Portion is scheduled to be paid in full on May 11, 2011. The Class
B-3SC Certificates represent an interest in the Trust Fund corresponding to
the SC Junior Portion, and will likewise pay in full on the Distribution Date
in May 2011, to the extent of Class B-3SC Available Funds on such
Distribution Date. See "Description of the Offered
Certificates--Distributions" herein.
Under the SC Senior Portion, the Saul Centers Borrower is scheduled to
make monthly payments of $942,436.78 until April 11, 2011, a payment of
$1,052,932.45 on May 11, 2011, and payments of $1,102,623.87 from June 11,
2011 until the SC Senior Portion is paid in full. The Servicer will not,
however, call an event of default under the SC Senior Portion provided the
Saul Centers Borrower makes a payment of $942,436.78 each month under the SC
Senior Portion. The Servicer will, however, be permitted to capture excess
cash flow under such loan, in the event the Saul Centers Borrower fails to
pay the increased monthly payments. The Anticipated Repayment Date of the
Saul Centers Loan is October 11,
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<PAGE>
2012 (which is 17 months after the date the SC Junior Portion is scheduled to
be paid in full). As of the Anticipated Repayment Date, the principal balance
of the Saul Centers Loan will be approximately $96,300,160.
With respect to the SC Junior Portion, the Saul Centers Borrower is
scheduled to make monthly payments of $160,187.09 until April 11, 2011. On
the payment date in May 2011, the Saul Centers Borrower is scheduled to make
a final payment of $49,691.42, which represents payment in full of the SC
Junior Portion. The SC Junior Portion is the sole source of distributions on
the Class B-3SC Certificates, and the Class B-3SC Certificates will be
entitled on any Distribution Date solely to payments received on the Saul
Centers Retail Pool Loan to the extent remaining after distribution of the
Senior SC Distribution Amount on such Distribution Date. The Class B-3SC
Certificates will have no voting rights with respect to the extension of, or
otherwise with respect to, the Saul Centers Retail Pool Loan or any other
Mortgage Loan.
The Saul Centers Loan was made to Saul Subsidiary I Limited Partnership
(the "Saul Centers Borrower"), a single bankruptcy remote, special purpose
entity controlled by Saul Centers, Inc., a self-managed and self-administered
public REIT that is publicly traded on the New York Stock Exchange. The sole
general partner of the Saul Centers Borrower is Saul QRS, Inc., a special
purpose corporation that is wholly owned by Saul Centers Inc. Saul QRS, Inc.
has an independent director whose vote is required to approve any voluntary
bankruptcy filing or any dissolution of the Saul Centers Borrower. Saul
Centers, Inc. and its predecessor affiliates and through its partnerships has
owned and managed the Saul Centers Pool Properties since 1972-1974 and has
significantly renovated or redeveloped most of the properties. Saul Centers,
Inc., through its partnerships, owns and manages 33 commercial properties
totaling approximately 5.8 million square feet of gross leaseable area
("GLA"), 80% of which is located in the Washington, D.C. and Baltimore,
Maryland markets. See "Description of the Mortgage Pool -- Certain Terms and
Conditions of the Mortgage Loans -- Mortgage Provisions Relating to
Servicer's Right to Termination of Management Agreement" herein.
Lock Box; Reserve Accounts. The Saul Centers Borrower has entered into a
lock box agreement whereby all rent is sent directly by the tenants to a Lock
Box Account controlled by the Servicer. The Saul Centers Borrower has also
established an ongoing tax and insurance reserve account, an ongoing capital
expenditure reserve account, an ongoing leasing reserve account and an
up-front environmental reserve account. See "The Pooling and Servicing
Agreement -- Accounts -- Lock Box Accounts" "Description of the Mortgage Pool
- --Certain Terms and Conditions of the Mortgage Loans -- Escrows" and "Risk
Factors and Other Special Considerations -- The Mortgage Loans --
Environmental Law Considerations" herein. Additionally, the Mortgage Loan
Seller has established for the benefit of the Trust Fund a reserve in the
amount of $10,000,000 intended to cover risks associated with certain
recently signed leases with rated tenants. Such reserves will be released
when such tenants have been in occupancy and paying rent for a period of
three months.
The Properties. The Saul Centers Retail Pool Properties consist of a
mixture of nine neighborhood and community shopping centers, predominately
anchored by grocery tenants, that are located in three different states and
seven different sub-markets.
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<PAGE>
ANCHOR TENANT SALES
<TABLE>
<CAPTION>
ANNUAL SALES PER GLA
----------------------
PROPERTY/ANCHOR GLA 1994 1995 1996
- --------------- --- ---- ---- ----
<S> <C> <C> <C> <C>
THRUWAY SHOPPING CENTER
Stein Mart............. 40,633 $199 $215 $234
Fresh Market, Inc. .... 16,700 $352 $375 $419
Reading China.......... 28,000 $ 39* $156 $149
Eckerd Corporation .... 8,900 $404 $414 $481
SOUTHSIDE PLAZA
Nicks-Comm Pride....... 38,526 $150 $173
CVS Drug............... 12,750 $223 $230 $252
GREAT EASTERN PLAZA
Giant Food............. 55,500 $476 $478 $484
Caldor................. 113,275
SEVEN CORNERS
Home Depot............. 127,208 na na na
Shoppers Food
Warehouse............. 69,227 na na na
Best Buy............... 49,122 na na na
Barnes & Noble......... 33,268 na na na
HAMPSHIRE-LANGLEY S.C.
Safeway................ 40,564 $351 $353 $357
WHITE OAK S.C.
Sears.................. 321,538 $140 $150 $162
Giant Food............. 55,000 $556 $572 $575
GIANT S.C.
Giant Food............. 58,000 $372 $373 $361
BELVEDERE GARDENS S.C.
Giant Food............. 32,402 $297 $294 $280
RAVENWOOD S.C.
Giant Food............. 58,000 $598 $641 $618
</TABLE>
- ------------
* Includes only two months of sales.
na Not Available
Seven Corners Shopping Center. This shopping center, located in a suburb
of Washington, D.C., within seven miles of the White House, was redeveloped
from an enclosed mall into an open air center. The center was completely
redeveloped between 1994 and 1997. The shopping center contains approximately
546,000 GLA, including four detached buildings. The anchor tenants are The
Home Depot (127,208 GLA), Shoppers Food Warehouse (69,227 GLA), Best Buy
(49,122 GLA), Barnes and Noble (33,268 GLA) and Ross Dress For Less (25,736
GLA). Other tenants include Blockbuster Video, GNC, Jenny Craig, Jo-Ann
Fabrics, Starbucks and Payless Shoes. As of August 25, 1997, the shopping
center was 93.5% leased and the appraised value was $62,300,000.
Thruway Shopping Center. This shopping center, located in an affluent
residential area in Winston-Salem, North Carolina, contains two main
buildings and six free standing buildings, with a total of 339,564 GLA. The
shopping center, constructed in 1955 and expanded in 1965, is currently
undergoing a comprehensive facade renovation. The anchor tenants are Stein
Mart (40,633 GLA), Reading China (28,000 GLA) and Harris Teeter (34,395 GLA)
and national tenants include Eckerds Drugs, Houlihan's, Kinko's, Blockbuster
Video, GNC and McDonalds. As of August 27, 1997, the shopping center was 95%
leased and the appraised value was $36,100,000.
White Oak Shopping Center. This shopping center, located in the northern
suburbs of Washington, D.C., is a one-story strip center, containing a total
of 480,156 GLA, including two detached buildings housing a two-story Sears
Department Store and a Sears Automotive Store (together 321,538 GLA). The
shopping center, constructed in 1959, was expanded twice and substantially
renovated in 1993. Sears performed significant interior and exterior
renovation in 1994
S-62
<PAGE>
and 1997. The anchor tenants are Sears and Giant Food Store (55,000 GLA) and
national tenants include Rite Aid Drug Store, Hallmark, Pearl Vision Center,
Radio Shack, Starbucks and Jenny Craig. As of August 25, 1997, the shopping
center was 99% leased and the appraised value was $35,200,000.
Southside Plaza. This shopping center, located in South Richmond,
Virginia, contains a one story U-shaped building, four free standing
buildings and a separate strip center, containing a total of 352,516 GLA. The
anchor tenants are Nick's Supermarket (38,526 GLA), Virginia ARC Thrift
(26,620 GLA) and CVS Drug Store (12,750 GLA). As of August 25, 1997, the
shopping center was 77% leased and the appraised value was $17,700,000.
Great Eastern Plaza. This shopping center, located in the southeast
suburbs of Washington, D.C., is a one-story strip center with three free
standing buildings containing a total of 255,448 GLA. The shopping center was
constructed in 1958 and renovated in 1996. The anchor tenants are Caldor
(113,275 GLA), Giant Food Store (55,500 GLA) and Pep Boys (21,945 GLA).
Caldor, although in bankruptcy, has affirmed this lease. As of August 26,
1997, the shopping center was 89% leased and the appraised value was
$16,000,000.
Hampshire Langley Shopping Center. This shopping center, located in the
northeast suburbs of Washington, D.C., is a one-story strip center with a
free standing building containing a total of 134,425 GLA. The shopping center
was constructed in 1960 and had extensive interior and exterior renovations
completed in 1986. The anchor tenants are Safeway Stores (40,564 GLA) and
McCrory Department Store (18,000 GLA) and national tenants include Radio
Shack and Casual Male. McCrory Department Store, although in bankruptcy, has
a below market rate lease. As of August 26, 1997, the shopping center was
100% leased and the appraised value was $15,600,000.
Ravenwood Shopping Center. This shopping center, located in a northeast
suburb of Baltimore, Maryland, is a strip center with two free standing
buildings containing a total of 87,750 GLA. The shopping center was
constructed in 1959 and exterior renovations were completed in 1995 and 1997.
The anchor tenant, Giant Food Store (58,000 GLA), substantially renovated its
interior in 1994. As of August 27, 1997, the shopping center was 100% leased
and the appraised value was $10,900,000.
Giant Shopping Center. This shopping center, located in a northwest suburb
of Baltimore, Maryland, is a strip center with a free standing bank building
containing a total of 70,040 GLA. The shopping center was constructed in 1959
and exterior renovations were completed in 1995. The anchor tenant, Giant
Food Store, (58,000 GLA), renovated its entire store in 1995. As of August
27, 1997, the shopping center was 100% leased and the appraised value was
$4,000,000.
Belvedere Gardens Shopping Center. This shopping center, located north of
downtown Baltimore, Maryland, is a one-story strip center with a total of
54,941 GLA. The shopping center was constructed in 1958. The anchor tenants
are Giant Food Store (32,400 GLA) and Rite Aid Drug Store (7,945 GLA). As of
August 27, 1997, the shopping center was 100% leased and the appraised value
was $4,600,000.
See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Risks Associated with Commercial and Multifamily Lending Generally" and
"--Retail Properties" herein for a discussion of certain matters associated
with retail properties.
The Three Penn Plaza Loan and Property
The Loan. The second largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Property known as Three Penn Plaza
(the "Three Penn Plaza Loan"). The Three Penn Plaza Loan was originated by
the Mortgage Loan Seller on September 30, 1997. It had an original principal
balance of $110,000,000, and has a Cut-off Date Principal Balance of
$110,000,000, which represents approximately 6% of the Initial Pool Balance.
It is secured by a fee and leasehold mortgage (the "Three Penn Plaza
Mortgage") encumbering a sixteen-story office building located in Newark, New
Jersey (the "Three Penn Plaza Property").
The Three Penn Plaza Loan was made to Hartz Enterprises II Urban Renewal
Associates, L.P. ("Hartz Urban") and Hartz RB II Limited Partnership ("Hartz
RB II") (collectively, the "Three Penn Plaza Borrower"), each a bankruptcy
remote New Jersey limited partnership, the general partner each of which is a
bankruptcy remote corporation with an independent director, the stock of
which is wholly owned by a subsidiary of Hartz Mountain Industries, Inc. The
Three Penn Plaza Property has been leased, in its entirety, by Hartz Urban,
to Hartz RB II. Both Hartz Urban and Hartz RB II are parties to the Three
Penn Plaza Mortgage.
The interest rate on the Three Penn Plaza Loan is 7.704% per annum. The
Mortgage Loan requires Monthly Payments of $890,079 through April 11, 2002,
at which point the Monthly Payments step up to $968,039, which amount is due
each
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<PAGE>
month until April 11, 2007, at which point the Monthly Payments step up to
$1,071,710 which amount shall be due each month until the maturity date of
the Mortgage Loan. The Anticipated Repayment Date is the payment date in the
173rd month, at which time, the principal balance of the Three Penn Plaza
Loan will be $32,998,446. Additional payment and prepayment terms and reserve
requirements for the Three Penn Plaza Loan are as set forth on Annex A
hereto.
Lock Box; Reserve Accounts. The Three Penn Plaza Borrower has established
a Lock Box Account with respect to the Three Penn Plaza Property and is
required to cause Blue Cross (as defined herein) to pay all rents under the
Blue Cross Lease (as defined herein) directly into a Lock Box Account
controlled by the Servicer. The Three Penn Plaza Borrower has also
established reserve accounts, including a rollover reserve and an on-going
capital expenditures reserve account. The rollover reserve will capture
excess cash flow of the Penn Plaza Borrower in the amount of $225,000 per
month during the last five years of the loan (for a total of $13,500,000).
See "The Pooling and Servicing Agreement -- Accounts -- Lock Box Accounts"
and "Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Escrows" herein.
The Property. The Three Penn Plaza Property is a sixteen-story office
building located in Newark, New Jersey that was constructed in 1992 as a
built-to-suit headquarters for Blue Cross and Blue Shield of New Jersey
("Blue Cross"). It contains 781,627 square feet of GLA of which 777,195 GLA
or 99% of the total GLA is office space, occupied by Blue Cross and 4,432 GLA
of which is retail space. Amenities of the building include a complete health
club, a cafeteria and private dining rooms. As of August 1, 1997, the Three
Penn Plaza Property was approximately 100% occupied, and the appraised value
was $140,000,000.
The Net Lease. The lease between the Three Penn Plaza Borrower and Blue
Cross is a long-term triple net lease that expires twenty days after the
Anticipated Repayment Date of the Three Penn Plaza Loan (the "Blue Cross
Lease"), at which time the outstanding principal balance of the Three Penn
Plaza Loan will be $32,998,446, although Blue Cross has the right to renew
for two five-year renewal terms. The Blue Cross Lease requires the Three Penn
Plaza Borrower to make certain structural repairs and provides for the
termination of the lease or abatement of rent by Blue Cross only upon the
occurrence of certain casualty or condemnation events. The Blue Cross Lease
provides for two rent increases during its term and the amortization schedule
for the Three Penn Plaza Loan captures such increase by requiring a
corresponding increase in principal payments due under the Three Penn Plaza
Loan. In addition, Blue Cross has a purchase option under the Blue Cross
Lease between the fifteenth and sixteenth years exercisable at a price which
may not be less than the outstanding principal balance of the Three Penn
Plaza Loan plus yield maintenance. See "Description of the Mortgage Pool --
Credit Lease Loans" for a discussion of net leases. See "Risk Factors and
Other Special Considerations -- The Mortgage Loans -- Risks Associated With
Commercial and Multifamily Lending Generally" and "--Office Properties"
herein for a discussion of certain matters associated with office properties.
The Fath Pool Loan and Properties
The Loan. The third largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Properties known as the Fath Pool
Properties (the "Fath Pool Loan"). The Fath Pool Loan was originated by the
Mortgage Loan Seller on October 8, 1997. It had an original principal balance
and has a Cut-off Date Principal Balance of $86,043,583, which represents
approximately 5% of the Initial Pool Balance. It is secured by fee Mortgages
(the "Fath Pool Mortgages") encumbering seventeen multi-family properties
located in Ohio, Kentucky and Texas (each, a "Fath Pool Property", and,
collectively, the "Fath Pool Properties"). The Fath Pool Mortgages are
cross-collateralized and cross-defaulted.
The Fath Pool Loan was made to Fath Properties Limited Partnership (the
"Fath Borrower"), a special purpose Georgia limited partnership, the general
partner of which is a special purpose bankruptcy remote corporation, the
stock of which is 100% owned by Harry Fath. The majority limited partnership
interest in the Fath Borrower is owned by Fath Family Limited Partnership, an
entity owned by Harry and Linda Fath.
The interest rate on the Fath Pool Loan is 8.00% per annum. The amount of
each Monthly Payment is approximately $631,338 which amount is based on a
360-month amortization schedule. The Anticipated Repayment Date is the
payment date in the 120th month of the loan and the principal balance as of
that date will be approximately $76,939,940. Additional payment and
prepayment terms for the Fath Pool Loan are as set forth on Annex A hereto
and as described under "Certain Terms and Conditions of the Mortgage Loans --
Property Releases."
Lock Box; Reserve Accounts. The Fath Borrower has entered into a lock box
agreement whereby all revenue is required to be deposited upon collection by
the property manager for the Fath Borrower into a Lock Box account
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controlled by the Servicer. The Fath Borrower has also established reserve
accounts, including an on-going tax and insurance reserve account, an
on-going capital expenditure reserve account, an up-front deferred
maintenance reserve account and an up-front environmental reserve account.
See "The Pooling and Servicing Agreement -- Accounts -- Lock Box Accounts"
and "Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Escrows" herein.
The Properties. The Fath Pool Properties consist of seventeen multi-family
properties, totaling 4,029 units. The manager of the Fath Properties is Fath
Management Company, an affiliate of the Fath Borrower. See "Description of
the Mortgage Pool -- Certain Terms and Conditions of the Mortgage Loans --
Mortgage Provisions Relating to Servicer's Right to Termination of Management
Agreement" herein.
<TABLE>
<CAPTION>
PROPERTY NAME/ % OCCUPIED/
CONSTRUCTED/ # OF APPRAISED VALUE
LATEST RENOVATED LOCATION UNITS TYPE OF UNITS AMENITIES (AS OF 8/1/97)
- ---------------- -------- ----- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Aspen Village Cincinnati, Ohio 922 28 buildings--garden clubhouse, fitness center, 90%/
Apartments/ apts. hair salon, convenience $21,200,000
1965/1996 store, 3 swimming pools, 5
tennis courts, 2
recreational areas
The Biltmore Dallas, Texas 584 82 garden and clubhouse, new exercise 88%/
Apartments/ town-house style facility, 3 swimming pools $13,740,000
1973/1996 buildings
Montana Valley Cincinnati, Ohio 319 33 garden-style clubhouse, swimming pool 98%/
Apartments/ buildings $11,000,000
1968/1995-96
Lake of Woods Mt. Healthy, Ohio 263 19 garden and 2 swimming pools, 99%/
Apartments/ town-house style recreation area $9,500,000
1966/1995-96 buildings
Blue Grass Erlanger, Kentucky 246 12 garden-style n/a 98%/
Apartments/ buildings $7,700,000
1966/1996
Lindsay Lane Cincinnati, Ohio 263 23 garden-style swimming pool 99%/
Apartments/ buildings $6,725,000
1969/1995-96
Park Lane Cincinnati, Ohio 150 9-story building fitness center, swimming 95%/
Apartments/ pool $5,850,000
1960/1995
Compton Lake Mt. Healthy, Ohio 163 12 garden-style clubhouse, recreation area, 97%/
Apartments/ buildings swimming pool $5,800,000
1972/1996
Preston Park Dallas, Texas 144 19 garden and n/a 98%/
Apartments/ town-house style $4,875,000
1971/1995 buildings
Lisa Ridge Cincinnati, Ohio 216 18 garden-style n/a 89%/
Apartments/ buildings $4,880,000
1970/1995-96
Colonial Ridge Pleasant Ridge, 142 12 garden-style n/a 93%/
Apartments/ Ohio buildings $4,235,000
1963/1996
Wyoming Hills Dayton, Ohio 114 4 garden-style swimming pool 96%/
Apartments/ buildings $3,350,000
1972/1993-94
Romaine Court Oakley, Ohio 96 3 garden-style n/a 98%/
Apartments/ buildings $3,250,000
1966/1986
College Woods Cincinnati, Ohio 135 9 garden-style central clubhouse, swimming 99%/
Apartments/ buildings pool $3,130,000
1965/1996
Sun Valley Cincinnati, Ohio 116 2 garden-style clubhouse 92%/
Apartments/ buildings; 20 $2,700,000
1968/1996 townhouses
Slopes of Aspen Cincinnati, Ohio 96 7 garden-style swimming pool 93%/
Apartments/ buildings $2,270,000
1968-69/1994
Beecher Street Walnut Hills, Ohio 60 4 garden-style n/a 97%/
Apartments/ buildings $1,700,000
1969/1996
</TABLE>
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See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Risks Associated with Commercial and Multifamily Lending Generally --
Multi-family Properties" herein for a discussion of certain matters
associated with multi-family properties.
The Westin Peachtree Hotel Loan and Property
The Loan. The fourth largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Property known as Westin Peachtree
Plaza (the "Westin Peachtree Loan"). The Westin Peachtree Loan was made to
Westin Portman Peachtree II L.L.C., a Delaware limited liability company (the
"Westin Peachtree Borrower"). The Westin Peachtree Loan was originated by the
Mortgage Loan Seller on June 30, 1997. The loan had an original principal
balance of $75,000,000 and has a Cut-off-Date Principal Balance of
approximately $74,745,084, which represents approximately 4% of the Initial
Pool Balance, and is secured by a Mortgage encumbering a ground leasehold
interest in a hotel in Atlanta, Georgia (the "Westin Peachtree").
The Westin Peachtree Borrower is a special purpose entity, all of the
equity membership interests in which are owned by Westin Portman Peachtree I,
L.L.C. ("WPPI"). The Westin Peachtree Borrower is managed by an affiliated
non-member manager, the equity in which is owned by W&S Atlanta Corp. ("W&S
Atlanta"). The equity interests in WPPI are owned 90% by The Peachtree Hotel
Company ("Portman Peachtree"), and 10% by Westin Peachtree, Inc., which is
also the managing member of WPPI. Westin Peachtree Inc. is owned by W&S
Atlanta. Portman Peachtree is owned by affiliates of John Portman. Portman
Peachtree will not participate in the management of the Western Peachtree
Property. W&S Atlanta is indirectly owned by Westin Resorts. See "Risk
Factors and Other Special Considerations -- Other Equity Investments by the
Mortgage Loan Seller and/or its Affiliates" herein for a discussion of the
interests of the Mortgage Loan Seller and its affiliates in Westin Resorts.
The interest of WPPI in the Westin Peachtree Borrower also secures certain
related indebtedness held by affiliates of the Mortgage Loan Seller and
Westin Resorts. WPPI is the obligor on a $15,000,000 note (the "WPPI A2
Note") to the Mortgage Loan Seller, on a separate $25,000,000 note (the "WPPI
B Note") to Westin Peachtree, Inc., and on a separate approximately
$31,324,000 note (the "WPPI C Note") to Westin Atlanta L.L.C. All of the
equity membership interests in Westin Atlanta L.L.C. are held by Westin
Peachtree, Inc. It is expected that after an initial 10-year period, Westin
Atlanta L.L.C. will exchange the WPPI C Note for a 99% membership interest on
WPPI, with the remaining 1% interest in WPPI owned by Portman Peachtree. WPPI
is not expected to have any cash available for distribution during such
10-year period due as payments on the WPPI A2 Note and WPPI B Notes.
The interest rate on the Westin Peachtree Hotel Loan is 8.56% per annum.
The amount of each Monthly Payment is approximately $606,956, which amount is
based on a 300-month amortization schedule. The Anticipated Repayment Date is
the payment date in the 180th month of the loan and the principal balance as
of that date will be approximately $51,410,410. Additional payment and
prepayment terms and reserve requirements of the Westin Peachtree Loan are as
set forth in Annex A hereto.
Lock Box/Reserve Accounts. The Westin Peachtree Borrower has entered into
a lock box agreement whereby all revenues are required to be deposited
directly into the Lock Box Account controlled by the Servicer. See "The
Pooling and Servicing Agreement -- Accounts -- Lock Box Accounts" and
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Escrows" herein. The Westin Peachtree Borrower has also
established reserve accounts, including an on-going tax and insurance reserve
account, a ground lease reserve account, a capital expenditure and funiture,
fixtures and equipment reserve account, an up-front deferred maintenance
account and a seasonality reserve account.
The Property. The Westin Peachtree Property, located on two parcels of
land measuring a total of 1.3 acres in downtown Atlanta, Georgia, is a 1,068
room, full-service convention hotel containing three restaurants, two
lounges, a free-standing quick-service coffee and pastry kiosk, approximately
55,000 square feet of meeting space, an indoor/outdoor swimming pool and spa,
a fitness center, and other amenities. The loan documents require that the
property undergo a two year, $15,000,000 renovation, which commenced in the
summer of 1997, to improve the hotel's guest rooms, public space, and
mechanical systems. The completion of the renovation has been guaranteed by
Westin Hotel Company and such guaranty will be assumed by Starwood in
connection with the Merger. See "Risk Factors and Other Special
Considerations -- Other Equity Investments by the Mortgage Loan Seller and/or
its Affiliates." The average occupancy rate for the year ended December 31,
1996, was 69.8% and the average daily room rate for the year ended December
31, 1996, was $126.70. The appraised value of the hotel was $138,800,000 as
of June 1, 1997.
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See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Risks Associated with Commercial and Multifamily Lending Generally,"
"--Hotel Properties" and " -- Ground Leases" herein for a discussion of
certain matters associated with hotel properties.
The Dayton Mall Loan and Property
The Loan. The fifth largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Property known as Dayton Mall (the
"Dayton Mall Loan"). The Dayton Mall Loan was made to Dayton Mall Venture,
LLC, a Delaware limited liability company (the "Dayton Mall Borrower"). The
Dayton Mall Loan was originated by the Mortgage Loan Seller on July 1, 1997.
The loan had an original principal balance of $61,500,000 and has a
Cut-off-Date Principal Balance of approximately $61,410,564, which represents
approximately 4% of the Initial Pool Balance, and is secured by a fee
mortgage encumbering a shopping mall located in Dayton, Ohio (the "Dayton
Mall Property").
The Dayton Mall Borrower is a special purpose entity in which Glimcher
Dayton Mall, Inc., the managing member, owns a 1% equity membership interest,
Glimcher Properties Limited Partnership ("GPLP") owns a 49% equity membership
interest and an affiliate of the Mortgage Loan Seller owns a 50% equity
membership interest. The 86% limited partner of GPLP, Glimcher Realty Trust,
is publicly traded on the New York Stock Exchange. See "Risk Factors and
Other Special Considerations -- The Mortgage Loans -- Other Equity
Investments by the Mortgage Loan Seller and/or its Affiliates" herein for a
discussion of preferred equity interests of the Mortgage Loan Seller and its
affiliates.
The interest rate on the Dayton Mall Loan is 8.27% per annum. The amount
of each Monthly Payment is approximately $462,894, which amount is based on a
300-month amortization schedule. The Anticipated Repayment Date is the
payment date in the 180th month of the loan and the principal balance as of
that date will be approximately $49,744,720. Additional payment and
prepayment terms and reserve requirements of the Dayton Mall Loan are as set
forth in Annex A hereto.
Lock Box/Reserve Accounts. The Dayton Mall Borrower has entered into a
lock box agreement whereby all rent is required to be sent by the tenants
directly to a Lock Box Account controlled by the Servicer. See "The Pooling
and Servicing Agreement -- Accounts -- Lock Box Accounts" and "Description of
the Mortgage Pool -- Certain Terms and Conditions of the Mortgage Loans --
Escrows" herein. The Dayton Mall Borrower has also established reserve
accounts, including an ongoing capital expenditure reserve account and a
deferred maintenance reserve account.
The Property. The Dayton Mall Property, located in Dayton, Ohio, was built
in 1969 and most recently renovated in 1995. The single-and two-level
enclosed mall, located on approximately 115 acres, consists of approximately
1,329,500 square feet of GLA, of which 663,386 GLA is subject to the lien of
the related mortgage. The anchor tenants, all of which are separately owned
except J.C. Penney, include J.C. Penney (178,686 GLA), McAlpins (211,406
SFL), Lazarus (268,943 GLA), and Sears (185,790 GLA). National tenants
include B. Dalton Bookstores, Firestone, Eddie Bauer, Kay Bee Toys, Kay
Jewelers, Gymboree, Lens Crafters, Radio Shack, The Disney Store, The Gap and
The Limited. As of June 20, 1997, the entire Dayton Mall Property was
approximately 92% occupied (including the unowned anchors), and the appraised
value was $93,000,000.
See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Risks Associated with Commercial and Multifamily Lending Generally" and
"--Retail Properties" herein for a discussion of certain matters associated
with retail properties.
The AmSouth Loan and Properties
The Loan. The sixth largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by Mortgaged Property known as AmSouth/Harbert Plaza
(the "AmSouth Loan"). The AmSouth Loan was made to MarRay-ASH Plaza, Inc.
(The "AmSouth Borrower"). The AmSouth Loan was originated on August 29, 1997.
It had an original principal balance of $57,205,555 and has a Cut-off Date
Principal Balance of approximately $57,170,900, which represents
approximately 3% of the Initial Pool Balance, and is secured by a 32-story
office building and an attached two-story retail center in Birmingham,
Alabama (the "Am-South Property").
The AmSouth Borrower is a special purpose entity wholly owned by MarRay
Corp.
The interest rate on the AmSouth Loan is 8.5% per annum. The amount of
each Monthly Payment is approximately $439,861, which amount is based on a
360-month amortization schedule. The Anticipated Repayment Date is the
payment
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date in the 120th month of the loan and the principal balance as of that date
is approximately $51,741,613. Additional payment and prepayment terms of the
AmSouth Loan are as set forth in Annex A, hereto and as described below under
"--Certain Terms and Conditions of the Mortgage Loans -- Property Releases."
Lock Box; Reserve Accounts. The AmSouth Borrower has entered into a lock
box agreement whereby all rent is required to be deposited directly into the
Lock Box Account controlled by the Servicer. See "The Pooling and Servicing
Agreement -- Accounts -- Lock Box Accounts" and "Description of the Mortgage
Pool -- Certain Terms and Conditions of the Mortgage Loans -- Escrows"
herein. The AmSouth Borrower has also established reserve accounts, including
ongoing accounts for capital and tenant improvements.
The Property. The AmSouth Property consists of a thirty-two story office
building containing 569,845 rentable square feet, an attached two story
retail facility of 43,919 square feet, a dining club located atop the office
tower, and a three-level underground parking garage for 517 cars. The AmSouth
Property is located at 1901 6th Avenue North, Birmingham, Alabama. The
largest tenant in the AmSouth Property is AmSouth Bank, which is rated "A" by
S&P, and which occupies 613,764 square feet representing 33% of the GLA. The
AmSouth Bank Lease expires in 2004. A significant rollover reserve of
approximately $3.4 million will be available to mitigate retenanting costs at
such expiration. The appraised value of the AmSouth Property was $84,500,000.
See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Office Properties" and "--Retail Properties" herein for discussion on
certain matters associated with office and retail properties.
The Westin Casuarina Resort Loan Participation and Property
The Participation. The Trust Fund includes a participation interest (the
"Westin Casuarina Resort Loan Participation") in a mortgage loan (the "Westin
Casuarina Resort Loan") secured by a Mortgage encumbering a ground leasehold
interest in a hotel located in Grand Cayman, Cayman Islands, British West
Indies (the "Westin Casuarina Resort"). The original principal balance of the
Westin Casuarina Resort Loan was $50,000,000 (the "Initial Amount"). As of
the Cut-off Date, the principal balance of the Westin Casuarina Resort Loan
is $49,857,134, which represents approximately 3% of the Initial Pool
Balance. The Westin Casuarina Loan was originated by the Mortgage Loan Seller
on August 7, 1997. The Westin Casuarina Resort Loan was made to Galleon Beach
Resort Ltd. (The "Westin Casuarina Resort Borrower"), a bankruptcy remote
Cayman Islands company. The Westin Casuarina Resort Loan provides for a
future advance (at the request of the Westin Casuarina Resort Borrower) of up
to $20,000,000 (the "Advance Amount"), subject to compliance with certain
conditions. The future advance will be sized based on a re-underwriting to be
performed upon Borrower's request for such advance and based on the same DSCR
threshold as the original funding. The future funding commitment expires on
August 7, 1999. The Advance Amount will bear interest at a fixed rate (the
"Advance Amount Rate"), which may or may not be a rate of 8.75%, the interest
rate applicable to the outstanding principal balance of the Westin Casuarina
Resort Loan as of the Cut-off Date, but in no event will such interest rate
exceed 9.45%.
Pursuant to a participation agreement (the "Participation Agreement"), the
Mortgage Loan Seller (the "Other Participant") has agreed to make the future
advance required under the Westin Casuarina Resort Loan and, upon the making
of the future advance, will be entitled to a participation interest (the
"Other Westin Casuarina Resort Participation") that is pari passu in debt
service payments received on the Westin Casuarina Resort Loan, with respect
to interest, generally based on the ratio of the amount of interest due on
the Advance Amount at the Advance Amount Rate to the aggregate amount of
interest due on the entire Westin Casuarina Resort Loan and, with respect to
principal, generally based on the ratio of the original amount of the Advance
Amount to the sum of such original Advance Amount and the Initial Amount. The
Mortgage Loan Seller will post collateral sufficient to satisfy the Rating
Agencies that it will be able to fulfill its obligations for the future
advance.
The Trustee, at the direction of the Servicer or the Special Servicer, as
applicable, and as successor to the Mortgage Loan Seller under the
Participation Agreement, has the sole right, subject to applicable REMIC and
other legal requirements and the provisions of the Pooling and Servicing
Agreement, to (a) modify or waive any of their terms of the loan documents
with respect to the Westin Casuarina Resort Loan (the "Westin Casuarina
Resort Loan Documents"), (b) consent to any action or failure to act by the
Borrower or any party to the Westin Casuarina Loan Documents, (c) exercise or
refrain from exercising any powers or rights which lender may have under the
Westin Casuarina Resort Loan Documents, including, without limitation, the
right at any time to accelerate, or refrain from accelerating, the Westin
Casuarina Resort Loan, to foreclose and sell and otherwise deal with the
related Mortgaged Property, or refrain from
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foreclosing, selling or otherwise dealing with the Mortgaged Property, and to
enforce or refrain from enforcing the Westin Casuarina Resort Loan Documents.
Although the Trustee is required to provide the Other Participant with
written notice of any such matters, the prior consent of the Other
Participant is not required in order to take any of such actions.
The Westin Casuarina Resort Borrower is indirectly controlled by William
J. Yung, who is also its chief executive officer. Mr. Yung founded Columbia
Sussex Corporation, a Kentucky corporation ("Columbia Sussex"). Mr. Yung and
a trust for the benefit of his family own 100% of the outstanding capital
stock of Columbia Sussex. Columbia Sussex presently provides and will
continue to provide certain accounting and other services to the Westin
Casuarina Resort Borrower.
Lock Box; Reserve Accounts. The Westin Casuarina Resort Borrower has
established Lock Box Accounts with respect to the Westin Casuarina Resort and
is required to cause each of the credit card companies with whom the Westin
Casuarina Resort is affiliated to pay all amounts payable to the Westin
Casuarina Resort Borrower directly into such Lock Box Account. The Westin
Casuarina Resort Borrower has established reserve accounts, including an
on-going account for replacements and capital expenditures and an on-going
seasonality reserve account. See "The Pooling and Servicing Agreement -- Lock
Box Accounts" and "Description of the Mortgage Pool -- Certain Terms and
Conditions of the Mortgage Loans -- Escrows" herein.
The interest rate on the Westin Casuarina Loan Participation is 8.75% per
annum. The amount of each Monthly Payment is approximately $441,855, which
loan shall fully amortize in the 240th month. Additional Payment and
prepayment terms for the Westin Casuarina Loan Participation are as set forth
in Annex A hereto.
The Property. The Westin Casuarina Resort Property is a luxury hotel
located on 7.8 acres in the Seven Mile Beach area of the west coast of Grand
Cayman, Cayman Islands. The Westin Casuarina Resort Property opened in mid
December, 1995, and contains 341 guest rooms, two restaurants, three bars, a
pool area, and a retail arcade. The hotel has the largest beachfront,
approximately 700 feet, of any hotel on the Seven Mile Beach. The average
occupancy rate for the year ended December 31, 1996, was 67.60% and the
average daily room rate for the year ended December 31, 1996, was $211.58. As
of January 28, 1997, the appraised value of the hotel was $120,000,000. See
"Risk Factors and Other Special Considerations -- The Mortgage Loans -- Risks
Associated with Commercial and Multifamily Lending Generally" and "--Hotel
Properties" for a discussion of certain other matters associated with hotel
properties and "Risk Factors and Other Special Considerations -- The Mortgage
Loans -- Certain Considerations With Respect to the Westin Casuarina Resort
Loan and Property" herein.
The lessor under the ground lease is the government of the Cayman Islands
(the "GCI"), and the ground lease does not contain any obligations on the
part of GCI to enable the protection of the lender's rights. See "Risk
Factors and Other Special Considerations -- The Mortgage Loans -- Ground
Leases." However, in connection with the origination of the Westin Casuarina
Resort Loan, the Westin Casuarina Resort Borrower obtained an estoppel
certificate from the GCI to the effect that all payments due under the ground
lease have been made to the date of expiration and no additional amount is
payable by the Westin Casuarina Resort Borrower, and that as of the date of
such estoppel certificate, such borrower had complied with all of its
obligations as the tenant under such ground lease. The GCI also consented to
the charge on the Westin Casuarina Resort Property in favor of the Mortgage
Loan Seller, and to the transfer of such charge by the Mortgage Loan Seller
to the Trustee.
Cayman Islands Considerations. See "Risk Factors and Other Special
Considerations -- The Mortgage Loans -- Certain Considerations with Respect
to the Westin Casuarina Resort Loan and Property" for a discussion of various
considerations relating to the Cayman Islands and the Westin Casuarina Resort
Loan Participation.
The Comsat Loan and Property
The Loan. The Mortgage Pool includes two Mortgage Loans secured by the
Mortgaged Property known as the Comsat Research and Development Campus (the
"Comsat Loans"). The Comsat Loans were originated by the Mortgage Loan Seller
on September 12, 1997, and made to LCOR Clarksburg, LLC (the "Comsat
Borrower"). The Comsat loans had a total original principal balance of
$47,800,000 and have a Cut-off Date Principal Balance of approximately
$47,662,933, which represents approximately 3% of the Initial Pool Balance.
The Comsat Loans are in the form of two notes (the "Comsat Senior Loan" and
the "Comsat Junior Loan"). The Comsat Senior Loan had an original principal
balance of approximately $42,107,068 and has a Cut-off Date Principal Balance
of approximately $41,922,013, which represents 2% of the Initial Pool
Balance, and is secured by a first fee mortgage encumbering the five
buildings located on approximately 227 acres of land (the "Comsat Property")
and the monthly rental payments under two triple net leases (as
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defined below). The Comsat Senior Loan has an interest rate of 7.515% per
annum, fully amortizes over a ten year period and all money from the lease
payments are used to pay the Comsat Senior Loan. The monthly payments begin
at $448,750 and step up each year until monthly payments are $572,850 in the
tenth year. The Comsat Junior Loan had an original principal balance of
approximately $5,692,932 and has a Cut-off Date Principal Balance of
$5,740,919, which represents less than 1% of the Initial Pool Balance, and is
secured by a second fee mortgage encumbering the Comsat Property. The Comsat
Junior Loan is negatively amortizing and accrues interest at 10.115%. No
monthly payments are required until the maturity date, at which time the
principal balance will be $15,587,763. The Comsat Borrower is permitted to
sell certain undeveloped parcels of land during the term of the loan with all
sales proceeds, less transaction costs, required to be placed in a reserve to
be applied to repay the Comsat Junior Loan. Additional payment and prepayment
terms for the Comsat Loan are as set forth on Annex A and as described under
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Property Releases" herein.
The Comsat Borrower is a bankruptcy remote single purpose entity and the
lessor of two triple net leases (the "Comsat Master Lease" and the "Comsat
Facilities Lease," together, the "Comsat Leases") (described below) with
Comsat Corporation. The managing member, Clarksburg Management Inc.
("Clarksburg") is a single purpose entity controlled by LCOR, Inc. which owns
a 99% equity interest in the Comsat Borrower. LCOR Incorporated owns the
other 1% equity interest in the Comsat Borrower. The stock of Clarksburg is
held as follows: Eric Eichler 55%, Peter Dilullo 30%, Patrick Armstrong 10%,
and Kurt Eichler 5%. Comsat Corporation, the lessee, has owned and managed
the Comsat Property since 1969 and will continue to be responsible for all
aspects of property management for the term of the Comsat Master Lease. See
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Mortgage Provisions Relating to Servicer's Right to
Termination of Management Agreement."
Lock Box; Reserve Accounts. The Comsat Borrower has entered into a lock
box agreement whereby all rent is sent directly by Comsat Corporation to a
Lock Box Account controlled by the Servicer. See "The Pooling and Servicing
Agreement -- Accounts -- Lock Box Accounts" and "Description of the Mortgage
Pool -- Certain Terms and Conditions of the Mortgage Loans -- Escrows."
The Property. The Comsat Property consists of five buildings totaling
approximately 532,000 square feet of GLA on approximately 227 acres of land
of which 183.8 acres is vacated and undeveloped. The main building is an
office/research and development building consisting of 438,613 GLA, which
contains general offices and special use facilities such as laboratories,
computer rooms, light assembly, a three hundred seat cafeteria, a 117 seat
auditorium with an adjoining training center and a 4,500 square foot fitness
center. The Spectra building, which is located immediately east of the main
building, is an office/research and development building containing a total
of 57,856 GLA. The three auxiliary buildings are communication facilities
that have a combined total of approximately 36,000 GLA. There are five
subleases in place at the Comsat Property; however, under the Comsat Master
Lease, Comsat Corporation will be responsible for the entire property for a
term of ten years. As of July 16, 1997, the appraised value of the buildings
was $56,200,000 and the appraised value of the excess land was $20,500,000
(approximately $111,535 per acre). As of September 12, 1997, the Comsat
Property was 100% occupied.
The Net Lease. The Comsat Leases are each triple net leases, the payments
of which are backed fully by the rental obligations of Comsat Corporation, an
entity that carries an "A"-rating from S&P. The Comsat Leases provide that
the tenant shall not cancel the lease or abate rent, except in connection
with a condemnation during the lease term or a casualty that occurs during
the last two years of the lease term. However, these items are covered by
lease enhancement policies in effect for the term of the Comsat Leases that
cover any condemnation risk and a business interruption insurance policy that
covers the tenant's right to cancel the Comsat Leases during the two years of
the lease term and/or rent loss. The Comsat Master Lease provides for a net
rental rate beginning at $10 per square foot for the main building and the
Spectra Building, or $4,960,000 per annum. This amount will be increased by
2.75% per annum, beginning in year two. The Comsat Facilities Lease provides
that the three special purpose facilities buildings have an annual rental
payment of $425,000, which amount also increases by 2.75% beginning in year
two. See "Description of the Mortgage Loans -- Credit Lease Loans" herein for
a discussion of net leases.
See "Risk Factors and Other Special Considerations -- Risks Assocated with
Commercial and Multifamily Lending Generally," and "--Office Properties"
herein for a discussion on certain matters associated with office properties.
The Swiss Bank Tower Loan and Property
The Loan. The Mortgage Pool includes a Mortgage Loan secured by a fee
mortgage on a condominium interest comprising all of the air rights (the "Air
Rights") located above the Saks Fifth Avenue department store in New York
City
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and certain other rights discussed below (the "Swiss Bank Tower Loan"). The
Swiss Bank Tower Loan was originated by the Mortgage Loan Seller on October
1, 1997. It had an original principal balance of $45,000,000 and has a
Cut-off Date Principal Balance of $45,000,000, which represents approximately
3% of the Initial Pool Balance. The Swiss Bank Tower Loan is also secured by
any other rights otherwise possessed by SB Tower Operating Company, Inc. (the
"Swiss Bank Tower Borrower") relating to the office building occupying the
Air Rights (the "Swiss Bank Tower"), including the rights of the Swiss Bank
Tower Borrower under the related air rights lease (the "Air Rights Lease"),
and by an irrevocable demand letter of credit (the "Swiss Bank Tower LOC").
The Air Rights, together with such additional rights relating to the Swiss
Bank Tower and the Swiss Bank Tower LOC, are hereafter referred to as the
"Swiss Bank Tower Property Rights."
The Swiss Bank Tower Loan was made to the Swiss Bank Tower Borrower, a
bankruptcy remote, single purpose corporation with an independent director.
The majority of the stock of the Swiss Bank Tower Borrower is owned by SB
Tower Holdings, Inc., which is indirectly owned by Investcorp Bank E.C., an
exempt joint stock company of Bahrain.
The Swiss Bank Tower Borrower has entered into a purchase and sale
agreement with 10 East 50th Street Building Company LLC (the "Cohen Buyer")
whereby the Cohen Buyer would purchase the Swiss Bank Tower. The Cohen Buyer
is an entity controlled by Sherman and Charles Cohen and managed by Cohen
Brothers Realty. Prior to the purchase, the Cohen Buyer will be required to
obtain confirmation from the Rating Agencies that the ownership structure of
the Cohen Buyer will not cause a qualification, withdrawal or downgrade of
the Certificates.
The Swiss Bank Tower Loan requires payments of interest only until April
11, 2009 (such date, the "Swiss Bank Tower ARD"); thereafter, the Monthly
Payments will step up to approximately $302,273.20 so that the loan fully
amortizes within 386 months of the Swiss Bank Tower ARD, with a final
maturity date of February 11, 2041. Additional payment and prepayment terms
of the Swiss Bank Tower Loan are as set forth in Annex A, hereto and as
described below under "--Certain Terms and Conditions of the Mortgage Loans
- -- Excess Interest" and "--Property Releases" herein.
Lock Box; Reserve Accounts. The Swiss Bank Tower Borrower has entered into
a lock box agreement whereby all rent is required to be deposited directly
into the Lock Box Account controlled by the Servicer. See "The Pooling and
Servicing Agreement -- Accounts -- Lock Box Accounts" and "Description of the
Mortgage Pool -- Certain Terms and Conditions of the Mortgage Loans --
Escrows" herein.
The Property Rights. The Air Rights were leased to Swiss Bank Corporation
(the "Air Rights Tenant") in 1986 pursuant to the Air Rights Lease. The
annual base rent payable under the Air Rights Lease is currently
approximately $2,420,000, which will be adjusted (upward only) to market
every 20 years. The first such adjustment will occur on January 1, 2009.
Based upon an appraisal prepared in connection with the origination of the
Swiss Bank Loan, the base rent would reset to approximately $4.9 million/year
in January, 2009. In addition to annual base rent, the Air Rights Tenant is
obligated to pay percentage rent in an amount equal to 20% of the Swiss Bank
Towers "NOI" (as defined in the Air Rights Lease). The Air Rights Lease has a
remaining term of approximately 89 years and expires on December 31, 2086.
The Air Rights Tenant is currently rated "AA" by S&P and "Aa2" by Moody's.
The Air Rights Tenant's interest in the Air Rights Lease is assignable by the
Air Rights Tenant at any time to an entity of "superior repute and financial
soundness" which meets certain standards for management experience set forth
in the Air Rights Lease. In the event that the Swiss Bank Tower Borrower
defaults on the Swiss Bank Tower Loan, the lender will have the right to
foreclose on the Swiss Bank Tower Property Rights. In the event the Air
Rights Tenant defaults under the Air Rights Lease, the Swiss Bank Tower
Borrower will have the right to foreclose on the Swiss Bank Tower. The Swiss
Bank Tower is a 29 story corporate office building located at 10 East 50th
Street in New York City. The building contains 314,375 square feet of
leaseable space and is constructed above the Saks Fifth Avenue flagship store
via the Air Rights Lease. As of July 31, 1997, the appraised value of the
property was $97,000,000 and the appraised value of the Air Rights Lease was
$53,800,000.
The Swiss Bank Tower LOC is intended to assure the collection of
percentage rents at current levels until the Swiss Bank Tower ARD, and is in
an initial amount equal to $12,004,312. Such amount will decline each year
thereafter on a pro rata basis. Draws under the Swiss Bank Tower LOC will be
limited monthly to the positive difference (if any) between 1/12 of
$1,067,050 and the actual annual amount of percentage rent received by the
lender in such month and will be made only for the payment of amounts due
under the Swiss Bank Tower Loan to the extent not paid by the Swiss Bank
Tower Borrower when due.
See "Risk Factors and Other Special Considerations -- The Mortgage Loans
- -- Risks Associated with Commercial and Multifamily Lending Generally," and
"--Office Properties" herein for a discussion on certain matters associated
with office properties.
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CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Annex A. For a detailed presentation of the characteristics of the
Mortgage Loans, on a loan-by-loan basis, see Annex A hereto.
Due Dates. All of the Mortgage Loans provide for scheduled payments of
principal and/or interest ("Monthly Payments") to be due on the eleventh day
of each month or, if the eleventh day is not a business day, on the next
business day or the first preceding business day (except with respect to the
Mortgage Loans known as the Circuit City Loans, which provide for Monthly
Payments on the twenty-fifth day of the prior month).
Mortgage Rates; Calculations of Interest. Each of the Mortgage Loans
accrues interest on the basis of a 360-day year consisting of twelve 30-day
months or on the basis of the actual number of days elapsed and a 360 day
year. Each of the Mortgage Loans accrues interest at the Mortgage Rate, which
is fixed for the entire remaining term of such Mortgage Loan; provided,
however, as described below under "--Excess Interest", certain of the
Mortgage Loans accrue interest at a higher rate after their respective
Anticipated Repayment Dates. As used herein, the term "Mortgage Rate" does
not include the Excess Rate.
Excess Interest. 125 of the Mortgage Loans, representing approximately
86% of the Initial Pool Balance, are ARD Loans which bear interest at their
respective Mortgage Rates until on or within 3 months after their respective
Anticipated Repayment Date. Commencing within three months of the respective
Anticipated Repayment Date, each such Mortgage Loan generally will bear
interest at a fixed rate (the "Revised Rate") per annum equal to, for so long
as such Mortgage Loan is in the Mortgage Pool, the Mortgage Rate plus 2%.
Until the principal balance of each such Mortgage Loan has been reduced to
zero, such Mortgage Loan will only be required to pay interest at the
Mortgage Rate and the interest accrued at the excess of the related Revised
Rate over the related Mortgage Rate will be deferred (such accrued and
deferred interest and interest thereon, if any, is "Excess Interest"). Except
where limited by applicable law, Excess Interest so accrued will earn
interest at the Revised Rate. Prior to the Anticipated Repayment Date,
borrowers under ARD Loans will be required to enter into a Lock Box agreement
whereby all revenue will be deposited directly into a Lock Box Account
controlled by the Servicer. From and after the Anticipated Repayment Date, in
addition to paying interest (at the Mortgage Rate) and principal (based on
the amortization schedule) (together, the "Monthly Debt Service Payment"),
the related borrower generally will be required to apply all monthly cash
flow from the related Mortgaged Property or Properties to pay the following
amounts in the following order of priority: (i) required payments to the tax
and insurance escrow fund and any ground lease escrow fund, (ii) payment of
Monthly Debt Service, (iii) payments to any other required escrow funds, (iv)
payment of operating expenses pursuant to the terms of an annual budget
approved by the Servicer, (v) payment of approved extraordinary operating
expenses or capital expenses not set forth in the approved annual budget or
allotted for in any escrow fund, (vi) principal on the Mortgage Loan until
such principal is paid in full and (vii) to Excess Interest. The cash flow
from the Mortgaged Property or Properties securing an ARD Loan after payments
of items (i) through (v) above is referred to herein as "Excess Cash Flow".
As described below, ARD Loans generally provide that the related borrower is
prohibited from prepaying the Mortgage Loan until the one to six months prior
to the Anticipated Repayment Date but, upon the commencement of such period,
may prepay the loan, in whole or in part, without payment of a Prepayment
Premium. The Anticipated Repayment Date for each ARD Loan is listed in Annex
A.
The holders of 100% of the Percentage Interests in the Class LR
Certificates, and if the holder of the Class LR Certificates does not
exercise its option, the holder of 100% of the Percentage Interests in the
most subordinate Class of Certificates then outstanding (not including the
Class B-7H Certificates), will have the option for up to two months after the
Anticipated Repayment Date for any ARD Loan to purchase such ARD Loan at a
price equal to its outstanding principal balance plus accrued and unpaid
interest, unreimbursed Property Advances and accrued and unpaid interest on
Advances. As a condition to such purchase, such holders will be required to
deliver an opinion of counsel to the effect that such purchase would not (i)
result in a gain which would be subject to the tax on net income derived from
prohibited transactions imposed by Code Section 860F(a)(1) or otherwise
result in the imposition of any other tax on the Lower-Tier REMIC or
Upper-Tier REMIC under the REMIC provisions of the Code or (ii) cause either
of the Lower-Tier REMIC or Upper-Tier REMIC to fail to qualify as a REMIC.
Amortization of Principal. As set forth in the following table, certain
Mortgage Loans (the "Balloon Loans") provide for monthly payments of
principal based on amortization schedules at least 51 months longer than
their original
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terms thereby leaving substantial principal amounts due and payable (each
such payment, a "Balloon Payment") on their respective maturity dates, unless
previously prepaid. The remaining Mortgage Loans have remaining amortization
terms that are generally the same as their respective remaining terms to
maturity.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF
INITIAL
POOL NUMBER OF
TYPE OF LOAN BALANCE NOTES
- ------------ ------- -----
<S> <C> <C>
ARD Loans ..................................... 86% 128
Fully Amortizing Loans (other than ARD Loans) 13% 27
Balloon Mortgage Loans (1) .................... 0% 4
</TABLE>
- ------------
(1) Includes the Comsat Junior Note which requires no payments of interest
or principal until its maturity date.
Prepayment Provisions. All of the Mortgage Loans prohibit voluntary
prepayment during a period (each, a "Lock-out Period") remaining from the
Cut-off Date ranging from approximately 58 months to 265 months. The weighted
average Lock-out Period remaining from the Cut-off Date for the Mortgage
Loans is approximately 150 months. None of the Mortgage Loans require the
payment of a premium or fee (a "Prepayment Premium") upon the voluntary
prepayment of such Mortgage Loans on or after the expiration of the related
Lock-out Period. The Lock-out Periods for the ARD Loans all expire on or one
to six months prior to their respective Anticipated Repayment Dates and the
Lock-out Periods for the Balloon and fully amortizing Mortgage Loans (other
than ARD Loans) all expire no earlier than the last one to six months prior
to their respective maturities. Certain of the prepayment terms of each of
the Mortgage Loans are more particularly described in Annex A.
The Mortgage Loans provide generally that in the event of a condemnation
or casualty, the mortgagee may apply the condemnation award or insurance
proceeds to the repayment of debt, which, in the case of some of the Mortgage
Loans, will require payment of any applicable Prepayment Premium. However, in
the case of most of the Mortgage Loans, if the award or loss is less than a
specified percentage of the original principal balance of the Mortgage Loan
and if in the reasonable judgment of the mortgagee (i) the Mortgaged Property
can be restored within six months prior to the maturity of the related Note
to a property no less valuable or useful than it was prior to the
condemnation or casualty, (ii) after a restoration the Mortgaged Property
would adequately secure the outstanding balance of the Note and (iii) no
event of default has occurred or is continuing, the proceeds or award may be
applied by the borrower to the costs of repairing or replacing the Mortgaged
Property. In general, in the event that a condemnation award or insurance
proceeds are used to prepay a Mortgage Loan, the constant monthly payment due
under the related note shall be reamortized based on the remaining
amortization term and the applicable interest rate. The Pooling and Servicing
Agreement provides that if a Mortgage Loan provides that the mortgagee may in
its discretion apply certain amounts to a prepayment of principal (e.g., by
applying casualty or condemnation proceeds or funds escrowed for improvements
not completed by the required date) prior to the expiration of the related
Lock-out Period, the Special Servicer cannot apply such funds to such a
prepayment unless the Special Servicer has first received the consent of the
Servicer (if the Special Servicer is not the Servicer) or the holders of 66
2/3% of the Voting Rights of the Certificates responding within 20 business
days to a solicitation of their consent. If such consent is not obtained,
such funds will be made available to the related borrowers for their
prescribed use.
Certain Mortgage Loans provide that if casualty or condemnation proceeds
are above a specified amount, the borrower will be permitted to supplement
such proceeds with an amount sufficient to prepay the entire principal
balance of the Mortgage Loan. In such event, no Prepayment Premium would be
required to be paid.
Neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium, or of the collectability of
any Prepayment Premium. See "Risk Factors and Other Special Considerations --
The Certificates -- Special Prepayment and Yield Considerations" herein and
"Certain Legal Aspects of Mortgage Loans -- Default Interest, Prepayment
Charges and Prepayments" in the Prospectus.
Property Releases. All of the Mortgage Loans permit the applicable
borrower at any time after a specified period (the "Defeasance Lock-out
Period"), which is generally the greater of approximately three years from
the date of
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<PAGE>
origination and two years from the Closing Date, provided no event of default
exists, to obtain a release of a Mortgaged Property from the lien of the
related Mortgage (a "Defeasance Option"), provided that, among other
conditions, the borrower (a) pays on any Due Date (the "Release Date") (i)
all interest accrued and unpaid on the principal balance of the Note to and
including the Release Date, (ii) all other sums, excluding scheduled interest
or principal payments, due under the Mortgage Loan and all other loan
documents executed in connection therewith, (iii) an amount (the "Collateral
Substitution Deposit") that will be sufficient to purchase direct
non-callable obligations of the United States of America providing payments
(1) on or prior to, but as close as possible to, all successive scheduled
payment dates from the Release Date to the related maturity date, assuming,
in the case of an ARD Loan, that such loan prepays on the related Anticipated
Repayment Date and (2) in amounts equal to the scheduled payments due on such
dates under the Mortgage Loan or the defeased amount thereof in the case of a
partial defeasance, and (z) any costs and expenses incurred in connection
with the purchase of such U.S. government obligations and (b) delivers a
security agreement granting the Trust Fund a first priority lien on the
Collateral Substitution Deposit and the U.S. government obligations purchased
with the Collateral Substitution Deposit and an opinion of counsel to such
effect. The Pool Loans generally require that (i) prior to the release of a
related Mortgaged Property, a specified percentage (generally 125%) of the
Allocated Loan Amount for such Mortgaged Property be defeased and (ii) that
the DSCR with respect to the remaining Mortgaged Properties after the
defeasance be no less than the greater of (x) the DSCR at origination and (y)
the DSCR immediately prior to such defeasance. The Servicer will be
responsible for purchasing the U.S. government obligations on behalf of the
borrower at the borrower's expense. Any amount in excess of the amount
necessary to purchase such U.S. government obligations will be returned to
the borrower. Simultaneously with such actions, the related Mortgaged
Property will be released from the lien of the Mortgage Loan and the pledged
U.S. government obligations (together with any Mortgaged Property not
released, in the case of a partial defeasance) will be substituted as the
collateral securing the Mortgage Loan.
In general, a successor borrower established or designated by the Mortgage
Loan Seller will assume all of the defeased obligations of a borrower
exercising a Defeasance Option under a Mortgage Loan and the borrower will be
relieved of all of the defeased obligations thereunder. If a Mortgage Loan is
partially defeased, the related Note will be split and only the defeased
portion of the borrower's obligations will be transferred to the successor
borrower.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan. See "Risk Factors and Other
Special Considerations -- The Certificates -- Special Prepayment and Yield
Considerations" herein.
The Comsat Junior Loan also permits the release of undeveloped portions of
the related Mortgaged Property from the lien of the related Mortgage Loan
upon the establishment of certain reserves.
Escrows. Generally, all of the Mortgage Loans, other than the Credit Lease
Loans, provide for monthly escrows to cover property taxes. Generally, all of
the Mortgage Loans, other than the Credit Lease Loans, provide for monthly
escrows to cover insurance premiums on the Mortgaged Properties (except in
cases where three months to one year of insurance premiums are escrowed). The
Mortgage Loans secured by leasehold interests also provide for escrows to
make ground lease payments. Most of the Mortgage Loans, (excluding Credit
Lease Loans and Mobile Home Loans) require monthly escrows to cover ongoing
replacements and capital repairs. See Annex B for property-by-property
detail.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgage Loans
generally contain "due-on-sale" and "due-on-encumbrance" clauses that in each
case permit the holder of the Mortgage Loan to accelerate the maturity of the
Mortgage Loan if the borrower sells or otherwise transfers or encumbers the
related Mortgaged Property without the consent of the mortgagee. The Special
Servicer will determine, in a manner consistent with the Servicing Standard,
whether to exercise any right the mortgagee may have under any such clause to
accelerate payment of the related Mortgage Loan upon, or to withhold its
consent to, any transfer or further encumbrance of the related Mortgaged
Property. Certain of the Mortgage Loans provide that the mortgagee may
condition an assumption of the loan on the receipt of an assumption fee,
which is in some cases equal to one percent of the then unpaid principal
balance of the applicable Note, in addition to the payment of all costs and
expenses incurred in connection with such assumption. Certain of the
Mortgages provide that such consent may not be unreasonably withheld provided
that (i) no event of default has occurred, (ii) the proposed transferee is
creditworthy and has sufficient experience in the ownership and management of
properties similar to the Mortgaged Property, (iii) the Rating Agencies have
confirmed in writing that such transfer or further encumbrance will not
result in a qualification, reduction or withdrawal of the then current rating
of the Certificates, (iv) the transferee has executed and delivered an
assumption agreement evidencing its agreement to abide by the terms of the
Mortgage Loan together with legal opinions and title insurance endorsements
and (v) the assumption fee has been
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<PAGE>
received (which assumption fee will be paid to the Servicer and the Special
Servicer, as provided in the Pooling and Servicing Agreement, and will not be
paid to the Certificateholders). See "Certain Legal Aspects of Mortgage Loans
- -- Due-on-Sale and Due-on-Encumbrance" in the Prospectus and "Risk Factors
and Other Special Considerations -- The Mortgage Loans -- Exercise of
Remedies" herein. The Depositor makes no representation as to the
enforceability of any due-on-sale or due-on-encumbrance provision in any
Mortgage Loan.
Mortgage Provisions Relating to Servicer's Right to Terminate Management
Agreements. Certain of the Mortgage Loans permit the Special Servicer to
cause the related borrowers to terminate the related management agreements
upon the occurrence of certain events. Generally, each Mortgage Loan with a
Cut-off Date Principal Balance in excess of $19,000,000 and certain other
Mortgage Loans, where an affiliate of the borrower manages the related
Mortgaged Property or Properties provides that if the Debt Service Coverage
Ratio for such Mortgage Loan falls below a certain level, the Special
Servicer will have the right to cause the termination of the related
management agreement and replace the manager with a manager acceptable to the
Special Servicer. The Mortgage Loans generally allow the Special Servicer to
terminate the related management agreements upon the occurrence of certain
events of default under the related loan agreements or mortgage documents. In
addition, the Special Servicer is generally permitted to cause the
termination of a management agreement if the manager breaches certain
provisions of the management agreement which would permit the termination of
such agreement thereunder.
Cross-Collateralization and Cross-Default of Certain Mortgage
Loans. Fourteen of the Mortgage Loans (the "Pool Loans") with Cut-off Date
Principal Balances ranging from $3,240,000 to $124,270,089 and comprising 26%
of the Mortgage Pool by Cut-off Date Principal Balance are secured by more
than one Mortgaged Property. However, because certain states require the
payment of a mortgage recording or documentary stamp tax based upon the
principal amount of debt secured by a mortgage, the Mortgages recorded with
respect to certain Mortgaged Properties secure only 150% of the Allocated
Loan Amount of such Mortgaged Properties (rather than the entire initial
principal balance of the related Notes). See "Risk Factors and Other Special
Considerations -- The Mortgage Loans -- Limitations on Enforceability of
Cross-Collateralization" herein and "Loan Characteristics" in Annex A.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy
in an amount equal to the greatest of (i) the full replacement cost of the
improvements and equipment without deduction for physical depreciation, (ii)
the outstanding principal balance of the Mortgage Loan (or, with respect to
certain Pool Loans, the full insurable value of the Mortgaged Property) and
(iii) such amount that the insurer would not deem the borrower a co-insurer,
or in an amount satisfying other similar standards and by a flood insurance
policy if any part of the Mortgaged Property is located in an area identified
by the Federal Emergency Management Agency as an area having special flood
hazards and for which flood insurance has been made available under the
National Flood Insurance Program in an amount at least equal to the
outstanding principal amount of the Mortgage Loan (or with respect to certain
Pool Loans, the full insurable value of the Mortgaged Property) or the
maximum limit of coverage available, whichever is less, or in an amount
satisfying other similar standards. With respect to Mortgaged Properties
located in earthquake risk areas, certain of the related Mortgaged Properties
are insured by earthquake insurance, and certain of such insured Mortgaged
Properties may be insured in amounts less than the outstanding principal
balance of such Mortgage Loans. With respect to Mortgaged Properties located
in areas having special hurricane hazards, certain of the related Mortgaged
Properties are insured by hurricane insurance in amounts less than the
outstanding principal balance of such Mortgage Loans. The hazard insurance
policy is required to cover loss or damage by fire and lightning or other
risks and hazards covered by a standard extended coverage insurance policy
including, but not limited to, riot and civil commotion, vandalism, malicious
mischief, burglary and theft. Mobile Home Properties located in earthquake
risk areas or areas having special hurricane hazards are not insured against
earthquake or hurricane damage.
The Mortgage Loans also generally require that the borrower obtain and
maintain during the entire term of the Mortgage Loan (i) comprehensive public
liability insurance, including broad form property damage, blanket
contractual and personal injuries coverages and containing minimum limits per
occurrence as specified in the related Mortgage, (ii) rent loss and/or
business interruption insurance in an amount equal to the greater of (x)
estimated annual (or a specified longer period) gross revenues from the
operations of the Mortgaged Property and (y) projected annual (or a specified
longer period) operating expense (including debt service) for the maintenance
and operation of the Mortgaged Property, or in an amount satisfying other
similar standards, (iii) except with respect to certain of the Mobile Home
Loans, insurance against loss or damage from leakage of sprinkler systems and
explosion of steam boilers, air conditioning equipment, high pressure piping,
machinery and equipment, and pressure vessels, (iv) if the Mortgaged Property
is a commercial property, worker's compensation insurance, (v) during any
period of repair or restoration, builders "all risk" insurance, and (vi) such
other insurance as may from time to time be reasonably required by the
mortgagee in order to protect its interests.
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<PAGE>
ADDITIONAL MORTGAGE LOAN INFORMATION
GENERAL MORTGAGE LOAN CHARACTERISTICS
(AS OF CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
<S> <C>
Initial Pool Balance (1) ...................................................................$1,754,015,636
Number of Mortgage Loans ................................................................... 155
Number of Notes ............................................................................ 159
Number of Mortgaged Properties ............................................................. 220
Average Mortgage Loan Balance .............................................................. $11,316,230
Weighted Average Mortgage Rate ............................................................. 8.372%
Range of Mortgage Rates .................................................................... 7.28%-10.13%
Weighted Average Remaining Term to the Earlier of Maturity or Anticipated Repayment Date ... 153 months
Range of Remaining Term to the Earlier of Maturity or Anticipated Repayment Date .......... 62-269 months
Weighted Average Original Amortization Term (2) ............................................ 325 months
Range of Original Amortization ............................................................. 84-386 months
Weighted Average Net Cash Flow DSCR (3) .................................................... 1.43
Range of Net Cash Flow DSCR (3) ............................................................ 1.00-2.13
Weighted Average NOI DSCR (4) .............................................................. 1.53
Range of NOI DSCR (4) ...................................................................... 1.00-2.43
Weighted Average LTV (5) ................................................................... 69%
Range of LTV (5) ........................................................................... 45%-104%
Weighted Average LTV at Earlier of Anticipated Repayment Date or Maturity (6) ............. 47%
Percentage of Initial Pool Balance made up of:
ARD Loans ................................................................................. 86%
Fully Amortizing Loans (other than ARD Loans) ............................................. 13%
Balloon Loans ............................................................................. 0%
Delinquent as of Cut-off Date .............................................................. 0%
</TABLE>
- ------------
(1) Subject to a permitted variance of plus or minus 5%.
(2) "Weighted Average Original Amortization Term" reflects the fact that
certain Mortgage Loans provide for Monthly Payments based on
amortization schedules at least 51 months longer than the remaining
stated terms of such Mortgage Loans. See "Description of the Mortgage
Pool -- Certain Terms and Conditions of the Mortgage Loans --
Amortization of Principal" herein.
(3) "Net Cash Flow DSCR" for any Mortgage Loan is equal to the Net Cash
Flow from the related Mortgaged Property divided by the Annual Debt
Service for such Mortgage Loan (as defined below). Weighted Average Net
Cash Flow DSCR is calculated excluding the Credit Lease Loans. Unless
otherwise specified herein, "DSCR" means Net Cash Flow DSCR. "Annual
Debt Service" means the Monthly Payment (as defined herein) multiplied
by twelve.
(4) "NOI DSCR" for any Mortgage Loan is equal to the NOI from the related
Mortgaged Property divided by the Annual Debt Service for such Mortgage
Loan. Weighted Average NOI DSCR is calculated excluding the Credit
Lease Loans.
(5) "LTV" or "Loan-to-Value Ratio" means, with respect to any Mortgage
Loan, the principal balance of such Mortgage Loan as of the Cut-off
Date divided by the appraised value of the Mortgaged Property or
Properties securing such Mortgage Loan. Weighted Average LTV is
calculated excluding the Credit Lease Loans.
(6) "LTV at Earlier of Anticipated Repayment Date or Maturity" for any
Mortgage Loan is calculated in the same manner as LTV as of the Cut-off
Date, except that the Mortgage Loan Cut-off Date Principal Balance used
to calculate the LTV as of the Cut-off Date has been adjusted to give
effect to the amortization of the applicable Mortgage Loan as of its
maturity date or, in the case of a Mortgage Loan that has an
Anticipated Repayment Date, as of its Anticipated Repayment Date. Such
calculation thus assumes that the appraised value of the Mortgaged
Property or Properties securing a Mortgage Loan on the maturity date or
Anticipated Repayment Date, as applicable, is the same as the appraised
value as of the Cut-off Date. There can be no assurance that the value
of any particular Mortgaged Property will not have declined from the
appraised value.
The following tables, Annex A and Annex B set forth certain information
with respect to the Mortgage Loans and Mortgaged Properties. The statistics
in the following tables, Annex A and Annex B were primarily derived from
S-76
<PAGE>
information provided to the Depositor by Bloomfield, CSFB or the Mortgage
Loan Seller, which information may have been obtained from the borrowers
without independent verification except as noted. For purposes of the tables,
Annex A and Annex B:
(1) "Net Cash Flow" with respect to a given Mortgage Loan or Mortgaged
Property means cash flow available for debt service, as determined by the
Mortgage Loan Seller based upon borrower supplied information for a recent
period that is generally the twelve months prior to the origination of such
Mortgage Loan, adjusted for stabilization and, in the case of certain
Mortgage Loans, may have been updated to reflect a more recent operating
period. Net Cash Flow does not reflect debt service, subordinated ground
rent, non-cash items such as depreciation or amortization, and does not
reflect actual capital expenditures and may have been adjusted by, among
other things, (i) in the case of the Multifamily Properties and Mobile Home
Properties, rental revenue shown on a recent rent roll was annualized before
applying a vacancy factor without further regard to the terms (including
expiration dates) of the leases shown thereon, (ii) in the case of certain
Office Properties, Industrial Properties and Retail Properties, determining
current revenues from leases in place, (iii) assuming the occupancy rate for
the Mortgaged Property was less than the actual occupancy rate, (iv) in the
case of the Retail Properties, excluding certain percentage rent, (v)
excluding certain non-recurring income and/or expenses, (vi) assuming that a
management fee of 3% to 5% of revenue and a franchise fee of 3.5% to 6% of
room revenue (for Hotel Properties only) was payable with respect to the
Mortgaged Property, (vii) taking into account new tax assessments and utility
savings from the installation of new energy efficient equipment, (viii) in
certain cases, assuming that operating expenses with respect to the Mortgaged
Property were greater than actual expenses, (ix) subtracting from net
operating income replacement or capital expenditure reserves and, (x) in the
case of the Retail Properties and Office Properties, subtracting from net
operating income an assumed allowance for tenant improvements, leasing
commissions and free rent.
Net Cash Flow reflects the calculations and adjustments used by the
Mortgage Loan Seller for its underwriting process and may or may not reflect
the amounts calculated and adjusted by the Rating Agencies for their own
analysis. In addition, "Net Cash Flow" and the DSCR derived therefrom are not
a substitute for cash flow as determined in accordance with generally
accepted accounting principles as a measure of the results of the property's
operations or a substitute for cash flows from operating activities
determined in accordance with generally accepted accounting principles as a
measure of liquidity.
Reletting costs and capital expenditures are crucial to the operation of
commercial and multifamily properties. Each investor should make its own
assessment of the level of reletting costs and capital expenditures of the
Mortgaged Properties, and the consequent effect of such costs and
expenditures on the actual net operating income, Net Cash Flow and DSCRs of
the Mortgage Loans.
No representation is made as to the future net cash flow of the
properties, nor is "Net Cash Flow" set forth herein intended to represent
such future net cash flow.
(2) "NOI" means Net Cash Flow before deducting for capital expenditures,
tenant improvements and leasing commissions.
(3) "1995 NOI", "1996 NOI" and "1997 NOI" (which is for the period ending
as of the date specified in Annex B) is the net operating income for a
Mortgaged Property as established by information provided by the borrowers,
except that in certain cases such net operating income has been adjusted by
removing certain non-recurring expenses and revenue or by certain other
normalizations. 1995 NOI, 1996 NOI and 1997 NOI do not necessarily reflect
accrual of certain costs such as taxes and capital expenditures and do not
reflect non-cash items such as depreciation or amortization. In some cases,
capital expenditures may have been treated by a borrower as an expense or
expenses treated as capital expenditures. The Depositor has not made any
attempt to verify the accuracy of any information provided by each borrower
or to reflect changes in net operating income that may have occurred since
the date of the information provided by each borrower for the related
Mortgaged Property. 1995 NOI, 1996 NOI and 1997 NOI were not necessarily
determined in accordance with generally accepted accounting principles.
Moreover, 1995 NOI, 1996 NOI and 1997 NOI are not a substitute for net income
determined in accordance with generally accepted accounting principles as a
measure of the results of a property's operations or a substitute for cash
flows from operating activities determined in accordance with generally
accepted accounting principles as a measure of liquidity and in certain cases
may reflect partial-year annualizations.
S-77
<PAGE>
For purposes of determining 1997 NOI as set forth on Annex B:
"Ann." means an annualized NOI calculated for the period indicated; and
"TTM" means NOI calculated for the trailing twelve months ending on the
date indicated.
"Imp TTM" means less than 12-months operating results were available and
an imputed TTM was calculated from available information.
(4) "Allocated Loan Amount" means, for each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to
such Mortgaged Property for certain purposes (including, without limitation,
determining the release prices of properties, if the Mortgage Loan permits
such releases) under such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property securing a Mortgage Loan was determined generally based on
the ratio of the Net Cash Flow or net operating income (calculated as
provided in the related Mortgage Loan) or appraised value, or some
combination thereof, of such Mortgaged Property to the aggregate Net Cash
Flow or appraised value, or some combination thereof, of all the Mortgaged
Properties securing such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property may be adjusted upon the payment of principal of the
related Mortgage Loan, whether upon amortization, prepayment, or otherwise.
"Cut-off Date Allocated Loan Amount" means for each Mortgaged Property the
Allocated Loan Amount of such property as of the Cut-off Date. There can be
no assurance, and it is unlikely, that the Allocated Loan Amounts represent
the current values of individual Mortgaged Properties, the price at which an
individual Mortgaged Property could be sold in the future to a willing buyer
or the replacement cost of the Mortgaged Properties.
(5) "Original Loan Balance" means the principal balance of the Mortgage
Loan as of the date of origination.
(6) "Cut-off Date Principal Balance" means the principal balance of the
Mortgage Loan as of the Cut-off Date.
(7) "Cut-off Date Principal Balance/Unit" means the principal balance per
unit of measure as of the Cut-off Date.
(8) "Monthly Payment" means for any Mortgage Loan the current monthly debt
service payable commencing on November 11, 1997 on the related Mortgage Loan,
or with respect to the Circuit City Loans, the current monthly debt service
payable on October 25, 1997. The Monthly Payment for each Mortgage Loan other
than the Swiss Bank Loan, the Comsat Senior Loan, the Comsat Junior Loan, the
Three Penn Plaza Loan, the Cablevision Loan and the Kmart Loans (the "Special
Amortization Loans") is a constant payment throughout the term of each such
Mortgage Loan. The Special Amortization Loans, other than the Comsat Junior
Loan, have fixed Monthly Payments based upon a stated amortization schedule.
The Comsat Junior Loan does not require Monthly Payments.
(9) "Net Cash Flow DSCR" and NOI DSCR are as defined in the notes
following the table "General Mortgage Loan Characteristics."
(10) "Stated Maturity Date" means the maturity date of the Mortgage Loan
as stated in the related Note or Loan Agreement.
(11) "Anticipated Repayment Date" means for ARD Mortgage Loans, the date
on which excess cash flow is retained pursuant to the related Lock-box
Agreements to application to payment of principal and with respect to certain
of the ARD Loans the date on which Excess Interest begins to accrue.
(12) "Anticipated Remaining Term" means the term of the Mortgage Loan from
the Cut-off Date to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(13) "Remaining Lock-out" means the period of the term of the related
Mortgage Loan from the Cut-off Date during which the Mortgage Loan may not be
prepaid.
(14) "Value" means for each of the Mortgaged Properties, the appraised
value of such property as determined by an appraisal thereof prepared by an
MAI appraiser made not more than 18 months prior to the origination date of
the related Mortgage Loan.
(15) "Balloon/Anticipated Repayment Date LTV" for any Mortgage Loan is
calculated in the same manner as Cut-off Date LTV, except that the Mortgage
Loan Cut-off Date Principal Balance used to calculate the Cut-off Date LTV
has been adjusted to give effect to the amortization of the applicable
Mortgage Loan as of its maturity date or, in the case of a Mortgage Loan that
has an Anticipated Repayment Date, as of its Anticipated Repayment Date. Such
calculation thus assumes that the appraised value of the Mortgaged Property
or Properties securing a Mortgage Loan on the maturity date or Anticipated
Repayment Date, as applicable, is the same as the appraised value as of the
Cut-off Date. There can be no assurance that the value of any particular
Mortgaged Property will not have declined from the appraised value.
S-78
<PAGE>
(16) "Amortization" means, except with respect to the Comsat Senior Loan,
the Comsat Junior Loan, Three Penn Plaza Loan, the Cablevision Loan and the
Kmart Loans, the number of months, based on the constant Monthly Payment as
stated in the related Note or Loan Agreement, that would be necessary to
reduce the principal balance of the related Note to zero if interest on such
Note was calculated based on twelve 30-day months and a 360-day year. With
respect to the Comsat Senior Loan, the Comsat Junior Loan, the Three Penn
Plaza Loan, the Cablevision Loan and the Kmart Loans, amortization means the
number of months necessary to fully amortize the respective Mortgage Loan on
the unlevel amortization schedules described herein.
(17) "Year Built/Renovated" means the year in which the respective
Mortgaged Property was built and/or renovated.
(18) "Units" and "Type" mean the number of units in the respective
Mortgaged Property and the type of such Units.
(19) "Occupancy" means the percentage of gross leaseable area, rooms,
units, beds or sites of the property that are leased. Occupancy rates are
calculated within a recent period and in certain cases reflect the average
occupancy rate over a period of time.
(20) "U/W Occupancy" means the occupancy rate used in determining Net Cash
Flow.
(21) "Tenant 1" "Tenant 2" and Tenant 3" (each a "Tenant") mean, with
respect to the Office Properties, Retail Properties, respectively the
largest, second and third largest tenants, if any. With respect to the Retail
Properties such Tenants may be viewed as anchor tenants. An asterisk next to
a Tenant means that the space occupied by such tenant is not owned by the
related borrower.
(22) " % of Total SF" means the square feet leased to Tenant as a
percentage of the total square feet of the Mortgaged Property.
(23) "Lease Expiration Date" means the year in which a Tenant's lease is
schedule to expire.
(24) "Audit/Agreed Upon Procedures Upfront" indicates Mortgaged Properties
for which independent accountants performed audits, reviews or specified
procedures upon financial information provided by the borrower at the request
of the Mortgage Loan Seller or the borrower. The cash flow and NOI
information presented in Annex B may not correspond to the comparable
information included in the accountants' reports because of adjustments made
by the Mortgage Loan Seller as part of its underwriting procedures.
(25) "Audit/Agreed Upon Procedures Forward" indicates Mortgaged Properties
for which annual independent accountant audits as specified procedures are
required throughout the term of the Mortgage Loan.
(26) "Actual On-going Capital Reserve" means the annual reserves, as
indicated, per unit of measure or as a percentage of gross revenue and
escrowed on a monthly basis.
(27) "Underwritten On-going Capital Reserves" means the annual reserve per
Unit or as a percentage of gross revenue deducted from NOI for purposes of
calculating Net Cash Flow.
(28) "GLA" means the square footage of the gross leaseable area of each
Mortgaged Property.
Due to rounding, percentages in the following tables may not add to 100% and
amounts may not add to indicated total or subtotal.
Mortgaged Properties secured, or partially secured, by a leasehold estate
are indicated on Annex B under the heading "Property Name" with an asterisk.
Mortgage Loans accruing interest on the basis of the actual number of days
elapsed and a 360-day year are indicated on Annex A under the heading
"Mortgage Rate" with an asterisk.
The tables below set forth certain summary information regarding the
Mortgage Loans. See Annex A hereto for certain characteristics of Mortgage
Loans on a loan-by-loan basis. All percentages of Initial Pool Balances used
herein and in Annex A are based upon the Cut-off Date Principal Balance of
the related Mortgage Loan or, with respect to Mortgage Loans secured by more
than one Mortgaged Property (each, a "Pool Loan"), are based upon the
Allocated Loan Amount of the related Mortgaged Property. All weighted average
information regarding the Mortgage Loans reflects weighting of the Mortgage
Loans by their Cut-off Date Principal Balances or, with respect to Pool
Loans, Allocated Loan Amounts. The "Cut-off Date Principal Balance" of each
Mortgage Loan is equal to the unpaid principal balance thereof as of the
Cut-off Date, after application of all payments of principal due on or before
such date, whether or not received. All numerical information provided herein
and in Annex A and Annex B with respect to the Mortgage Loans is provided on
an approximate basis. Certain statistical information set forth herein 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. No Mortgage
Loan represents more than 7% of the entire pool of Mortgage Loans. See
"Description of the Mortgage Pool -- Changes in Mortgage Pool
Characteristics" herein.
S-79
<PAGE>
The information set forth in the following tables, Annex A and Annex B
with respect to: (a) Weighted Average DSCR, Weighted Average Net Cash Flow
DSCR, Weighted Average NOI DSCR or Weighted Average LTV, is calculated
excluding the Credit Lease Loans, (b) the Weighted Average Amortization is
calculated excluding the Three Penn Plaza Loan, the Comsat Loan, the
Cablevision Loan and the Builder's Square-New Jersey Loan and (c) the
Balloon/ARD Balances with respect to the Mortgage Loans secured by Southwinds
Apartments and the Saul Centers Properties is calculated assuming that all
scheduled prepayments are made. Additionally, the NOI for the Swiss Bank
Tower Loan shown and used in calculations is determined from the net
operating income with respect to the related property and not limited to net
operating income with respect to the Air Rights Lease.
RANGE OF DEBT SERVICE COVERAGE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
NUMBER OF CUT-OFF DATE DATE AVERAGE
CUT-OFF DATE DEBT LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE
SERVICE COVERAGE RATIO POOLS BALANCE BALANCE RATE
- ---------------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
1.0-1.099.............. 20 $ 171,595,846 9.8% 8.051%
1.1-1.199.............. 2 11,391,331 0.6 8.332
1.2-1.299.............. 38 524,049,294 29.9 8.184
1.3-1.399.............. 32 379,725,439 21.6 8.396
1.4-1.499.............. 29 175,255,374 10.0 8.594
1.5-1.599.............. 18 222,027,303 12.7 8.545
1.6-1.699.............. 9 110,464,813 6.3 8.680
1.7-1.799.............. 2 49,243,035 2.8 7.331
1.8-1.899.............. 1 49,857,134 2.8 8.750
1.9-1.999.............. 1 3,495,179 0.2 8.714
2.0-2.099.............. 1 2,745,493 0.2 7.870
2.1-2.199.............. 2 54,165,394 3.1 9.592
------------ -------------- ------------ ----------
Total/Wtd. Avg ........ 155 $1,754,015,636 100% 8.372%
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
ANTICIPATED AVERAGE WEIGHTED WEIGHTED
CUT-OFF DATE DEBT REMAINING AMORTIZATION AVERAGE AVERAGE
SERVICE COVERAGE RATIO TERM TERM DSCR LTV
- ---------------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
1.0-1.099.............. 220 255 N/A N/A
1.1-1.199.............. 135 355 1.19 76%
1.2-1.299.............. 138 346 1.27 76
1.3-1.399.............. 136 344 1.33 70
1.4-1.499.............. 133 313 1.45 66
1.5-1.599.............. 159 339 1.52 64
1.6-1.699.............. 160 297 1.64 56
1.7-1.799.............. 133 384 1.76 47
1.8-1.899.............. 238 240 1.83 58
1.9-1.999.............. 172 180 1.97 66
2.0-2.099.............. 81 360 2.02 50
2.1-2.199.............. 178 234 2.12 72
------------- -------------- ---------- ----------
Total/Wtd. Avg ........ 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
CUT-OFF WEIGHTED AVERAGE
NUMBER OF CUT-OFF DATE DATE AVERAGE ANTICIPATED
LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE REMAINING
LOAN TO VALUE RATIO POOLS BALANCE BALANCE RATE TERM
- ------------------- ------------ -------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
45%-49.99%.......... 4 $ 52,092,220 3.0% 7.539% 138
50%-54.99%.......... 10 180,934,385 10.3 8.431 141
55%-59.99%.......... 11 208,858,680 11.9 8.635 188
60%-64.99%.......... 15 96,121,439 5.5 8.856 125
65%-69.99%.......... 28 271,298,576 15.5 8.290 141
70%-74.99%.......... 36 336,648,623 19.2 8.581 136
75%-79.99%.......... 25 391,025,449 22.3 8.166 143
80%-84.99%.......... 5 48,123,723 2.7 7.863 151
85%-89.99%.......... 2 39,238,709 2.2 8.554 125
GREATER THAN 95% ... 19 129,673,833 7.4 8.225 252
------------ -------------- ------------ ---------- -------------
TOTAL/WTD. AVG ..... 155 $1,754,015,636 100% 8.372% 153
============ ============== ============ ========== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
AMORTIZATION AVERAGE AVERAGE MINIMUM MAXIMUM
LOAN TO VALUE RATIO TERM DSCR LTV DSCR DSCR
- ------------------- -------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
45%-49.99%.......... 377 1.76 47% 1.59 2.02
50%-54.99%.......... 298 1.58 53 1.28 2.13
55%-59.99%.......... 320 1.59 59 1.30 1.83
60%-64.99%.......... 321 1.41 64 1.27 1.66
65%-69.99%.......... 330 1.37 67 1.20 1.97
70%-74.99%.......... 317 1.46 73 1.21 2.12
75%-79.99%.......... 354 1.30 78 1.19 1.69
80%-84.99%.......... 360 1.30 81 1.25 1.38
85%-89.99%.......... 360 1.21 85 1.20 1.29
GREATER THAN 95% ... 255 N/A N/A N/A N/A
-------------- ---------- ---------- --------- ---------
TOTAL/WTD. AVG ..... 325 1.43 69% 1.19 2.13
============== ========== ========== ========= =========
</TABLE>
S-80
<PAGE>
RANGE OF LOAN-TO-VALUE RATIOS AT EARLIER OF ANTICIPATED
REPAYMENT DATES OR MATURITY
<TABLE>
<CAPTION>
RANGE OF PERCENT BY WEIGHTED
LOAN-TO-VALUE AGGREGATE WEIGHTED AVERAGE
RATIOS NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE ANTICIPATED
AT ARD OR LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE REMAINING
MATURITY POOLS BALANCE BALANCE RATE TERM
- -------------- ------------ -------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
LESS THAN 30% . 29 $ 357,607,472 20.4% 8.075% 206
30%-34.99%..... 5 23,895,817 1.4 9.252 157
35%-39.99%..... 3 131,176,370 7.5 8.987 177
40%-44.99%..... 7 30,652,981 1.7 8.677 141
45%-49.99%..... 13 231,811,523 13.2 8.449 155
50%-54.99%..... 18 138,651,903 7.9 8.463 150
55%-59.99%..... 24 218,331,954 12.4 8.367 129
60%-64.99%..... 26 177,917,623 10.1 8.299 131
65%-69.99%..... 19 339,747,144 19.4 8.303 126
70%-74.99%..... 10 68,224,139 3.9 8.336 122
75%-79.99%..... 1 35,998,709 2.1 8.500 120
------------ -------------- -------------- ---------- -------------
TOTAL/WTD.
AVG........... 155 $1,754,015,636 100% 8.372% 153
============ ============== ============== ========== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF
LOAN-TO-VALUE WEIGHTED
RATIOS AVERAGE WEIGHTED WEIGHTED
AT ARD OR AMORTIZATION AVERAGE AVERAGE MINIMUM MAXIMUM
MATURITY TERM DSCR LTV DSCR DSCR
- -------------- -------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
LESS THAN 30% . 246 1.47 71% 1.26 2.13
30%-34.99%..... 223 1.34 67 1.23 1.63
35%-39.99%..... 277 1.81 61 1.40 2.12
40%-44.99%..... 296 1.49 57 1.41 1.64
45%-49.99%..... 350 1.56 56 1.28 2.02
50%-54.99%..... 331 1.40 65 1.20 1.77
55%-59.99%..... 321 1.40 69 1.23 1.63
60%-64.99%..... 343 1.33 73 1.23 1.69
65%-69.99%..... 358 1.30 76 1.21 1.50
70%-74.99%..... 360 1.33 80 1.19 1.52
75%-79.99%..... 360 1.20 85 1.20 1.20
-------------- ---------- ---------- --------- ---------
TOTAL/WTD.
AVG........... 325 1.43 69% 1.19 2.13
============== ========== ========== ========= =========
</TABLE>
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
CUT-OFF DATE DATE AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE
STATE PROPERTIES BALANCE BALANCE RATE
- -------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
NJ............. 19 183,844,113 10.5% 7.892%
OH............. 25 181,936,742 10.4 8.087
MD............. 15 177,827,466 10.1 8.487
TX............. 25 166,436,070 9.5 8.264
VA............. 9 126,795,808 7.2 8.418
NY............. 10 113,973,430 6.5 8.163
CA............. 19 99,641,390 5.7 9.010
GA............. 3 80,501,075 4.6 8.579
AL............. 3 71,729,934 4.1 8.468
MA............. 12 65,511,181 3.7 8.549
IL............. 4 60,997,252 3.5 9.265
BWI............ 1 49,857,134 2.8 8.750
NC............. 7 48,937,821 2.8 8.396
FL............. 11 45,879,661 2.6 8.427
MI............. 10 41,047,548 2.3 8.158
PA............. 10 28,155,727 1.6 8.802
AZ............. 5 24,825,648 1.4 7.889
MO............. 1 23,832,128 1.4 8.670
KY............. 3 21,624,879 1.2 8.148
CO............. 3 19,366,767 1.1 8.270
SC............. 3 15,869,450 0.9 8.159
DE............. 2 14,590,484 0.8 8.148
RI............. 1 14,400,000 0.8 8.090
CT............. 2 12,556,691 0.7 8.540
MN............. 2 11,634,857 0.7 8.619
OR............. 1 10,880,000 0.6 8.040
IN............. 2 9,046,136 0.5 7.469
TN............. 2 8,136,485 0.5 9.180
WA............. 2 5,876,126 0.3 8.090
MT............. 2 3,870,617 0.2 8.858
AR............. 1 3,865,000 0.2 7.810
NE............. 1 2,500,000 0.1 8.080
ME............. 1 2,392,170 0.1 8.760
KS............. 1 2,196,838 0.1 8.290
MS............. 1 2,000,000 0.1 8.880
NH............. 1 1,479,009 0.1 8.580
------------ -------------- ------------ ----------
Total/Wtd.
Avg........... 220 $1,754,015,636 100% 8.372%
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ANTICIPATED WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE AVERAGE
STATE TERM AMORTIZATION DSCR LTV
- -------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
NJ............. 161 275 1.30 75%
OH............. 152 338 1.34 71
MD............. 153 347 1.44 69
TX............. 160 336 1.29 79
VA............. 146 350 1.39 68
NY............. 120 344 1.58 54
CA............. 134 303 1.43 65
GA............. 175 299 1.63 55
AL............. 125 351 1.33 68
MA............. 123 335 1.32 69
IL............. 190 240 2.10 73
BWI............ 238 240 1.83 58
NC............. 177 331 1.47 62
FL............. 158 317 1.41 72
MI............. 173 310 1.39 73
PA............. 162 298 1.38 69
AZ............. 120 358 1.47 68
MO............. 138 360 1.29 79
KY............. 120 360 1.33 79
CO............. 115 357 1.35 72
SC............. 136 322 1.30 72
DE............. 140 360 1.38 72
RI............. 123 360 1.27 65
CT............. 229 300 1.57 75
MN............. 137 300 1.51 74
OR............. 121 360 1.33 78
IN............. 169 310 1.26 80
TN............. 216 258 1.63 76
WA............. 179 360 1.26 74
MT............. 155 216 1.32 67
AR............. 123 300 1.69 80
NE............. 243 324 1.26 74
ME............. 116 300 1.29 75
KS............. 118 324 1.47 73
MS............. 123 300 1.51 63
NH............. 118 324 1.30 80
------------- -------------- ---------- ----------
Total/Wtd.
Avg........... 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
S-81
<PAGE>
RANGE OF YEAR BUILT
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
CUT-OFF DATE DATE AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE
RANGE OF YEAR BUILT PROPERTIES BALANCE BALANCE RATE
- ------------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
Prior to 1900....... 3 $ 6,349,766 0.4% 9.202%
1900-1909........... 3 45,516,324 2.6 8.606
1910-1919........... 3 58,698,199 3.3 9.422
1920-1929........... 6 33,958,549 1.9 8.915
1950-1959........... 16 145,964,339 8.3 8.584
1960-1969........... 43 305,506,305 17.4 8.232
1970-1979........... 58 443,069,463 25.3 8.497
1980-1989........... 60 365,252,127 20.8 8.271
1990-1997........... 28 349,700,564 19.9 8.079
------------ -------------- ------------ ----------
Total/Wtd. Avg...... 220 $1,754,015,636 100% 8.372%
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
ANTICIPATED AVERAGE WEIGHTED WEIGHTED
REMAINING AMORTIZATION AVERAGE AVERAGE
RANGE OF YEAR BUILT TERM TERM DSCR LTV
- ------------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Prior to 1900....... 151 306 1.49 65%
1900-1909........... 121 343 1.37 60
1910-1919........... 172 247 2.01 72
1920-1929........... 109 300 1.47 61
1950-1959........... 167 346 1.51 61
1960-1969........... 140 340 1.34 72
1970-1979........... 138 335 1.40 69
1980-1989........... 133 334 1.36 71
1990-1997........... 205 279 1.50 67
------------- -------------- ---------- ----------
Total/Wtd. Avg...... 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
S-82
<PAGE>
CUT-OFF DATE LOAN AMOUNT BY PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF CUT-OFF WEIGHTED WEIGHTED
DATE DATE CUT-OFF AVERAGE AVERAGE WEIGHTED
NUMBER OF PRINCIPAL PRINCIPAL NUMBER OF BALANCE/ MORTGAGE REMAINING AVERAGE
PROPERTY TYPE PROPERTIES BALANCE BALANCE UNITS UNIT RATE TERM AMORTIZATION
- ---------------- ---------- -------------- ---------- --------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Anchored......... 56 $ 494,658,828 28.2% 8,591,006 58 8.486% 175 334
Unanchored....... 6 14,043,025 0.8 238,984 59 8.804 133 300
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total Retail..... 62 508,701,854 29.0 8,829,990 58 8.495 174 333
Office
Office........... 29 436,461,985 24.9 5,554,410 79 8.191 136 337
Air Rights....... 1 45,000,000 2.6 314,375 143 7.280 138 386
Medical Office .. 7 29,399,843 1.7 192,843 152 8.788 133 245
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total Office..... 37 510,861,828 29.1 6,061,628 84 8.145 136 336
Multifamily...... 59 339,628,078 19.4 13,184 25,761 8.131 128 355
Hotel
Full Service..... 21 227,851,483 13.0 4,009 56,835 8.756 173 283
Ltd. Service..... 5 8,742,041 0.5 434 20,143 9.221 149 277
Extended Stay ... 1 3,378,700 0.2 70 48,267 8.764 144 300
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total Hotel...... 27 239,972,224 13.7 4,513 53,174 8.773 171 283
Healthcare
Hospital......... 1 49,931,286 2.8 241 207,184 9.670 179 240
Nursing.......... 4 7,729,287 0.4 356 21,711 8.690 172 168
Congegrate Care . 1 3,477,631 0.2 85 40,913 9.230 174 264
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total
Healthcare...... 6 61,138,205 3.5 682 89,645 9.521 178 232
Industrial
Warehouse........ 5 35,912,534 2.0 1,546,748 23 7.800 213 257
Industrial....... 8 24,858,970 1.4 673,588 37 7.890 119 300
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total
Industrial...... 13 60,771,504 3.5 2,220,336 27 7.837 175 275
Mobile Home
Park............ 16 32,941,943 1.9 2,488 13,240 8.411 127 348
---------- -------------- ---------- --------- -------- -------- --------- ------------
Total/Wtd. Avg. . 220 $1,754,015,636 100% 8.372% 153 325
========== ============== ========== ========= ======== ======== ========= ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
LTV
AS OF THE WEIGHTED WEIGHTED
WEIGHTED WEIGHTED ANTICIPATED WEIGHTED AVERAGE WEIGHTED AVERAGE
MIN MAX AVERAGE AVERAGE REPAYMENT AVERAGE NUMBER OF AVERAGE YEAR
PROPERTY TYPE DSCR DSCR DSCR LTV DATE/MATURITY OCCUPANCY UNITS LOAN/UNIT BUILT/RENOVATED
- ---------------- ---- ---- -------- -------- ------------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Anchored......... 1.20 1.69 1.39 69% 46% 93% 283,378 75 1988
Unanchored....... 1.31 1.49 1.41 68 55 94 45,355 60 1989
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total Retail..... 1.20 1.69 1.39 69 46 93 276,807 75 1988
Office
Office........... 1.26 1.61 1.33 70 42 96 446,723 106 1990
Air Rights....... 1.76 1.76 1.76 46 46 100 314,375 143 1990
Medical Office .. 1.23 1.41 1.31 72 44 95 58,834 164 1994
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total Office..... 1.23 1.76 1.37 68 43 96 412,742 113 1990
Multifamily...... 1.19 1.64 1.31 76 66 95 348 28,185 1992
Hotel
Full Service..... 1.39 1.83 1.62 59 35 70 494 87,177 1986
Ltd. Service..... 1.50 1.63 1.56 62 44 71 83 27,467 1994
Extended Stay ... 1.50 1.50 1.50 73 58 83 70 48,267 1997
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total Hotel...... 1.39 1.83 1.61 60 36 70 473 84,454 1987
Healthcare
Hospital......... 2.12 2.12 2.12 73 36 68 241 207,184 1983
Nursing.......... 1.97 2.13 2.06 58 1 93 99 23,718 1968
Congegrate Care . 1.42 1.42 1.42 68 40 100 85 40,913 1995
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total
Healthcare...... 1.42 2.13 2.07 71 32 73 214 174,532 1982
Industrial
Warehouse........ 1.30 1.40 1.37 58 12 96 379,623 36 1990
Industrial....... 1.32 1.38 1.36 67 55 96 107,930 41 1981
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total
Industrial...... 1.30 1.40 1.36 65 30 96 268,485 38 1986
Mobile Home
Park............ 1.24 2.02 1.43 71 61 95 209 13,896 1981
---- ---- -------- -------- ------------- --------- --------- --------- ---------------
Total/Wtd. Avg. . 1.19 2.13 1.43 69% 47% 91% 1989
==== ==== ======== ======== ============= ========= ========= ========= ===============
</TABLE>
S-83
<PAGE>
RANGE OF LOAN AMOUNTS OR LOAN BALANCES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
NUMBER OF CUT-OFF DATE DATE AVERAGE
RANGE OF CUT-OFF DATE LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE
LOAN AMOUNTS POOLS BALANCE BALANCE RATE
- ----------------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
less than $1,000,000 ... 5 $ 4,249,648 0.2% 8.916%
1,000,000-4,999,999 .... 81 239,549,130 13.7 8.450
5,000,000-9,999,999 .... 29 213,956,888 12.2 8.283
10,000,000-14,999,999 .. 14 168,074,392 9.6 8.689
15,000,000-19,999,999 .. 8 139,340,365 7.9 8.356
20,000,000-24,999,999 .. 2 48,332,128 2.8 8.275
35,000,000-39,999,999 .. 4 147,657,522 8.4 8.675
40,000,000-44,999,999 .. 1 41,922,013 2.4 7.515
45,000,000-49,999,999 .. 4 189,788,420 10.8 8.397
50,000,000-54,999,999 .. 1 50,775,000 2.9 8.380
55,000,000-59,999,999 .. 1 57,170,900 3.3 8.500
60,000,000-64,999,999 .. 1 61,410,564 3.5 8.270
70,000,000-74,999,999 .. 1 74,745,084 4.3 8.560
85,000,000-89,999,999 .. 1 86,043,583 4.9 8.000
100,000,000-124,999,999 2 231,000,000 13.2 8.194
------------ -------------- ------------ ----------
Total/Wtd. Avg.......... 155 $1,754,015,636 100% 8.372%
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
ANTICIPATED ANTICIPATED WEIGHTED WEIGHTED
RANGE OF CUT-OFF DATE REMAINING AMORTIZATION AVERAGE AVERAGE
LOAN AMOUNTS TERM TERM DSCR LTV
- ----------------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
less than $1,000,000 ... 144 324 1.35 69%
1,000,000-4,999,999 .... 149 304 1.43 69
5,000,000-9,999,999 .... 171 311 1.38 71
10,000,000-14,999,999 .. 134 321 1.39 64
15,000,000-19,999,999 .. 138 320 1.36 71
20,000,000-24,999,999 .. 159 360 1.27 80
35,000,000-39,999,999 .. 140 344 1.35 77
40,000,000-44,999,999 .. 119 N/A N/A N/A
45,000,000-49,999,999 .. 171 289 1.78 62
50,000,000-54,999,999 .. 120 360 1.26 73
55,000,000-59,999,999 .. 119 360 1.31 68
60,000,000-64,999,999 .. 177 360 1.31 66
70,000,000-74,999,999 .. 176 300 1.64 54
85,000,000-89,999,999 .. 120 360 1.29 77
100,000,000-124,999,999 177 360 1.41 69
------------- -------------- ---------- ----------
Total/Wtd. Avg.......... 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
RANGE OF ANTICIPATED REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
CUT-OFF WEIGHTED AVERAGE WEIGHTED
CUT-OFF DATE DATE AVERAGE ANTICIPATED AVERAGE WEIGHTED WEIGHTED
RANGE OF ANTICIPATED NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE REMAINING AMORTIZATION AVERAGE AVERAGE
REMAINING TERM NOTES BALANCE BALANCE RATE TERM TERM DSCR LTV
- -------------------- ----------- -------------- ------------ ---------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
less than 72......... 1 $ 2,797,127 0.2% 8.150% 62 300 1.37 58%
72-83.9 ............. 5 18,810,188 1.1 8.289 79 336 1.61 61
84-95.9 ............. 1 14,573,490 0.8 9.010 84 300 1.46 51
108-119.9............ 42 350,506,001 20.0 8.446 117 336 1.36 69
120-131.9............ 41 439,356,119 25.0 8.176 121 345 1.33 73
132-143.9............ 6 103,309,952 5.9 7.993 139 357 1.55 61
144-155.9............ 4 64,596,320 3.7 8.749 145 280 1.40 73
168-179.9............ 21 340,109,709 19.4 8.441 175 298 1.52 68
180-191.9............ 15 233,943,032 13.3 8.566 180 351 1.43 67
228-239.9............ 11 98,219,258 5.6 8.128 238 239 1.81 58
240-251.9............ 2 13,937,915 0.8 8.520 241 324 1.26 74
252-263.9............ 8 56,791,469 3.2 8.608 261 265 N/A N/A
264-275.9............ 2 17,065,058 1.0 8.806 266 272 N/A N/A
----------- -------------- ------------ ---------- ------------- -------------- ---------- ----------
Total/Wtd. Avg....... 159 $1,754,015,636 100% 8.372% 153 325 1.43 69%
=========== ============== ============ ========== ============= ============== ========== ==========
</TABLE>
S-84
<PAGE>
RANGE OF REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
CUT-OFF DATE DATE AVERAGE
RANGE OF REMAINING NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE
TERM NOTES BALANCE BALANCE RATE
- ------------------ ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
108-119.9.......... 2 $ 43,200,158 2.5% 7.567%
168-179.9.......... 7 15,693,050 0.9 8.788
192-203.9.......... 1 15,964,536 0.9 8.980
228-239.9.......... 16 155,876,711 8.9 8.691
240-251.9.......... 3 21,895,059 1.2 8.570
252-263.9.......... 8 56,791,469 3.2 8.608
264-275.9.......... 2 17,065,058 1.0 8.806
288-299.9.......... 43 373,826,565 21.3 8.361
300-311.9.......... 15 143,854,660 8.2 8.424
312-323.9.......... 5 21,196,559 1.2 8.884
324-335.9.......... 3 8,910,184 0.5 8.719
336-347.9.......... 2 18,134,596 1.0 9.045
348-359.9.......... 28 334,238,806 19.1 8.294
360-361.9.......... 23 482,368,224 27.5 8.350
greater than 362 .. 1 45,000,000 2.6 7.280
----------- -------------- ------------ ----------
Total/Wtd. Avg. ... 159 $1,754,015,636 100% 8.372%
=========== ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
ANTICIPATED ANTICIPATED WEIGHTED WEIGHTED
RANGE OF REMAINING REMAINING AMORTIZATION AVERAGE AVERAGE
TERM TERM TERM DSCR LTV
- ------------------ ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
108-119.9.......... 119 300 1.41 71%
168-179.9.......... 173 206 1.70 63
192-203.9.......... 146 198 1.23 72
228-239.9.......... 214 240 1.93 66
240-251.9.......... 209 241 1.43 59
252-263.9.......... 261 265 N/A N/A
264-275.9.......... 266 272 N/A N/A
288-299.9.......... 149 300 1.43 67
300-311.9.......... 127 300 1.44 66
312-323.9.......... 115 324 1.33 61
324-335.9.......... 169 333 1.28 70
336-347.9.......... 127 352 1.30 67
348-359.9.......... 132 360 1.33 72
360-361.9.......... 146 360 1.36 72
greater than 362 .. 138 386 1.76 46
------------- -------------- ---------- ----------
Total/Wtd. Avg. ... 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
ANTICIPATED REPAYMENT BY YEAR
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE
CUT-OFF WEIGHTED
DATE AVERAGE
NUMBER OF CUT-OFF DATE PRINCIPAL MORTGAGE
YEAR NOTES PRINCIPAL BALANCE BALANCE RATE
- -------------- ----------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
2002........... 1 $ 2,797,127 0.2% 8.150%
2004........... 6 33,383,678 1.9 8.604
2006........... 2 6,542,696 0.4 8.708
2007........... 71 719,322,328 41.0 8.288
2008........... 10 63,997,096 3.6 8.343
2009........... 10 167,906,272 9.6 8.284
2011........... 1 8,334,034 0.5 8.710
2012........... 29 532,278,706 30.3 8.499
2013........... 6 33,440,000 1.9 8.331
2017........... 12 109,657,173 6.3 8.179
2018........... 1 2,500,000 0.1 8.080
2019........... 9 66,201,599 3.8 8.638
2020........... 1 7,654,927 0.4 8.792
----------- ----------------- ------------ ----------
Total/Wtd.
Avg........... 159 $1,754,015,636 100% 8.372%
=========== ================= ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
ANTICIPATED AVERAGE WEIGHTED WEIGHTED
REMAINING AMORTIZATION AVERAGE AVERAGE
YEAR TERM TERM DSCR LTV
- -------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
2002........... 62 300 1.37 58%
2004........... 81 321 1.54 57
2006........... 110 300 1.52 60
2007........... 119 341 1.34 72
2008........... 124 343 1.31 70
2009........... 141 328 1.49 66
2011........... 170 300 1.50 66
2012........... 177 327 1.49 68
2013........... 183 307 1.44 66
2017........... 238 239 1.81 58
2018........... 243 324 1.26 74
2019........... 262 265 N/A N/A
2020........... 269 272 N/A N/A
------------- -------------- ---------- ----------
Total/Wtd.
Avg........... 153 325 1.43 69%
============= ============== ========== ==========
</TABLE>
S-85
<PAGE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
CUT-OFF WEIGHTED AVERAGE WEIGHTED
CUT-OFF DATE DATE AVERAGE ANTICIPATED AVERAGE WEIGHTED WEIGHTED
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE REMAINING AMORTIZATION AVERAGE AVERAGE
RANGE OF MORTGAGE RATES NOTES BALANCE BALANCE RATE TERM TERM DSCR LTV
- ----------------------- ----------- -------------- ------------ ---------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
less than 7.5% ......... 9 $ 89,379,390 5.1% 7.345% 188 313 1.76 46%
7.5%-7.7499% ........... 16 249,941,437 14.2 7.649 146 330 1.34 75
7.75%-7.9999% .......... 20 144,414,706 8.2 7.921 145 342 1.35 73
8.0%-8.2499% ........... 18 194,105,749 11.1 8.074 131 345 1.31 75
8.25%-8.4999% .......... 15 204,116,097 11.6 8.326 139 350 1.33 70
8.5%-8.7499% ........... 31 441,553,384 25.2 8.596 154 334 1.46 65
8.75%-8.9999% .......... 23 212,418,104 12.1 8.820 181 277 1.52 66
9.0%-9.2499% ........... 16 126,059,017 7.2 9.115 156 322 1.36 69
9.25%-9.4999% .......... 3 6,372,577 0.4 9.392 116 298 1.44 67
9.5%-9.7499% ........... 5 79,521,186 4.5 9.634 161 269 1.88 68
10.0%-10.2499% ........ 3 6,133,989 0.3 10.045 178 283 1.54 52
----------- -------------- ------------ ---------- ------------- -------------- ---------- ----------
Total/Wtd. Avg ......... 159 $1,754,015,636 100% 8.372% 153 325 1.43 69%
=========== ============== ============ ========== ============= ============== ========== ==========
</TABLE>
DELINQUENCY STATUS AS OF MARCH 1, 1997
STATUS
------
No Delinquencies
RANGE OF REMAINING LOCK-OUT PERIOD IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
AGGREGATE WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING CUT-OFF DATE CUT-OFF DATE AVERAGE ANTICIPATED AVERAGE AVERAGE WEIGHTED
LOCK-OUT NUMBER OF PRINCIPAL PRINCIPAL REMAINING REMAINING AMORTIZATION MORTGAGE AVERAGE
PERIOD NOTES BALANCE BALANCE LOCKOUT TERM TERM RATE DSCR
- ---------------- ----------- -------------- -------------- ----------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
less than 60..... 1 $ 2,797,127 0.2% 58 62 300 8.150% 1.37
60-71.9.......... 1 4,686,855 0.3 71 75 300 8.620 1.55
72-83.9.......... 5 28,696,823 1.6 78 82 324 8.601 1.54
96-107.9......... 6 17,220,682 1.0 107 111 319 8.724 1.39
108-119.9........ 76 760,731,842 43.4 115 119 341 8.265 1.34
120-131.9........ 2 19,051,613 1.1 127 131 335 9.093 1.46
132-143.9........ 9 160,764,254 9.2 138 141 329 8.291 1.48
156-167.9........ 5 18,014,746 1.0 166 172 287 8.879 1.42
168-179.9........ 31 556,037,994 31.7 174 178 326 8.479 1.49
216-227.9........ 1 1,550,000 0.1 224 231 231 7.600 1.52
228-239.9........ 12 110,607,173 6.3 237 238 242 8.184 1.79
252-263.9........ 9 66,201,599 3.8 259 262 265 8.638 N/A
264-275.9........ 1 7,654,927 0.4 265 269 272 8.792 N/A
----------- -------------- -------------- ----------- ------------- -------------- ---------- ----------
Total/Wtd. Avg. 159 $1,754,015,636 100% 150 153 325 8.372% 1.43
=========== ============== ============== =========== ============= ============== ========== ==========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
REMAINING WEIGHTED
LOCK-OUT AVERAGE
PERIOD LTV
- ---------------- ----------
<S> <C>
less than 60..... 58%
60-71.9.......... 63
72-83.9.......... 56
96-107.9......... 66
108-119.9........ 72
120-131.9........ 63
132-143.9........ 66
156-167.9........ 65
168-179.9........ 68
216-227.9........ 57
228-239.9........ 59
252-263.9........ N/A
264-275.9........ N/A
----------
Total/Wtd. Avg. 69%
==========
</TABLE>
S-86
<PAGE>
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted 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, a Mortgage
Loan may be removed from the Mortgage Pool if the Depositor deems such
removal necessary or appropriate or if it is prepaid. This may cause the
range of Mortgage Rates and maturities as well as the other characteristics
of the Mortgage Loans to vary from those described herein.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed by the Depositor,
together with the Pooling and Servicing Agreement with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from the
Mortgage Pool as set forth in the preceding paragraph, such removal will be
noted in the Form 8-K. Such Form 8-K will be available to purchasers and
potential purchasers of the Offered Certificates.
S-87
<PAGE>
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of twenty-seven Classes to be designated as the
Class A-1A Certificates, the Class A-1B Certificates, the Class A-1C
Certificates, the Class A-1D Certificates, the Class A-CS1 Certificates, the
Class PS-1 Certificates, the Class A-1E Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates, the Class A-6 Certificates, the Class A-7
Certificates, the Class A-8Z Certificates, the Class B-1 Certificates, the
Class B-2 Certificates, the Class B-3 Certificates, the Class B-3SC
Certificates, the Class B-4 Certificates, the Class B-5 Certificates, the
Class B-6 Certificates, the Class B-7 Certificates, the Class B-7H
Certificates, the Class V-1 Certificates, the Class V-2 Certificates, the
Class R Certificates and the Class LR Certificates. Only the Class A-1A
Certificates, the Class A-1B Certificates, the Class A-1C Certificates, the
Class A-1D Certificates, the Class A-CS1 Certificates, the Class PS-1
Certificates, the Class A-1E Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5
Certificates, the Class A-6 Certificates, the Class A-7 Certificates and the
Class A-8Z Certificates (the "Offered Certificates") are offered hereby. The
Class B-1 Certificates, the Class B-2 Certificates, the Class B-3
Certificates, the Class B-3SC Certificates, the Class B-4 Certificates, the
Class B-5 Certificates, the Class B-6 Certificates, the Class B-7
Certificates, the Class B-7H Certificates, the Class V-1 Certificates, the
Class V-2 Certificates, the Class R Certificates and Class LR Certificates
(the "Private Certificates") are not offered hereby. The Class A-CS1 and
Class PS-1 Certificates are sometimes referred to herein as the "Coupon Strip
Certificates." The Classes of Certificates other than the Class A-8Z, Class
B-3SC, Class V-1, Class V-2, Class R and Class LR Certificates are sometimes
referred to herein as the "Sequential Certificates."
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-off
Date (other than, with respect to the first Due Date for each Mortgage Loan
following the Cut-off Date, interest for the period preceding a date 17 days
prior to such Due Date); (ii) any Mortgaged Property acquired by the Special
Servicer on behalf of the Trust Fund through foreclosure or deed in lieu of
foreclosure (upon acquisition, an "REO Property") such funds or assets as
from time to time are deposited in the Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Interest Reserve Account,
the Excess Interest Distribution Account, the Default Interest Distribution
Account and any account established in connection with REO Properties (an
"REO Account"); (iii) the rights of the mortgagee under all insurance
policies with respect to the Mortgage Loans; (iv) the Depositor's rights and
remedies under the Mortgage Loan Purchase and Sale Agreement, Bloomfield
Purchase Agreement and the CSFB Purchase Agreement; and (v) all of the
mortgagee's right, title and interest in the Reserve Accounts, the Cash
Collateral Accounts and Lock Box Accounts.
The Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-1E, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6, Class A-7 and Class A-8Z
Certificates will have initial Certificate Balances of $165,018,148,
$172,648,684, $712,971,079, $229,793,503, $52,620,469, $87,700,781,
$52,620,469, $26,310,234, $39,465,351, $43,850,390, $21,925,195 and
$5,740,918.77, respectively. The Class B-1, Class B-2, Class B-3, Class
B-3SC, Class B-4, Class B-5 and Class B-6 Certificates will have initial
Certificate Balances of $39,465,351, $39,465,351, $8,770,078, $26,000,000,
$13,155,117, $13,155,117 and $21,925,195, respectively. The Class B-7 and
Class B-7H Certificates will have initial Certificate Balances, in the
aggregate, of approximately $13,155,124. The Class A-CS1 Certificates will
have an initial Notional Balance equal to $165,018,148, which is equal to the
Certificate Balance of the Class A-1A Certificates. The Class PS-1
Certificates will have an initial Notional Balance equal to
$1,754,015,636.33, which is equal to the aggregate Stated Principal Balance
of the Mortgage Loans (other than the Comsat Junior Loan and the SC Junior
Portion of the Saul Centers Retail Pool Loan) as of the Cut-off Date.
The initial Certificate Balance of each of the Class R, Class LR, Class
V-1 and Class V-2 Certificates will be zero. Additionally, the Class R, Class
LR, Class V-1 and Class V-2 Certificates will not have a Notional Balance.
The Certificate Balance of any Class of Certificates outstanding at any
time represents the maximum amount which the holders thereof are entitled to
receive as distributions allocable to principal (other than increases in the
principal balance of the Class A-8Z Certificates resulting from the
capitalization of interest accrued thereon) from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund; provided, however,
that in the event that Realized Losses previously allocated to a Class of
Certificates in reduction of the Certificate Balance thereof are recovered
subsequent to the reduction of the Certificate Balance of such Class to zero,
such Class may receive distributions in respect of such recoveries in
accordance with the priorities set forth under "--Distributions --
Priorities" herein.
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The respective Certificate Balance of each Class of Certificates (other
than the Coupon Strip Certificates, the Class V-1, Class V-2, Class R and
Class LR Certificates) will in each case be reduced by amounts actually
distributed thereon that are allocable to principal and by any Realized
Losses (as defined herein) allocated to such Class of Certificates. The
Notional Balance of the Class A-CS1 Certificates will at all times equal the
Certificate Balance of the Class A-1A Certificates. The Notional Balance of
the Class PS-1 Certificates will for purposes of distributions on each
Distribution Date equal the aggregate Stated Principal Balance of the
Mortgage Loans (other than the Comsat Junior Loan and the SC Junior Portion
of the Saul Centers Retail Pool Loan) as of the first day of the related
Interest Accrual Period. The Notional Balance of the Class PS-1 Certificates
will be reduced to the extent of all reductions in the aggregate Stated
Principal Balance of such Mortgage Loans.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the 14th day of each month or, if such 14th day is not a business day,
then on the next succeeding business day, commencing in November 1997 (each,
a "Distribution Date"); provided, however, that in any month, the
Distribution Date will be no earlier than the third business day following
the 11th day of each month; provided, further, that if the 11th day of a
month is not a business day, then the Distribution Date shall be the fourth
business day following such 11th day. All distributions (other than the final
distribution on any Certificate) will be made by the Trustee to the persons
in whose names the Certificates are registered at the close of business on
the 10th day of the month in which the related Distribution Date occurs, or
if such day is not a business day, the preceding business day (the "Record
Date"); the Record Date for the Distribution Date occurring on November 14,
1997 for all purposes other than the receipt of distributions is the Closing
Date. Such distributions will be made (a) by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder provides the Trustee with wiring instructions no less than
five business days prior to the related Record Date and is the registered
owner of Certificates the aggregate Certificate Balance or Notional Balance,
as applicable, of which is at least $5,000,000, or otherwise (b) by check
mailed to such Certificateholder. The final distribution on any Offered
Certificates will be made in like manner, but only upon presentment or
surrender (for notation that the Certificate Balance thereof has been reduced
to zero) of such Certificate at the location specified in the notice to the
holder thereof of such final distribution. All distributions made with
respect to a Class of Certificates on each Distribution Date will be
allocated pro rata among the outstanding Certificates of such Class based on
their respective Percentage Interests. The "Percentage Interest" evidenced by
any Offered Certificate is equal to the initial denomination thereof as of
the Closing Date divided by the initial Certificate Balance or Notional
Balance, as applicable, of the related Class.
The aggregate distribution to be made with respect to the Certificates
(other than the Class A-8Z Certificates and the Class B-3SC Certificates) on
any Distribution Date will equal the Available Funds. The "Available Funds"
for a Distribution Date will be the sum of all previously undistributed
Monthly Payments or other receipts on account of principal and interest on or
in respect of the Mortgage Loans (including Unscheduled Payments and Net REO
Proceeds, if any) received by the Servicer in the related Collection Period,
plus (i) all P&I Advances (except Subordinate Class Advance Amounts) made by
the Servicer, the Trustee or the Fiscal Agent, as applicable, in respect of
such Distribution Date, (ii) for the Distribution Date occurring in each
March, the "Withheld Amounts" as described under "--The Pooling and Servicing
Agreement -- Accounts -- Interest Reserve Account" and required to be
deposited in the Distribution Account pursuant to the Pooling and Servicing
Agreement, (iii) all other amounts required to be deposited in the Collection
Account by the Servicer pursuant to the Pooling and Servicing Agreement
allocable to the Mortgage Loans, (iv) any late payments of Monthly Payments
received after the end of the Collection Period relating to such Distribution
Date but prior to the related Servicer Remittance Date and (v) any Servicer
Prepayment Interest Shortfalls remitted by the Servicer to the Collection
Account (as described under "--Prepayment Interest Shortfalls"), but
excluding the following:
(a) amounts permitted to be used to reimburse the Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, for previously
unreimbursed Advances and interest thereon as described herein under "The
Pooling and Servicing Agreement -- Advances";
(b) the aggregate amount of the Servicing Fee (which includes the fees
for both the Trustee and the Servicer) and the other Servicing
Compensation (e.g., late fees, loan modification fees, extension fees,
loan service transaction fees, demand fees, beneficiary statement charges,
and similar fees) payable to the Servicer and the Special Servicing Fee,
(and other amounts payable to the Special Servicer described under "The
Pooling and Servicing Agreement --
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Special Servicing" herein), and reinvestment earnings on payments received
with respect to the Mortgage Loans which the Servicer or Special Servicer
is entitled to receive as additional servicing compensation, in each case
in respect of such Distribution Date;
(c) all amounts representing scheduled Monthly Payments due after the
related Due Date;
(d) to the extent permitted by the Pooling and Servicing Agreement, that
portion of liquidation proceeds, insurance proceeds and condemnation
proceeds with respect to a Mortgage Loan which represents any unpaid
Servicing Fee and special servicing compensation together with interest
thereon as described herein, to which the Servicer, the Special Servicer
and the Trustee are entitled;
(e) all amounts representing certain expenses reimbursable or payable to
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent and
other amounts permitted to be retained by the Servicer or withdrawn
pursuant to the Pooling and Servicing Agreement in respect of various
items, including interest thereon as provided in the Pooling and Servicing
Agreement;
(f) Prepayment Premiums;
(g) Default Interest;
(h) Excess Interest;
(i) with respect to the Mortgage Loan known as the Swiss Bank Tower Loan,
and any Distribution Date relating to each Interest Accrual Period ending
in each February or any January occurring in a year which is not a leap
year, an amount equal to one day of interest on the Stated Principal
Balance of each such Mortgage Loan as of the Due Date occurring in the
month preceding the month in which such Distribution Date occurs at the
related Mortgage Rate to the extent such amounts are to be deposited in
the Interest Reserve Account and held for future distribution;
(j) all amounts received with respect to each Mortgage Loan previously
purchased or repurchased pursuant to the Pooling and Servicing Agreement
during the related Collection Period and subsequent to the date as of
which the amount required to effect such purchase or repurchase was
determined;
(k) the amount reasonably determined by the Trustee to be necessary to
pay any applicable federal, state or local taxes imposed on the Upper-Tier
REMIC or the Lower-Tier REMIC under the circumstances and to the extent
described in the Pooling and Servicing Agreement;
(l) the Class A-8Z Available Funds; and
(m) the Class B-3SC Available Funds.
The "Class A-8Z Available Funds" for any Distribution Date is the portion
of Available Funds attributable solely to the Comsat Junior Loan.
The "Class B-3SC Available Funds" is equal to the Available SC Funds minus
the Senior SC Distribution Amount.
The "Available SC Funds" for any Distribution Date is the portion of
Available Funds attributable solely to the Saul Centers Retail Pool Loan.
The "Senior SC Distribution Amount" for any Distribution Date is equal to
the sum of (x) interest accrued during the preceding Interest Accrual Period
at the Net Mortgage Pass-Through Rate for the SC Senior Portion of the Saul
Centers Retail Pool Loan and any previously unpaid Interest Shortfalls plus
(y) all scheduled principal due on the preceding Due Date on the Senior
Portion of the Saul Centers Retail Pool Loan and all Unscheduled Payments of
principal (up to the remaining principal balance of the SC Senior Portion of
the Saul Centers Retail Pool Loan) received during the preceding Collection
Period.
The "Monthly Payment" with respect to any Mortgage Loan (other than any
REO Mortgage Loan) and any Due Date is the scheduled monthly payment of
principal (if any) and interest at the Mortgage Rate, excluding any Balloon
Payment (but not excluding any constant Monthly Payment), which is payable by
the related borrower on the related Due Date. The Monthly Payment with
respect to an REO Mortgage Loan for any Distribution Date is the monthly
payment that would otherwise have been payable on the related Due Date had
the related Note not been discharged, determined as set forth in the Pooling
and Servicing Agreement.
"Unscheduled Payments" are all net liquidation proceeds, net insurance
proceeds and net condemnation proceeds payable under the Mortgage Loans, the
repurchase price of any Mortgage Loan repurchased by the Mortgage Loan Seller
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or Bloomfield due to a breach of a representation or warranty made by them or
the purchase price paid by the parties described under "The Pooling and
Servicing Agreement -- Optional Termination", and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, including
Principal Prepayments, but excluding Prepayment Premiums.
"Net REO Proceeds" with respect to any REO Property and any related REO
Mortgage Loan (as defined herein) are all revenues received by the Special
Servicer with respect to such REO Property or REO Mortgage Loan net of any
insurance premiums, taxes, assessments and other costs and expenses permitted
to be paid therefrom pursuant to the Pooling and Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower on a
Mortgage Loan which are received in advance of the scheduled Due Date for
such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates
in any month or months subsequent to the month of prepayment, other than any
amount paid in connection with the release of the related Mortgaged Property
through defeasance.
The "Collection Period" with respect to a Distribution Date is the period
beginning on the day after the preceding Collection Period (or, with respect
to the first Distribution Date, the day after the Cut-off Date) and ending on
the 11th day in the month in which such Distribution Date occurs (or, if such
day is not a Business Day, the following Business Day).
"Net Default Interest" with respect to any Mortgage Loan is any Default
Interest accrued on such Mortgage Loan less amounts required to pay the
Servicer, the Trustee or Fiscal Agent, as applicable, interest on Advances at
the Advance Rate.
"Default Interest" with respect to any Mortgage Loan is interest accrued
on such Mortgage Loan at the excess of (i) the related Default Rate over (ii)
the sum of the related Mortgage Rate and, if applicable, the related Excess
Rate.
The "Default Rate" with respect to any Mortgage Loan is the per annum rate
at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan including a default in the payment of a Monthly
Payment or a Balloon Payment.
"Excess Interest" with respect to each of the Mortgage Loans that has a
Revised Rate, interest accrued on such Mortgage Loan allocable to the Excess
Rate.
"Excess Rate" with respect to each of the Mortgage Loans that has a
Revised Rate, the difference between (a) the applicable Revised Rate and (b)
the applicable Mortgage Rate.
Payment Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set
forth below will have the following meanings.
The "Interest Accrual Amount" with respect to any Distribution Date and
any Class of Certificates (other than the Class A-CS1, Class PS-1, Class
B-3SC, Class V-1, Class V-2, Class R and Class LR Certificates), is equal to
interest for the related Interest Accrual Period at the Pass-Through Rate for
such Class on the related Certificate Balance or Notional Balance, as
applicable (provided, that for interest accrual purposes any distributions in
reduction of Certificate Balance or reductions in Certificate Balance as a
result of allocations of Realized Losses on the Distribution Date occurring
in an Interest Accrual Period will be deemed to have been made on the first
day of such Interest Accrual Period). The "Interest Accrual Amount" with
respect to any Distribution Date and the Class A-CS1 Certificates is equal to
interest for the related Interest Accrual Period at the Pass-Through Rate for
such class for such Interest Accrual Period on the Notional Balance of such
class (provided, that any reductions in the Notional Balance of such class as
a result of distributions in reduction of the Certificate Balance of the
Class A-1A Certificates or allocations of Realized Losses to the Certificate
Balance of the Class A-1A Certificates on the Distribution Date occurring in
an Interest Accrual Period, will be deemed to have occurred on the first day
of such Interest Accrual Period). The "Interest Accrual Amount" with respect
to any Distribution Date and the Class PS-1 Certificates is equal to interest
for the related Interest Accrual Period at the Pass-Through Rate for such
class for such Interest Accrual Period on the Notional Balance of such class.
Calculations of interest (except in respect of the Interest Accrual Period
beginning in October 1997) due in respect of the Certificates will be made on
the basis of a 360-day year consisting of twelve 30-day months.
The "Interest Distribution Amount" with respect to any Distribution Date
and the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1, Class
A-1E, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class
B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6, Class B-7 and
Class B-7H Certificates will equal the Interest Accrual Amount thereof for
such Distribution Date.
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The "Interest Distribution Amount" with respect to any Distribution Date
and the Class PS-1 Certificates is the Interest Accrual Amounts for such
Distribution Date minus the aggregate Reduction Interest Distribution Amounts
in respect of such Distribution Date.
The "Reduction Interest Distribution Amount" for the Class PS-1
Certificates with respect to any Distribution Date and each of clauses
Eighth, Twelfth, Sixteenth, Twentieth, Twenty-fourth, Twenty-eighth,
Thirty-second, Thirty-sixth, Fortieth, Forty-fourth, Forty-eighth,
Fifty-second and Fifty-sixth under "Distribution of Available Funds" is the
amount of interest accrued for the Interest Accrual Period at the applicable
Reduction Interest Pass-Through Rate for such Interest Accrual Period on the
aggregate amount of Appraisal Reduction Amounts and Delinquency Reduction
Amounts notionally allocated to the related classes referred to in subclause
(B) of each such clause as of such Distribution Date, as described below
under "--Delinquency Reduction Amounts and Appraisal Reduction Amounts."
The "Reduction Interest Pass-Through Rate" with respect to any
Distribution Date is (i) when the Class B-6 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (ii) when the Class B-5 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (iii) when the Class B-4 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (iv) when the Class B-3 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (v) when the Class B-2 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (vi) when the Class B-1 Certificates are the most
subordinate class outstanding, the Weighted Average Net Mortgage Pass-Through
Rate minus 6.93000%, (vii) when the Class A-7 Certificates are the most
subordinate class outstanding, 0.91000%, (viii) when the Class A-6
Certificates are the most subordinate class outstanding, 1.15000%, (ix) when
the Class A-5 Certificates are the most subordinate class outstanding,
1.40000%, (x) when the Class A-4 Certificates are the most subordinate class
outstanding, 1.42000%, (xi) when the Class A-3 Certificates are the most
subordinate class outstanding, 1.47000%, (xii) when the Class A-2
Certificates are the most subordinate class outstanding, 1.52000% and (xiii)
when the Class A-1E Certificates are the most subordinate class outstanding,
the Weighted Average Net Mortgage Pass-Through Rate minus 6.93000%.
The "Reduction Interest Shortfalls" with respect to any Distribution Date
and each of the clauses Eighth, Twelfth, Sixteenth, Twentieth, Twenty-fourth,
Twenty-eighth, Thirty-second, Thirty-sixth, Fortieth, Forty-fourth,
Forty-eighth, Fifty-second and Fifty-sixth under "Distribution of Available
Funds" is any shortfall in the Reduction Interest Distribution Amount
required to be distributed to the Class PS-1 Certificates pursuant to such
clause on such Distribution Date.
"Appraisal Reduction Amount" is the amount described under "--Appraisal
Reductions."
"Delinquency Reduction Amount" is in connection with a Delinquency an
amount equal to the scheduled payment due on the related Due Date (adjusted
to the applicable Net Mortgage Pass-Through Rate with respect to the interest
portion) and not received from a borrower under any Mortgage Loan.
"Delinquency" means any failure of the borrower to make a scheduled
payment on a Due Date.
The "Interest Accrual Period" with respect to any Distribution Date
commences on the eleventh day of the month preceding the month in which such
Distribution Date occurs and ends on the tenth day of the month in which such
Distribution Date occurs provided that the first Interest Accrual Period is
assumed to consist of 17 days. Except for the first Interest Accrual Period,
each Interest Accrual Period is assumed to consist of 30 days.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Offered Certificates is any shortfall in the amount of interest
required to be distributed on such Class on such Distribution Date. No
interest accrues on Interest Shortfalls.
The "Prepayment Interest Shortfall" with respect to any Distribution Date
is equal to the amount of any shortfall in collections of interest (adjusted
to the applicable Net Mortgage Pass-Through Rate) resulting from a Principal
Prepayment on such Mortgage Loan during the related Collection Period and
prior to the related Due Date. Such shortfall may result because interest on
a Principal Prepayment in full is paid by the related borrower only to the
date of prepayment.
The "Pass-Through Rate" for any Class of Offered Certificates is the per
annum rate at which interest accrues on the Certificates of such Class during
any Interest Accrual Period. The Pass-Through Rate on the Class A-1A, Class
A-1B, Class A-1C, Class A-1D and Class A-1E Certificates is a per annum rate
equal to 6.50000%, 6.66000%, 6.75000%, 6.85000% and 6.93000%, respectively.
The Pass-Through Rate on the Class A-CS1 Certificates is a per annum rate
equal to the
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Weighted Average Net Mortgage Pass-Through Rate minus 6.5000%. The
Pass-Through Rate on the Class PS-1 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus the Weighted
Average Pass-Through Rate. The Pass-Through Rate on the Class A-2
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 1.52000%. The Pass-Through Rate on the Class A-3
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 1.47000%. The Pass-Through Rate on the Class A-4
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 1.42000%. The Pass-Through Rate on the Class A-5
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 1.40000%. The Pass-Through Rate on the Class A-6
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 1.15000%. The Pass-Through Rate on the Class A-7
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus 0.91000%. The Pass-Through Rate on the Class A-8Z
Certificates is a per annum rate equal to the Mortgage Pass-Through Rate of
the Comsat Junior Loan. The Pass-Through Rate on the Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6 Certificates is a per annum
rate equal to 6.93000%. The Pass-Through Rate on the Class B-7 and Class B-7H
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate. The Class B-3SC, Class V-1, Class V-2, Class R and Class
LR Certificates do not have a Pass-Through Rate.
The "Weighted Average Pass-Through Rate" for purposes of calculating the
Pass-Through Rate on the Class PS-1 Certificates, with respect to any
Interest Accrual Period, is the amount (expressed as a percentage), the
numerator of which is the sum of (i) the sum of the products of (A) the
Pass-Through Rate with respect to each class of Certificates having a
Pass-Through Rate (other than the Coupon Strip Certificates and the Class
A-8Z Certificates) and (B) the Certificate Balance of such class as of the
first day of such Interest Accrual Period and (ii) the product of (A) the
Pass-Through Rate on the Class A-CS1 Certificates and (B) the Notional
Balance of such class as of such date and the denominator of which is the sum
of the Certificate Balances of each class included in clause (i)(A) above as
of such date (provided in each case, any reductions in Certificate Balance or
Notional Balance, as applicable, as a result of distributions or allocations
of Realized Losses to such class or the related class, respectively,
occurring in an Interest Accrual Period will be deemed to have been made on
the first day of such Interest Accrual Period).
The "Weighted Average Net Mortgage Pass-Through Rate" for any Distribution
Date is the amount (expressed as a percentage) the numerator of which is the
sum for all Mortgage Loans other than the Comsat Junior Loan and the SC
Junior Portion of the Saul Centers Retail Pool Loan, of the products of (i)
the Net Mortgage Pass-Through Rate of each such Mortgage Loan and (ii) the
Stated Principal Balance of each such Mortgage Loan and the denominator of
which is the sum of the Stated Principal Balances of all such Mortgage Loans
as of their respective Due Date preceding the prior Distribution Date.
The "Net Mortgage Pass-Through Rate" with respect to any Mortgage Loan
other than the Comsat Junior Loan and the SC Junior Portion of the Saul
Centers Retail Pool Loan and any Distribution Date is the Mortgage
Pass-Through Rate for such Mortgage Loan for the related Interest Accrual
Period minus the Servicing Fee Rate. No Servicing Fee Rate applies to the
Comsat Junior Loan and the SC Junior Portion of the Saul Centers Retail Pool
Loan.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans that
provide for calculations of interest based on twelve months of 30 days each
is equal to the Mortgage Rate thereof.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans (other
than the Mortgage Loan known as the Swiss Bank Tower Loan) that provide for
interest based on a 360-day year and the actual number of days elapsed for
any Interest Accrual Period, is equal to the Mortgage Rate thereof multiplied
by a fraction the numerator of which is the actual number of days in such
Interest Accrual Period and the denominator of which is 30.
The "Mortgage Pass-Through Rate" with respect to the Swiss Bank Tower Loan
for any Interest Accrual Period commencing in any (a) January, February,
April, June, September and November and any December occurring in a year
immediately preceding any year which is not a leap year, is the Mortgage Rate
thereof, or (b) March, May, July, August and October (other than October
1997) and any December occurring in a year immediately preceding a year which
is a leap year, is equal to the Mortgage Rate thereof multiplied by a
fraction the numerator of which is the actual number of days in such Interest
Accrual Period and the denominator of which is 30.
Notwithstanding the foregoing, the Mortgage Pass-Through Rate with respect
to each Mortgage Loan for the first Interest Accrual Period is the Mortgage
Rate thereof.
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The "Mortgage Rate" with respect to each Mortgage Loan and any Interest
Accrual Period is the annual rate, not including any Excess Rate, at which
interest accrues on such Mortgage Loan during such period (in the absence of
a default), as set forth in the related Note and on Annex A. The Mortgage
Rate for purposes of calculating the Weighted Average Net Mortgage
Pass-Through Rate will be the Mortgage Rate of such Mortgage Loan without
taking into account any reduction in the interest rate by a bankruptcy court
pursuant to a plan of reorganization or pursuant to any of its equitable
powers or a reduction on interest or principal due to a modification as
described under "The Pooling and Servicing Agreement -- Modifications".
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum (exclusive of the Class A-8Z Principal Distribution Amount
and the Class B-3SC Principal Distribution Amount) of:
(i) the principal component of all scheduled Monthly Payments (other than
Balloon Payments) due on the Mortgage Loans on or before the related Due Date
(if received or advanced);
(ii) the principal component of all Assumed Scheduled Payments or Minimum
Defaulted Monthly Payments, as applicable, due on or before the related Due
Date (if received or advanced) with respect to any Mortgage Loan that is
delinquent in respect of its Balloon Payment;
(iii) the Stated Principal Balance of each Mortgage Loan that was, during
the related Collection Period, repurchased from the Trust Fund in connection
with the breach of a representation or warranty or purchased from the Trust
Fund as described herein under "The Pooling and Servicing Agreement --
Optional Termination";
(iv) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan which was liquidated during the related Collection Period;
(v) all Balloon Payments and, to the extent not included in the preceding
clauses, any other principal payment on any Mortgage Loan received on or
after the Maturity Date thereof, to the extent received during the related
Collection Period;
(vi) to the extent not included in the preceding clause (iii) or (iv), all
other Principal Prepayments received in the related Collection Period; and
(vii) to the extent not included in the preceding clauses, any other full
or partial recoveries in respect of principal, including net insurance
proceeds, net liquidation proceeds and Net REO Proceeds received in the
related Collection Period (in the case of clauses (i) through (vii) net of
any related outstanding P&I Advances allocable to principal and excluding any
amounts representing recoveries of Subordinate Class Advance Amounts).
The "Assumed Scheduled Payment" with respect to any Mortgage Loan that is
delinquent in respect of its Balloon Payment (including any REO Mortgage Loan
as to which the Balloon Payment would have been past due) is an amount equal
to the sum of (a) the principal portion of the Monthly Payment that would
have been due on such Mortgage Loan on the related Due Date based on the
constant payment required by the related Note or the original amortization
schedule thereof (as calculated with interest at the related Mortgage Rate),
if applicable, assuming such Balloon Payment has not become due after giving
effect to any modification, and (b) interest at the applicable Net Mortgage
Pass-Through Rate.
The "Class A-8Z Principal Distribution Amount" for any Distribution Date
is equal to the sum of the amounts referred to in the definition of
"Principal Distribution Amount" which are attributable solely to the Comsat
Junior Loan.
The "Class B-3SC Principal Distribution Amount" for any Distribution Date
is equal to the Available SC Funds minus the Senior SC Distribution Amount
(as defined herein).
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
Distribution of Available Funds. On each Distribution Date, prior to the
Crossover Date, the Available Funds for such Distribution Date will be
distributed in the following amounts and order of priority:
(i) First, pro rata, in respect of interest, to the Class A-1A, Class
A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class PS-1 Certificates, up to
an amount equal to the aggregate Interest Distribution Amounts of such
Classes;
(ii) Second, pro rata, to the Class A-1A, Class A-1B, Class A-1C, Class
A-1D, Class A-CS1 and Class PS-1 Certificates, in respect of interest, up to
an amount equal to the aggregate unpaid Interest Shortfalls previously
allocated to such Classes;
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(iii) Third, to the Class A-1A Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount until the Certificate Balance thereof is reduced to zero;
(iv) Fourth, to the Class A-1B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance thereof is reduced to zero;
(v) Fifth, to the Class A-1C Certificates, in reduction of the Certificate
Balance thereof, an amount equal to the Principal Distribution Amount less
amounts of Principal Distribution Amount distributed pursuant to all prior
clauses, until the Certificate Balance thereof is reduced to zero;
(vi) Sixth, to the Class A-1D Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance is reduced to zero;
(vii) Seventh, to the Class A-1E Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(viii) Eighth, pro rata, (A) to the Class A-1E Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class PS-1 Certificates in
respect of the Reduction Interest Distribution Amount attributable to the
notional reduction in the Certificate Balance of the Class A-1E Certificates
as described under "--Delinquency Reduction Amounts and Appraisal Reduction
Amounts," up to an amount equal to the aggregate Reduction Interest
Distribution Amount so attributable and (C) to the Class PS-1 Certificates,
up to an amount equal to the aggregate unpaid Reduction Interest Shortfalls
previously allocated to the Class PS-1 Certificates in respect of Reduction
Interest Distribution Amounts distributable under Clause (B);
(ix) Ninth, to the Class A-1E Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(x) Tenth, to the Class A-1E Certificates, to the extent not distributed
pursuant to all prior clauses, for the unreimbursed amounts of Realized
Losses, if any, an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such Class;
(xi) Eleventh, to the Class A-2 Certificates in respect of interest, up to
an amount equal to the aggregate Interest Distribution Amount of such Class;
(xii) Twelfth, pro rata, (A) to the Class A-2 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class PS-1 Certificates in
respect of the Reduction Interest Distribution Amount attributable to the
notional reduction in the Certificate Balance of the Class A-2 Certificates
as described under "--Delinquency Reduction Amounts and Appraisal Reduction
Amounts," up to an amount equal to the aggregate Reduction Interest
Distribution Amount so attributable and (C) to the Class PS-1 Certificates,
up to an amount equal to the aggregate unpaid Reduction Interest Shortfalls
previously allocated to the Class PS-1 Certificates in respect of Reduction
Interest Distribution Amounts distributable under Clause (B);
(xiii) Thirteenth, to the Class A-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xiv) Fourteenth, to the Class A-2 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xv) Fifteenth, to the Class A-3 Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xvi) Sixteenth, pro rata, (A) to the Class A-3 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class PS-1 Certificates in
respect of the Reduction Interest Distribution Amount attributable to the
notional reduction in the Certificate Balance of the Class A-3 Certificates
as described under "--Delinquency Reduction Amounts and Appraisal Reduction
Amounts," up to an
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amount equal to the aggregate Reduction Interest Distribution Amount so
attributable and (C) to the Class PS-1 Certificates, up to an amount equal to
the aggregate unpaid Reduction Interest Shortfalls previously allocated to
the Class PS-1 Certificates in respect of Reduction Interest Distribution
Amounts distributable under Clause (B);
(xvii) Seventeenth, to the Class A-3 Certificates in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xviii) Eighteenth, to the Class A-3 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, up to an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xix) Nineteenth, to the Class A-4 Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xx) Twentieth, pro rata, (A) to the Class A-4 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class PS-1 Certificates in
respect of the Reduction Interest Distribution Amount attributable to the
notional reduction in the Certificate Balance of the Class A-4 Certificates
as described under "--Delinquency Reduction Amounts and Appraisal Reduction
Amounts," up to an amount equal to the aggregate Reduction Interest
Distribution Amount so attributable and (C) to the Class PS-1 Certificates,
up to an amount equal to the aggregate unpaid Reduction Interest Shortfalls
previously allocated to the Class PS-1 Certificates in respect of Reduction
Interest Distribution Amounts distributable under Clause (B);
(xxi) Twenty-first, to the Class A-4 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xxii) Twenty-second, to the Class A-4 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxiii) Twenty-third, to the Class A-5 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xxiv) Twenty-fourth, pro rata, (A) to the Class A-5 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class A-5 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(xxv) Twenty-fifth, to the Class A-5 Certificates in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xxvi) Twenty-sixth, to the Class A-5 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxvii) Twenty-seventh, to the Class A-6 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xxviii) Twenty-eighth, pro rata, (A) to the Class A-6 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class A-6 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
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(xxix) Twenty-ninth, to the Class A-6 Certificates in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xxx) Thirtieth, to the Class A-6 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxxi) Thirty-first, to the Class A-7 Certificates in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xxxii) Thirty-second, pro rata, (A) to the Class A-7 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class A-7 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(xxxiii) Thirty-third, to the Class A-7 Certificates in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount, less the amount of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xxxiv) Thirty-fourth, to the Class A-7 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxxv) Thirty-fifth, to the Class B-1 Certificates in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xxxvi) Thirty-sixth, pro rata, (A) to the Class B-1 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class B-1 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(xxxvii) Thirty-seventh, to the Class B-1 Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Balance of such Class is
reduced to zero;
(xxxviii) Thirty-eighth, to the Class B-1 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxxix) Thirty-ninth, to the Class B-2 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xl) Fortieth, pro rata, (A) to the Class B-2 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class, (B) to the Class PS-1 Certificates in
respect of the Reduction Interest Distribution Amount attributable to the
notional reduction in the Certificate Balance of the Class B-2 Certificates
as described under "--Delinquency Reduction Amounts and Appraisal Reduction
Amounts," up to an amount equal to the aggregate Reduction Interest
Distribution Amount so attributable and (C) to the Class PS-1 Certificates,
up to an amount equal to the aggregate unpaid Reduction Interest Shortfalls
previously allocated to the Class PS-1 Certificates in respect of Reduction
Interest Distribution Amounts distributable under Clause (B);
(xli) Forty-first, to the Class B-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
prior clauses, until the Certificate Balance of such Class is reduced to
zero;
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(xlii) Forty-second, to the Class B-2 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xliii) Forty-third, to the Class B-3 Certificates in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xliv) Forty-fourth, pro rata, (A) to the Class B-3 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class B-3 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(xlv) Forty-fifth, to the Class B-3 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xlvi) Forty-sixth, to the Class B-3 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xlvii) Forty-seventh, to the Class B-4 Certificates in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xlviii) Forty-eighth, pro rata, (A) to the Class B-4 Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class B-4 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(xlix) Forty-ninth, to the Class B-4 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(l) Fiftieth, to the Class B-4 Certificates, to the extent not distributed
pursuant to all prior clauses, for the unreimbursed amounts of Realized
Losses, if any, an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such Class;
(li) Fifty-first, to the Class B-5 Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(lii) Fifty-second, pro rata, (A) to the Class B-5 Certificates in respect
of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class B-5 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(liii) Fifty-third, to the Class B-5 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(liv) Fifty-fourth, to the Class B-5 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
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(lv) Fifty-fifth, to the Class B-6 Certificates in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(lvi) Fifty-sixth, pro rata, (A) to the Class B-6 Certificates in respect
of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such Class, (B) to the Class PS-1
Certificates in respect of the Reduction Interest Distribution Amount
attributable to the notional reduction in the Certificate Balance of the
Class B-6 Certificates as described under "--Delinquency Reduction Amounts
and Appraisal Reduction Amounts," up to an amount equal to the aggregate
Reduction Interest Distribution Amount so attributable and (C) to the Class
PS-1 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class PS-1 Certificates in
respect of Reduction Interest Distribution Amounts distributable under Clause
(B);
(lvii) Fifty-seventh, to the Class B-6 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(lviii) Fifty-eighth, to the Class B-6 Certificates, to the extent not
distributed pursuant to all prior clauses, for the unreimbursed amounts of
Realized Losses, if any, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(lix) Fifty-ninth, pro rata, to the Class B-7 and Class B-7H Certificates
in respect of interest, up to an amount equal to the aggregate Interest
Distribution Amounts of such classes;
(lx) Sixtieth, pro rata, to the Class B-7 and Class B-7H Certificates in
respect of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such classes;
(lxi) Sixty-first, pro rata, based on Certificate Balance to the Class B-7
and Class B-7H Certificates in reduction of the Certificate Balances thereof,
an amount equal to the Principal Distribution Amount less amounts of the
Principal Distribution Amount distributed pursuant to all prior clauses,
until the Certificate Balance of each such class is reduced to zero;
(lxii) Sixty-second, pro rata, to the Class B-7 and Class B-7H
Certificates, to the extent not distributed pursuant to all prior clauses,
for the unreimbursed amounts of Realized Losses, if any, an amount equal to
the aggregate of such unreimbursed Realized Losses previously allocated to
such classes; and
(lxiii) Sixty-third, to the Class R and Class LR Certificates.
All references to "pro rata" in the preceding clauses unless otherwise
specified mean pro rata based upon the amount distributable pursuant to such
clause.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the Crossover Date, the Principal Distribution Amount will be
distributed to the Class A-1A, Class A-1B, Class A-1C and Class A-1D
Certificates, pro rata, based on their respective Certificate Balances, in
reduction of their respective Certificate Balances, until the Certificate
Balance of each such Class is reduced to zero, and any unreimbursed amounts
of Realized Losses previously allocated to such classes, if available, will
be distributed pro rata based on their respective Certificate Balances. The
"Crossover Date" is the Distribution Date on which the Certificate Balance of
each Class of Certificates other than the Class A-1A, Class A-1B, Class A-1C,
Class A-1D, Class A-8Z and Class B-3SC Certificates have been reduced to
zero. The Class A-CS1 and Class PS-1 Certificates will not be entitled to any
distribution of principal.
Distribution of Class A-8Z Available Funds. On the Class A-8Z Scheduled
Distribution Date (assuming no prepayments or defaults with respect to the
Comsat Junior Loan), the Class A-8Z Available Funds will be distributed
solely in reduction of the Certificate Balance thereof, until the Certificate
Balance thereof is reduced to zero. Any amount remaining from such funds
after such distribution will be distributed to the Class LR Certificates.
Distribution of Class B-3SC Available Funds. The Class B-3SC Available
Funds will be distributed solely to the Class B-3SC Certificates in
accordance with the Pooling and Servicing Agreement.
Prepayment Premiums. On each Distribution Date, Prepayment Premiums with
respect to any Unscheduled Payments (including voluntary and involuntary
prepayments) received in the related Collection Period shall be distributed
to the holders of the Offered Certificates outstanding on such Distribution
Date (and will not be applied to reduce the outstanding Certificate Balance
of such Class), in the following amounts and order of priority, with respect
to the Certificates of each Class in each case to the extent remaining
amounts of Prepayment Premiums are available therefor:
(i) First, to the Class A-CS1 Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate (as defined below) for the
Class A-CS1 Certificates plus the Spread Rate (as defined below) for the
Class A-CS1
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Certificates) of the aggregate interest that would have been paid in respect
of the Class A-CS1 Certificates from the Distribution Date occurring in the
following month until the Notional Balance of the Class A-CS1 Certificates
would have been reduced to zero had the related prepayment not occurred,
minus (B) the present value (discounted at the Discount Rate for the Class
A-CS1 Certificates plus the Spread Rate for the Class A-CS1 Certificates) of
the aggregate interest that will be paid in respect of Class A-CS1
Certificates from the Distribution Date occurring in the following month
until the Notional Balance of the Class A-CS1 Certificates is reduced to zero
following such prepayment (in each case assuming no further prepayments are
made except that all Mortgage Loans prepay on Anticipated Repayment Dates
where applicable);
(ii) Second, to the Class PS-1 Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class PS-1
Certificates plus the Spread Rate for the Class PS-1 Certificates) of the
aggregate interest that would have been paid in respect of the Class PS-1
Certificates from the Distribution Date occurring in the following month
until the Notional Balance of the Class PS-1 Certificates would have been
reduced to zero had the related prepayment not occurred, minus (B) the
present value (discounted at the Discount Rate for the Class PS-1
Certificates plus the Spread Rate for the Class PS-1 Certificates) of the
aggregate interest that will be paid in respect of Class PS-1 Certificates
from the Distribution Date occurring in the following month until the
Notional Balance of the Class PS-1 Certificates is reduced to zero following
such prepayment (in each case assuming no further prepayments are made except
that all Mortgage Loans prepay on Anticipated Repayment Dates where
applicable);
(iii) Third, to the Class A-1A Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1A
Certificates plus the Spread Rate for the Class A-1A Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1A Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1A Certificates would have
been reduced to zero had the related prepayment not occurred, minus (B) the
sum of (i) the amount of such prepayment distributed in respect of the Class
A-1A Certificates and (ii) the present value (discounted at the Discount Rate
for the Class A-1A Certificates plus the Spread Rate for the Class A-1A
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1A Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1A
Certificates is reduced to zero following such prepayment (in each case
assuming no further prepayments are made except that all Mortgage Loans
prepay on Anticipated Repayment Dates where applicable);
(iv) Fourth, to the Class A-1B Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1B
Certificates plus the Spread Rate for the Class A-1B Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1B Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1B Certificates would have
been reduced to zero had the related prepayment not occurred, minus (B) the
sum of (i) the amount of such prepayment distributed in respect of the Class
A-1B Certificates and (ii) the present value (discounted at the Discount Rate
for the Class A-1B Certificates plus the Spread Rate for the Class A-1B
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1B Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1B
Certificates is reduced to zero following such prepayment (in each case
assuming no further prepayments are made except that all Mortgage Loans
prepay on Anticipated Repayment Dates where applicable);
(v) Fifth, to the Class A-1C Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1C
Certificates plus the Spread Rate for the Class A-1C Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1C Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1C Certificates would have
been reduced to zero had the related prepayment not occurred, minus (B) the
sum of (i) the amount of such prepayment distributed in respect of the Class
A-1C Certificates and (ii) the present value (discounted at the Discount Rate
for the Class A-1C Certificates plus the Spread Rate for the Class A-1C
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1C Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1C
Certificates is reduced to zero following such prepayment (in each case
assuming no further prepayments are made except that all Mortgage Loans
prepay on Anticipated Repayment Dates where applicable); and
(vi) Sixth, to the Class A-1D Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1D
Certificates plus the Spread Rate for the Class A-1D Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1D Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1D Certificates would have
been reduced to zero had the related prepayment not occurred, minus (B) the
sum of (i) the amount of such prepayment distributed in respect of the
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Class A-1D Certificates and (ii) the present value (discounted at the
Discount Rate for the Class A-1D Certificates plus the Spread Rate for the
Class A-1D Certificates) of the aggregate principal and interest that will be
paid in respect of the Class A-1D Certificates from the Distribution Date
occurring in the following month until the Certificate Balance of the Class
A-1D Certificates is reduced to zero following such prepayment (in each case
assuming no further prepayments are made except that all Mortgage Loans
prepay on Anticipated Repayment Dates where applicable).
In all clauses above, Prepayment Premiums will only be distributed on a
Distribution Date (i) if the respective Certificate Balance or Notional
Balance of the related Class is greater than zero on the last business day of
the Interest Accrual Period ending immediately prior to such Distribution
Date and (ii) if the amount computed pursuant to the related clause above is
greater than zero. Any Prepayment Premiums remaining following the
distributions described in the preceding clauses (i) through (vi) shall be
distributed to holders of the Private Certificates in accordance with the
Pooling and Servicing Agreement.
The "Discount Rate" with respect to any Class of Certificates is the rate
determined by the Trustee, in its good faith, to be the yield (interpolated
and rounded to the nearest one-thousandth of a percent, if necessary) in the
secondary market on United States Treasury securities with a maturity closest
to the then computed weighted average life (or, in the case of the Class
A-CS1 and Class PS-1 Certificates, the weighted average life of the interest
payments) of such Class (rounded to the nearest month) (without taking into
account the related prepayment).
The "Spread Rate" for the Class A-CS1 Certificates is 3.000% per annum,
the Class PS-1 Certificates is 2.000% per annum, the Class A-1A Certificates
is 0.500% per annum, the Class A-1B Certificates is 0.640% per annum, the
Class A-1C Certificates is 0.720% per annum and the Class A-1D Certificates,
is 0.800% per annum.
Default Interest and Excess Interest. On each Distribution Date, Net
Default Interest and Excess Interest received in the related Collection
Period with respect to a default on a Mortgage Loan will be distributed
solely to the Class V-1 and Class V-2 Certificates, respectively, to the
extent set forth in the Pooling and Servicing Agreement, and will not be
available for distribution to holders of the Offered Certificates. The Class
V-1 and Class V-2 Certificates are not entitled to any other distributions of
interest, principal or Prepayment Premiums.
The holders of a majority Percentage Interest of the Class LR Certificates
or the most subordinate Class of Certificates outstanding (other than the
Class B-7H Certificates) will have the limited right to purchase the ARD
Loans on their related Anticipated Repayment Dates under the circumstances
described under "The Pooling and Servicing Agreement -- Optional Termination"
herein.
REALIZED LOSSES
The Certificate Balance of the Certificates will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to the applicable Class of Certificates with respect
to such Distribution Date. As referred to herein, the "Realized Loss" with
respect to any Distribution Date shall mean the amount, if any, by which the
aggregate Certificate Balance of the Sequential Certificates after giving
effect to distributions made on such Distribution Date exceeds the aggregate
Stated Principal Balance of the Mortgage Loans (other than the Comsat Junior
Loan and the SC Junior Portion of the Saul Centers Retail Pool Loan) as of
the Due Date occurring in the month in which such Distribution Date occurs.
Except as described in the next sentence, any such Realized Losses will be
applied to the Classes of Certificates in the following order, until the
Certificate Balance of each is reduced to zero: first, to certain of the
Private Certificates, second, to the Class A-7 Certificates, third, to the
Class A-6 Certificates, fourth, to the Class A-5 Certificates, fifth, to the
Class A-4 Certificates, sixth, to the Class A-3 Certificates, seventh, to the
Class A-2 Certificates, eighth, to the Class A-1E Certificates, and finally,
pro rata, to the Class A-1A, Class A-1B, Class A-1C and Class A-1D
Certificates based on their respective outstanding balances. Any amounts
recovered in respect of any such amounts previously written-off as Realized
Losses will be distributed to the Classes of Sequential Certificates in
reverse order of allocation of such Realized Losses thereto. Realized Losses
with respect to the Comsat Junior Loan will be allocated entirely to the
Class A-8Z Certificates. Realized Losses with respect to the Saul Centers
Retail Pool Loan will be attributed first to the SC Junior Portion of such
Mortgage Loan and will thereby be allocated first to the Class B-3SC
Certificates; following the reduction of the Certificate Balance of the Class
B-3SC Certificates to zero. Realized Losses with respect to the Saul Centers
Retail Pool Loan will be allocated to the SC Senior Portion of the Saul
Centers Retail Pool Loan and allocated to the Classes of Sequential
Certificates as described above. Shortfalls in Available Funds resulting from
Servicing Compensation (other than the Servicing Fee), interest on Advances
to the extent not covered by Default Interest, extraordinary expenses of the
Trust Fund (other than indemnification expenses), a reduction on the
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interest rate of a Mortgage Loan by a bankruptcy court pursuant to a plan of
reorganization or pursuant to any of its equitable powers, a reduction in
interest rate or a forgiveness of principal of a Mortgage Loan as described
under "The Pooling and Servicing Agreement -- Modifications," herein or
otherwise, will be allocated in the same manner as Realized Losses.
Shortfalls in Available Funds resulting from (i) unanticipated
indemnification expenses of the Trust Fund required to be paid pursuant to
the Pooling and Servicing Agreement and (ii) Prepayment Interest Shortfalls
in excess of the sum of (x) the Servicing Fee attributable to the Mortgage
Loan being prepaid (not including the portion of the Servicing fee
attributable to the Trustee) and (y) investment income on the related
Principal Prepayment for the period such amount is held in the Collection
Account during the related Interest Accrual Period, will be allocated to, and
be deemed distributed to, each Class of Certificates, pro rata, based upon
amounts distributable to each such Class and, in the case of indemnification
expenses, will be allocated, first, in respect of interest and, second, in
respect of principal. The Notional Balance of the Class A-CS1 Certificates
will be reduced to reflect reductions in the Certificate Balance of the Class
A-1A Certificates resulting from allocations of Realized Losses; the Notional
Balance of the Class PS-1 Certificates will be reduced to reflect reductions
in the Stated Principal Balances of the Mortgage Loans (other than the Comsat
Junior Loan and the SC Junior Portion of the Saul Centers Retail Pool Loan)
as a result of write-offs in respect of final recovery determinations in
respect of liquidation of defaulted Mortgage Loans.
The "Stated Principal Balance" of any Mortgage Loan (other than the Comsat
Junior Loan and the SC Junior Portion of the Saul Centers Retail Pool Loan)
at any date of determination will equal (a) the principal balance as of the
Cut-off Date of such Mortgage Loan, minus (b) the sum of (i) the principal
portion of each Monthly Payment, Minimum Defaulted Monthly Payment or Assumed
Schedule Payment due on such Mortgage Loan after the Cut-off Date and prior
to such date of determination, (ii) all voluntary and involuntary principal
prepayments and other unscheduled collections of principal received with
respect to such Mortgage Loan, to the extent distributed to holders of the
Certificates or applied to other payments required under the Pooling and
Servicing Agreement before such date of determination and (iii) any principal
forgiven by the Special Servicer or Interest Shortfalls resulting from
reductions or deferrals of interest, each as described herein under "The
Pooling and Servicing Agreement -- Modifications." The Stated Principal
Balance of a Mortgage Loan with respect to which title to the related
Mortgaged Property has been acquired by the Trust Fund is equal to the
principal balance thereof outstanding on the date on which such title is
acquired less any Net REO Proceeds allocated to principal on such Mortgage
Loan. The Stated Principal Balance of a Specially Serviced Mortgage Loan with
respect to which the Servicer or Special Servicer has determined that it has
received all payments and recoveries which the Servicer or the Special
Servicer, as applicable, expects to be finally recoverable on such Mortgage
Loan is zero.
DELINQUENCY REDUCTION AMOUNTS AND APPRAISAL REDUCTION AMOUNTS
On or after any Distribution Date on which the Class B-6 Certificates are
the most subordinate class of Certificates outstanding, the Certificate
Balances of the Class A-1E, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates will be notionally reduced (solely for purposes of
determining the payment priority of interest on the Class PS-1 Certificates
in respect of Reduction Interest Distribution Amounts) on any Distribution
Date to the extent of any Delinquency Reduction Amounts or Appraisal
Reduction Amounts with respect to such Distribution Date; provided that (i)
if a Delinquency and an Appraisal Reduction Event occur with respect to the
same Distribution Date and the same Mortgage Loan, the reduction will equal
the Appraisal Reduction Amount, (ii) following the occurrence of an Appraisal
Reduction Event with respect to any Mortgage Loan, no further Delinquency
Reduction Amounts will be applied with respect to such Mortgage Loan and any
Delinquency Reduction Amounts previously applied will be reversed and (iii)
for any Distribution Date, the aggregate of the Appraisal Reduction Amounts
and Delinquency Reduction Amounts may not exceed the Certificate Balance (as
adjusted by any notional reductions) of the most subordinate class of
Certificates outstanding among the Class A-1E, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7, Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5 and Class B-6 Certificates (and to the extent the aggregate of
the Appraisal Reduction Amounts and Delinquency Reduction Amounts exceeds
such Certificate Balance, such excess will be applied notionally to the next
most subordinate Class of Certificates on the next Distribution Date). Any
such reductions will be applied notionally, first, to the Class B-6
Certificates, second, to the Class B-5 Certificates, third, to the Class B-4
Certificates, fourth, to the Class B-3 Certificates, fifth, to the Class B-2
Certificates, sixth, to the Class B-1 Certificates, seventh, to the Class A-7
Certificates, eighth, to the Class A-6 Certificates, ninth, to the Class A-5
Certificates, tenth, to the Class A-4 Certificates, eleventh, to the Class
A-3 Certificates, twelfth, to the Class A-2 Certificates and finally, to the
Class A-1E Certificates (provided in each case that no Certificate Balance in
respect of any such class may be notionally reduced below zero). Any notional
reduction of the Certificate Balance of such Certificates as a result of any
Delinquency or Appraisal Reduction Event will be reversed to
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the extent there is a recovery of any or all of the Delinquency Amounts or a
Realized Loss. Additionally, a reversal or additional reduction will occur to
the extent that the Servicer's Appraisal Estimate is less than or greater
than the Appraisal Reduction as adjusted to take into account a subsequent
independent MAI appraisal. For purposes of calculating Interest Accrual
Amounts, any such reversal or additional reductions made on the Distribution
Date occurring in an Interest Accrual Period will be deemed to have been made
on the first day of such Interest Accrual Period. See "Description of the
Offered Certificates -- Distribution -- Payment Priorities" herein.
PREPAYMENT INTEREST SHORTFALLS
The Servicer will deposit from its own funds any Prepayment Interest
Shortfalls into the Collection Account on the Servicer Remittance Date to the
extent such Prepayment Interest Shortfalls do not exceed the aggregate of the
Servicing Fee attributable to the Mortgage Loan being prepaid due the
Servicer and the investment income accruing on the related Principal
Prepayment for the related Collection Period. Any Prepayment Interest
Shortfalls in excess of the Servicing Fee attributable to the Mortgage Loan
being prepaid and the investment income accruing on the related Principal
Prepayment due to the Servicer for such period will be allocated to each
class of Certificates, pro rata, based on amounts distributable to each such
class. Any interest that accrues on a prepayment on a Mortgage Loan after the
Due Date and before the following Servicer Remittance Date will be paid to
the Servicer.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class
PS-1 Certificates (except as set forth below) against losses associated with
delinquent and defaulted Mortgage Loans, the rights of the holders of the
Class A-1E, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class
A-7 Certificates and certain of the Private Certificates to receive
distributions of interest and principal with respect to the Mortgage Loans,
as applicable, will be subordinated to such rights of the holders of the
Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class PS-1
Certificates. The Class A-1E Certificates will be likewise protected by the
subordination of the Class A-2, Class A-3, Class A-4, Class A-5, Class A-6
and Class A-7 Certificates and certain of the Private Certificates. The Class
A-2 Certificates will be likewise protected by the subordination of the Class
A-3, Class A-4, Class A-5, Class A-6 and Class A-7 Certificates and certain
of the Private Certificates. The Class A-3 Certificates will be likewise
protected by the subordination of the Class A-4, Class A-5, Class A-6 and
Class A-7 Certificates and certain of the Private Certificates. The Class A-4
Certificates will be likewise protected by the subordination of the Class
A-5, Class A-6 and Class A-7 Certificates and certain of the Private
Certificates. The Class A-5 Certificates will be likewise protected by the
subordination of the Class A-6 and Class A-7 Certificates and certain of the
Private Certificates. The Class A-6 Certificates will be likewise protected
by the subordination of the Class A-7 Certificates and certain of the Private
Certificates. The Class A-7 Certificates will be likewise protected by the
subordination of certain of the Private Certificates. This subordination will
be effected in two ways: (i) by the preferential right of the holders of a
Class of Sequential Certificates to receive on any Distribution Date the
amounts of interest and principal, distributable in respect of such
Sequential Certificates on such date prior to any distribution being made on
such Distribution Date in respect of any Classes of Sequential Certificates
subordinate thereto, and (ii) by the allocation of Realized Losses (as
defined herein), first, to certain of the Private Certificates, second, to
the Class A-7 Certificates, third, to the Class A-6 Certificates, fourth, to
the Class A-5 Certificates, fifth, to the Class A-4 Certificates, sixth, to
the Class A-3 Certificates, seventh to the Class A-2 Certificates, eighth, to
the Class A-1E Certificates, and finally, pro rata, to the Class A-1A, Class
A-1B, Class A-1C and Class A-1D Certificates based on their respective
Certificate Balances. Neither the Class A-8Z nor the Class B-3SC Certificates
will be considered senior or subordinate to any other Class of Certificates.
However, the Comsat Junior Loan, which is the sole source of distribution on
the Class A-8Z Certificates, is subordinate to the Comsat Senior Loan. See
"Description of the Mortgage Pool -- Significant Mortgage Loans -- The Comsat
Loan and Property" herein. In addition, the Class B-3SC Certificates, the
sole source of distributions on which is the Saul Centers Retail Pool Loan,
are subordinate to the other Classes of Certificates in that they are
entitled to receive distributions on any Distribution Date only after the
Senior SC Distribution Amount has been distributed in full. See "Description
of the Mortgage Pool -- Significant Mortgage Loans -- The Saul Centers Retail
Pool Loan and Property" and "Description of the Offered Certificates --
Distributions" herein.
No other form of credit enhancement will be available for the benefit of
the holders of the Offered Certificates. However, with respect to the Class
PS-1 Certificates, the protection against reductions due to Appraisal
Reduction and Delinquencies will only be afforded to the extent described
under "Delinquency Reduction Amounts and Appraisal Reduction Amounts."
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APPRAISAL REDUCTIONS
With respect to the first Distribution Date following the earliest of (i)
the third anniversary of the date on which an extension of the maturity date
of a Mortgage Loan becomes effective as a result of a modification of such
Mortgage Loan by the Special Servicer, which extension does not change the
amount of Monthly Payments on the Mortgage Loan, (ii) 30 days after an
uncured delinquency occurs in respect of a Mortgage Loan, (iii) immediately
after the date on which a reduction in the amount of Monthly Payments on a
Mortgage Loan, or a change in any other material economic term of the
Mortgage Loan, becomes effective as a result of a modification of such
Mortgage Loan by the Special Servicer, (iv) immediately after a receiver has
been appointed, (v) immediately after a borrower declares bankruptcy, (vi)
immediately after a Mortgage Loan becomes an REO Mortgage Loan, (vii) upon a
default in the payment of a Balloon Payment, (viii) immediately after an
occurrence of an event for which a Property Advance would be required to be
made by the Servicer or (ix) any other event which, in the discretion of the
Servicer and of which the Servicer becomes aware in performing its
obligations in accordance with the Servicing Standard would materially and
adversely impair the value of the Mortgaged Property and security for the
related Mortgage Loan (any of (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii) and (ix), an "Appraisal Reduction Event"), an Appraisal Reduction
Amount will be calculated. The "Appraisal Reduction Amount" for any
Distribution Date and for any Mortgage Loan as to which any Appraisal
Reduction Event has occurred will be an amount equal to the excess of (a) the
outstanding Stated Principal Balance of such Mortgage Loan over (b) the
excess of (i) 90% of the sum of the appraised values of the related Mortgaged
Properties as determined by independent MAI appraisals (the costs of which
shall be paid by the Servicer as an Advance) over (ii) the sum of (A) all
unpaid interest on such Mortgage Loan at a per annum rate equal to the
Mortgage Rate, (B) all unreimbursed Property Advances, the principal portion
of all unreimbursed P&I Advances and all unpaid interest on Advances at the
Advance Rate in respect of such Mortgage Loan and (C) all currently due and
unpaid real estate taxes, ground rents and assessments and insurance premiums
and all other amounts due and unpaid under the Mortgage Loan (which tax,
premiums and other amounts have not been the subject of an Advance by the
Servicer). If no independent MAI appraisal has been obtained within twelve
months prior to the first Distribution Date on or after an Appraisal
Reduction Event has occurred, the Servicer will be required to estimate the
value of the related Mortgaged Properties (the "Servicer's Appraisal
Estimate") and such estimate will be used for purposes of the Appraisal
Reduction Amount. Within 30 days after the Appraisal Reduction Event, the
Servicer will be required to obtain an independent MAI appraisal. On the
first Distribution Date occurring on or after the delivery of such
independent MAI appraisal, the Servicer will be required to adjust the
Appraisal Reduction Amount to take into account such appraisal (regardless of
whether the independent MAI appraisal is higher or lower than the Servicer's
Appraisal Estimate). Appraisal Reduction Amounts will be recalculated
annually based on Updated Appraisals.
DELIVERY, FORM AND DENOMINATION
The Offered Certificates will be issued, maintained and transferred in the
book-entry form only in denominations of $50,000 initial Certificate Balance
and in multiples of $1 Certificate Balance or Notional Balance, as
applicable, in excess thereof.
The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee
of DTC. The Depositor has been informed by DTC that DTC's nominee will be
Cede & Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a
"Definitive Certificate") representing its interest in such Class, except
under the limited circumstances described in the Prospectus under
"Description of the Certificates -- Book Entry Registration." Unless and
until Definitive Certificates are issued, all references to actions by
holders of the Offered Certificates will refer to actions taken by DTC upon
instructions received from holders of Offered Certificates through its
participating organizations (together with CEDEL and Euroclear participating
organizations, the "Participants", and all references herein to payments,
notices, reports, statements and other information to holders of Offered
Certificates will refer to payments, notices, reports and statements to DTC
or Cede & Co., as the registered holder of the Offered Certificates, for
distribution to holders of Offered Certificates through its Participants in
accordance with DTC procedures; provided, however, that to the extent that
the party responsible for distributing any report, statement or other
information has been provided with the name of the beneficial owner of a
Certificate (or the prospective transferee of such beneficial owner), such
report, statement or other information will be provided to such beneficial
owner (or prospective transferee).
Until Definitive Certificates are issued in respect of the Offered
Certificates, interests in the Offered Certificates will be transferred on
the book-entry records of DTC and its Participants. The Trustee will
initially serve as certificate registrar (in such capacity, the "Certificate
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Certificates.
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A "Certificateholder" under the Pooling and Servicing Agreement will be
the person in whose name a Certificate is registered in the certificate
register maintained pursuant to the Pooling and Servicing Agreement, except
that solely for the purpose of giving any consent or taking any action
pursuant to the Pooling and Servicing Agreement, any Certificate registered
in the name of the Depositor, the Servicer, the Special Servicer, the Trustee
(in its individual capacity), a manager of a Mortgaged Property, a Mortgagor
or any person affiliated with the Depositor, the Servicer, the Special
Servicer, the Trustee, such manager or a Mortgagor will be deemed not to be
outstanding and the Voting Rights to which it is entitled will not be taken
into account in determining whether the requisite percentage of Voting Rights
necessary to effect any such consent or take any such action has been
obtained; provided, however, that for purposes of obtaining the consent of
Certificateholders to an amendment to the Pooling and Servicing Agreement,
any Certificates beneficially owned by the Servicer or Special Servicer or an
affiliate will be deemed to be outstanding, provided that such amendment does
not relate to compensation of the Servicer or Special Servicer or otherwise
benefit the Servicer or the Special Servicer in any material respect; and,
provided, further, that for purposes of obtaining the consent of
Certificateholders to any action proposed to be taken by the Special Servicer
with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Servicer or an affiliate will be deemed to be
outstanding, provided that, the Special Servicer is not the Servicer.
Notwithstanding the foregoing, solely for purposes of providing or
distributing any reports, statements or other information pursuant to the
Pooling and Servicing Agreement, a Certificateholder will include any
beneficial owner (or prospective transferee of a beneficial owner) to the
extent that the party required or permitted to provide or distribute such
report, statement or other information has been provided with the name of
such beneficial owner (or prospective transferee). The Percentage Interest of
any Class of Offered Certificate will be equal to the percentage obtained by
dividing the denomination of such Certificate by the aggregate initial
Certificate Balance of such Class of Certificates. See "Description of the
Certificates -- Book-Entry Registration and Definitive Certificates" in the
Prospectus.
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions
on behalf of the CEDEL Participants and the Euroclear Participants,
respectively, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of
DTC. DTC 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, as amended. DTC was created to hold securities for its Participants and
to facilitate the clearance and settlement of securities transactions between
Participants through electronic computerized book-entries, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time).
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to its Depositary to
take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions
in such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day.
Cash received in CEDEL or Euroclear as
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a result of sales of securities by or through a CEDEL Participant or a
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
Offered Certificates and for information with respect to tax documentation
procedures relating to the Offered Certificates, see Annex C hereto.
The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Offered Certificates may do so only through
Participants and Indirect Participants. In addition, holders of Offered
Certificates will receive all distributions of principal and interest from
the Trustee through the Participants who in turn will receive them from DTC.
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 DTC, Euroclear, CEDEL and
their respective participants. Under a book-entry format, holders of Offered
Certificates may experience some delay in their receipt of payments, reports
and notices, since such payments, reports and notices will be forwarded by
the Trustee to Cede & Co., as nominee for DTC. DTC will forward such
payments, reports and notices to its Participants, which thereafter will
forward them to Indirect Participants, CEDEL, Euroclear or holders of Offered
Certificates, as applicable.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants 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. Participants and
Indirect Participants with which the holders of Offered Certificates have
accounts with respect to the Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Offered Certificates. Accordingly, although the
holders of Offered Certificates will not possess the Offered Certificates,
the Rules provide a mechanism by which Participants will receive payments on
Offered Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to
such Certificates, may be limited due to the lack of a physical certificate
for such Certificates.
DTC has advised the Depositor 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 the direction of one or more Participants to whose accounts
with DTC the Offered Certificates are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Except as required by law, neither the Depositor, the Servicer, the Fiscal
Agent nor the Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Offered Certificates held by Cede & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute. CEDEL
Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the Underwriter. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of
27 currencies, including United States dollars. The Euroclear system includes
various other services, including securities lending and borrowing and
interfaces with
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domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator"), under contract with Euroclear Clearance System, S.C.,
a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear system on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriter.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system, and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
The information herein concerning DTC, CEDEL and Euroclear and their
book-entry systems has been obtained from sources believed to be reliable,
but the Depositor takes no responsibility for the accuracy or completeness
thereof.
DEFINITIVE CERTIFICATES
Definitive Certificates will be delivered to beneficial owners of the
Offered Certificates ("Certificate Owners") (or their nominees) only if (i)
DTC is no longer willing or able properly to discharge its responsibilities
as depository with respect to the Book-Entry Certificates, and the Trustee is
unable to locate a qualified successor, (ii) the Depositor or the Trustee, at
its sole option, elects to terminate the book-entry system through DTC with
respect to some or all of any Class or Classes of Certificates, or (iii)
after the occurrence of an Event of Default under the Pooling and Servicing
Agreement, Certificate Owners representing a majority in principal amount of
the Book-Entry Certificates then outstanding advise DTC through DTC
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interest of Certificate
Owners.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, the Trustee is required to
notify all affected Certificateholders (through DTC and related DTC
Participants) of the availability through DTC of Definitive Certificates.
Upon delivery of Definitive Certificates, the Trustee, Certificate Registrar,
and Servicer will recognize the holders of such Definitive Certificates as
holders under the Pooling and Servicing Agreement ("Holders"). Distributions
of principal and interest on the Definitive Certificates will be made by the
Trustee directly to Holders of Definitive Certificates in accordance with the
procedures set forth in the Prospectus and the Pooling and Servicing
Agreement.
Upon the occurrence of any of the events described in clauses (i) through
(iii) of the second preceding paragraph, requests for transfer of Definitive
Certificates will be required to be submitted directly to the Certificate
Registrar in a form acceptable to the Certificate Registrar (such as the
forms which will appear on the back of the certificate representing a
Definitive Certificate), signed by the Holder or such Holder's legal
representative and accompanied by the Definitive Certificate or Certificates
for which transfer is being requested. The Trustee will be appointed as the
initial Certificate Registrar.
TRANSFER RESTRICTIONS
In the event that holders of the Subordinated Offered Certificates become
entitled to receive Definitive Certificates under the circumstances described
under "--Definitive Certificates", each prospective transferee of a
Subordinated Offered Certificate that is a Definitive Certificate will be
required to (i) deliver to the Depositor, the Certificate Registrar and the
Trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling and Servicing
S-107
<PAGE>
Agreement stating that such transferee is not an employee benefit plan or
other retirement arrangement subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or a governmental
plan (as defined in Section 3(32) of ERISA) subject to any federal, state or
local law which is, to a material extent, similar to the foregoing provisions
of ERISA or the Code (each, a "Plan"), or a person acting on behalf of or
investing the assets of a Plan, other than an insurance company investing the
assets of its general account under circumstances whereby the purchase and
subsequent holding of a Subordinated Offered Certificate would be exempt from
the prohibited transaction restrictions of ERISA and the Code under Sections
I and III of PTE 95-60, or (ii) provide an opinion of counsel and such other
documentation as described under "ERISA Considerations" herein. The purchaser
or transferee of any interest in a Subordinated Offered Certificate that is
not a Definitive Certificate shall be deemed to represent that it is not a
person described in clause (i) above.
The Subordinated Offered Certificates will contain a legend describing
such restrictions on transfer and the Pooling and Servicing Agreement will
provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void.
S-108
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholder, the rate and timing of the distributions
in reduction of Certificate Balance or Notional Balance of such Certificates,
the rate, timing and severity of losses on the Mortgage Loans and the extent
to which such losses are allocable in reduction of the Certificate Balance of
such Certificates, and the extent to which Prepayment Premiums are received
in connection with voluntary prepayments, liquidations on default, or other
early returns of principal, as well as prevailing interest rates at the time
of prepayment or default.
The rate of distributions in reduction of the Certificate Balance of any
Class of Offered Certificates, the aggregate amount of distributions on any
Class of Offered Certificates and the yield to maturity of any Class of
Offered Certificates will be directly related to the rate of payments of
principal (both scheduled and unscheduled) on the Mortgage Loans and the
amount and timing of borrower defaults. In addition, such distributions in
reduction of Certificate Balance may result from repurchases by the Mortgage
Loan Seller due to missing or defective documentation or breaches of
representations and warranties with respect to the Mortgage Loans as
described herein under "The Pooling and Servicing Agreement --
Representations and Warranties; Repurchase," purchases of the Mortgage Loans
in the manner described under "The Pooling and Servicing Agreement --
Optional Termination" or purchases of ARD Loans by Class LR
Certificateholders as described under "Description of the Mortgage Pool --
Certain Terms and Conditions of the Mortgage Loans." The yield on the Class
A-8Z Certificates depends entirely on the payment of the Comsat Junior Loan,
which is the sole source of distributions on the Class A-8Z Certificates.
Disproportionate principal payments (whether resulting from differences in
amortization terms, prepayments following expirations of the respective
Lock-out Periods or otherwise) on the Mortgage Loans having Net Mortgage
Pass-Through Rates that are higher or lower than the Weighted Average Net
Mortgage Pass-Through Rate will affect the Weighted Average Net Mortgage
Pass-Through Rate and accordingly the Pass-Through Rate of the Class A-CS1,
Class PS-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class
A-7 Certificates for future periods and therefore the yield on such Classes.
The weighted average of the Net Mortgage Pass-Through Rates for each
Distribution Date, assuming that each Mortgage Loan with an Anticipated
Repayment Date prepays on such date and that each other Mortgage Loan does
not prepay, is set forth on Annex C hereto.
The Certificate Balance of any Class of Offered Certificates may be
reduced without distributions thereon as a result of the allocation of
Realized Losses to such Class (or the related Classes), reducing the maximum
amount distributable to such Class in respect of Certificate Balance, as well
as the amount of interest from that which would have accrued thereon in the
absence of such reduction. In general, a Realized Loss occurs when the
aggregate principal balance of a Mortgage Loan is reduced without an equal
distribution to Certificateholders in reduction of the Certificate Balances
of the Certificates. Realized Losses are likely to occur only in connection
with a default on a Mortgage Loan and the liquidation of the related
Mortgaged Properties or a reduction in the principal balance of a Mortgage
Loan by a bankruptcy court.
Because the ability of a borrower to make a Balloon Payment will depend
upon its ability either to refinance the Mortgage Loan or to sell the related
Mortgaged Property, there is a risk that a borrower may default at the
maturity date. In connection with a default on the Balloon Payment, the
Special Servicer may agree to extend the maturity date thereof as described
under "The Pooling and Servicing Agreement -- Realization Upon Mortgage
Loans". In the case of any such default, recovery of proceeds may be delayed
by and until, among other things, work-outs are negotiated, foreclosures are
completed or bankruptcy proceedings are resolved. In addition, the Directing
Holders (as defined below) may instruct the Special Servicer to delay the
commencement of any foreclosure proceedings under certain conditions
described herein. Certificateholders are not entitled to receive
distributions of Monthly Payments or the Balloon Payment when due except to
the extent they are either covered by an Advance or actually received.
Consequently, any defaulted Monthly Payment for which no such Advance is made
and a defaulted Balloon Payment will tend to extend the weighted average
lives of the Certificates, whether or not a permitted extension of the due
date of the related Mortgage Loan has been effected.
The rate of payments (including voluntary and involuntary prepayments) on
pools of Mortgage Loans is influenced by a variety of economic, demographic,
geographic, social, tax, legal and other factors, including the level of
mortgage interest rates and the rate at which borrowers default on their
mortgage loans.
S-109
<PAGE>
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans is applied in reduction of the
Certificate Balance of a Class of Offered Certificates, the greater the
effect on such investor's yield to maturity.
All of the Mortgage Loans have Lock-out Periods ranging from 58 months to
265 months following the Cut-off Date. The weighted average Lock-out Period
for the Mortgage Loans is approximately 150 months. All Mortgage Loans are
locked out until no earlier than three months preceding their Anticipated
Repayment Date or maturity date, as applicable. See "Description of the
Mortgage Pool -- Certain Terms and Conditions of the Mortgage Loans --
Prepayment Provisions" herein. Nevertheless, any such Mortgage Loan may be
prepaid prior to the expiration of any such Lock-out Period in connection
with certain events of casualty or condemnation. In addition, investors may
receive early return of principal in connection with defaults, repurchases
for breach of representations and warranties, and optional redemption.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce the
principal of the ARD Loans after their respective Anticipated Repayment
Dates, there can be no assurance that any of such Mortgage Loans will be
prepaid on that date or any date prior to maturity. An investor is urged to
make an investment decision with respect to any Class of Offered Certificates
based on the anticipated yield to maturity of such Class of Offered
Certificates resulting from its purchase price and such investor's own
determination as to anticipated Mortgage Loan prepayment rates under a
variety of scenarios. The extent to which any Class of Offered Certificates
is purchased at a discount or a premium and the degree to which the timing of
payments on such Class of Offered Certificates is sensitive to prepayments
will determine the extent to which the yield to maturity of such Class of
Offered Certificates may vary from the anticipated yield. An investor should
carefully consider the associated risks, including, in the case of any
Offered Certificates purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in
an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificates purchased at a premium, the risk
that a faster than anticipated rate of principal payments could result in an
actual yield to such investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of
the principal balance of the Offered Certificates entitled to distributions
of principal may coincide with periods of low prevailing interest rates.
During such periods, the effective interest rates on securities in which an
investor may choose to reinvest amounts distributed in reduction of the
principal balance of such investor's Offered Certificate may be lower than
the Pass-Through Rate. Conversely, slower rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates entitled to distributions of
principal, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal distributions resulting from
prepayments available to an investor in such Certificates for reinvestment at
such high prevailing interest rates may be relatively small.
The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and purchase
prices because while interest is required to be paid by the Borrower on the
eleventh day of each month, the distribution of such interest will not be
made until the Distribution Date occurring in such month, and principal paid
on any Distribution Date will not bear interest during the period after the
related Due Date and before the Distribution Date occurs. Additionally, as
described under "Description of the Offered Certificates -- Distributions"
herein, if the portion of the Available Funds distributable in respect of
interest on any Class of Offered Certificates on any Distribution Date is
less than the amount of interest required to be paid to the holders of such
Class, the shortfall will be distributable to holders of such Class of
Certificates on subsequent Distribution Dates, to the extent of Available
Funds on such Distribution Dates. Any such shortfall will not bear interest,
however, and will therefore negatively affect the yield to maturity of such
Class of Certificates for so long as it is outstanding.
YIELD ON THE CLASS A-CS1 AND CLASS PS-1 CERTIFICATES
Because distributions on the Class A-CS1 and Class PS-1 Certificates
consist only of a portion of the interest received on the Mortgage Loans, the
yield to maturity of such Certificates will be extremely sensitive to the
rate and timing of principal payments (including voluntary and involuntary
prepayments), any repurchase of a Mortgage Loan by the Mortgage Loan Seller,
delinquencies and liquidations on such Mortgage Loans. Furthermore,
delinquencies and other defaults under a Mortgage Loan could result in the
Appraisal Reduction Amounts and Delinquency Reduction Amounts, in which case
the right of the Class PS-1 Certificates to receive a portion of its interest
would be reduced in priority.
S-110
<PAGE>
Investors should fully consider the associated risks, including the risk that
a rapid rate of principal payments on and liquidations or repurchases of the
Mortgage Loans could result in the failure of investors in the Class A-CS1
and Class PS-1 Certificates to fully recoup their initial investments.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of
the then-scheduled principal balance of the pool of mortgage loans. As used
in the following table, the column headed "0% CPR" assumes that none of the
Mortgage Loans is prepaid before the related Anticipated Repayment Date or
maturity date, as applicable. The columns headed "10% CPR", "25% CPR" and
"50% CPR" assume that prepayments on the Mortgage Loans are made at those
levels of CPR following the expiration of any Lock-out Period until the
related Anticipated Repayment Date or maturity date, as applicable. All
columns in the following table assume that all of the ARD Loans are fully
prepaid on their related Anticipated Repayment Date and all of the other
Mortgage Loans are paid in full on their maturity date. There is no
assurance, however, that prepayments of the Mortgage Loans will conform to
any level of CPR, and no representation is made that the Mortgage Loans will
prepay at the levels of CPR shown or at any other prepayment rate. The
foregoing assumptions are referred to herein as the "Prepayment Assumptions."
The following tables indicate the assumed purchase price (including
accrued interest) and the pre-tax yield on the Class A-CS1 and Class PS-1
Certificates to maturity, stated on a corporate bond equivalent basis. For
purposes of preparing the tables, it was assumed that each of the Mortgage
Loans has the following characteristics: (i) each Mortgage Loan will pay
principal and interest in accordance with its terms and scheduled payments
will be timely received on the 11th day of each month (or, with respect to
the Circuit City Loans, the 25th day of the prior month); (ii) the Mortgage
Loan Seller does not repurchase any Mortgage Loan as described under "The
Pooling and Servicing Agreement -- Representations and Warranties --
Repurchase"; (iii) none of the Depositor, Servicer, or the Class LR
Certificateholders exercise the right to cause early termination of the Trust
Fund; (iv) the Servicing Fee Rate for each Distribution Date is an aggregate
amount equal to a per annum rate of 0.038% on the Stated Principal Balance of
the Mortgage Loans as of the preceding Due Date; and (v) the date of
determination of weighted average life is October 24, 1997. These assumptions
are collectively referred to as the "Mortgage Loan Assumptions".
SENSITIVITY TO PRINCIPAL PREPAYMENTS OF THE PRE-TAX YIELD TO MATURITY
CLASS A-CS1
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE 0% CPR 10% CPR 25% CPR 50% CPR
- ---------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
$8,886,231 10.59% 10.59% 10.59% 10.58%
$9,505,049 7.18% 7.17% 7.17% 7.16%
</TABLE>
CLASS PS-1
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE 0% CPR 10% CPR 25% CPR 50% CPR
- ---------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
$181,744,207 8.80% 8.80% 8.79% 8.77%
$195,995,584 7.24% 7.24% 7.23% 7.21%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rate that, when applied to the
assumed stream of cash flows to be paid on the Class A-CS1 and Class PS-1
Certificates, would cause the discounted present value of such assumed cash
flows to equal the assumed purchase price thereof, and by converting such
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 A-CS1 and Class PS-1 Certificates and consequently do not purport
to reflect the return on any investment in the Class A-CS1 and Class PS-1
Certificates when such reinvestment rates are considered.
There can be no assurance that the Mortgage Loans will prepay at any of
the times assumed for purposes of calculating the yields shown in the tables
or at any other particular time, that the pre-tax yields on the Class A-CS1
and Class PS-1 Certificates will correspond to any of the pre-tax yields
shown herein or that the aggregate purchase prices of either Class of the
Class A-CS1 and Class PS-1 Certificates will be as assumed. Investors must
make their own decisions as to the appropriate prepayment assumptions to be
used in deciding whether to purchase the Class A-CS1 and Class PS-1
Certificates.
S-111
<PAGE>
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date," February, 2043, is the Distribution
Date occurring two years after the latest Assumed Maturity Date of any of the
Mortgage Loans. Because certain of the Mortgage Loans have maturity dates
that occur earlier than the latest maturity date, and because certain of the
Mortgage Loans may be prepaid prior to maturity, it is possible that the
Certificate Balance of each Class of Offered Certificates will be reduced to
zero significantly earlier than the Rated Final Distribution Date.
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or
allocation to the investor of each dollar in reduction of Certificate Balance
that is distributed or allocated, respectively. The weighted average lives of
the Offered Certificates will be influenced by, among other things, the rate
at which principal of the Mortgage Loans is paid, which may occur as a result
of scheduled amortization, Balloon Payments, voluntary or involuntary
prepayments or liquidations.
The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Balance of such Certificates occur as a result of the repurchase
or purchase of Mortgage Loans from the Trust Fund as described under "The
Pooling and Servicing Agreement -- Representations and Warranties;
Repurchase" or "--Optional Termination" herein. Such a repurchase or purchase
from the Trust Fund will have the same effect on distributions to the holders
of Certificates as if the related Mortgage Loans had prepaid in full, except
that no Prepayment Premiums are made in respect thereof.
The tables of "Percentages of Initial Certificate Balance Outstanding for
the Offered Certificates" set forth below indicate the weighted average life
of each Class of Offered Certificates and set forth the percentage of the
initial Certificate Balance of such Offered Certificates that would be
outstanding after each of the dates shown at the various CPRs and based on
the Prepayment Assumptions. The tables have also been prepared on the basis
of the Mortgage Loan Assumptions. The Mortgage Loan Assumptions made in
preparing the previous and following tables are expected to vary from the
actual performance of the Mortgage Loans. It is highly unlikely that
principal of the Mortgage Loans will be repaid consistent with assumptions
underlying any one of the scenarios. Investors are urged to conduct their own
analysis concerning the likelihood that the Mortgage Loans may pay or prepay
on any particular date.
Based on the Mortgage Loan Assumptions, the Prepayment Assumptions and the
various CPRs, the tables indicate the weighted average life of the Offered
Certificates and set forth the percentages of the initial Certificate Balance
of the Offered Certificates that would be outstanding after the Distribution
Date in November of each of the years indicated, at the indicated CPRs.
PERCENTAGE OF INITIAL CERTIFICATE BALANCE OR NOTIONAL BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1A AND CLASS A-CS1
------------------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- ------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Percentage ................... 100% 100% 100% 100%
October 14, 1998 ..................... 88 88 88 88
October 14, 1999 ..................... 74 74 74 74
October 14, 2000 ..................... 60 60 60 60
October 14, 2001 ..................... 44 44 44 44
October 14, 2002 ..................... 26 26 26 26
October 14, 2003 ..................... 5 5 5 5
October 14, 2004 ..................... 0 0 0 0
Weighted Average Life (years)(2) .... 3.47% 3.47% 3.47% 3.46%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1A and A-CS1 Certificates is
determined by (i) multiplying the amount of each distribution or
allocation in reduction of Certificate Balance or Notional Balance,
respectively, of such Class by
S-112
<PAGE>
the number of years from the date of determination to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum
by the aggregate distributions or allocations in reduction of
Certificate Balance or Notional Balance, as applicable, referred to in
clause (i). The weighted average life data presented above for the
Class A-CS1 Certificates is for illustrative purposes only, as the
Class A-CS1 Certificates are not entitled to distributions of principal
and have no weighted average life.
PERCENTAGE OF INITIAL NOTIONAL BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS PS-1
------------------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- ------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Percentage ................... 100% 100% 100% 100%
October 14, 1998...................... 99 99 99 99
October 14, 1999 ..................... 98 98 98 98
October 14, 2000 ..................... 96 96 96 96
October 14, 2001 ..................... 95 95 95 95
October 14, 2002 ..................... 93 93 93 93
October 14, 2003...................... 91 91 91 91
October 14, 2004 ..................... 87 87 87 87
October 14, 2005 ..................... 85 85 85 85
October 14, 2006 ..................... 83 83 83 83
October 14, 2007 ..................... 49 49 49 48
October 14, 2008 ..................... 41 41 41 41
October 14, 2009 ..................... 32 32 32 32
October 14, 2010 ..................... 30 30 30 30
October 14, 2011 ..................... 28 28 28 27
October 14, 2012 ..................... 7 7 6 6
October 14, 2013 ..................... 4 4 4 4
October 14, 2014 ..................... 4 4 4 4
October 14, 2015 ..................... 3 3 3 3
October 14, 2016 ..................... 2 2 2 2
October 14, 2017 ..................... 1 1 1 1
October 14, 2018 ..................... 0 0 0 0
Weighted Average Life (years)(2) .... 10.91% 10.91% 10.90% 10.89%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class PS-1 Certificates is determined
by (i) multiplying the amount of each allocation in reduction of
Notional Balance of such Class by the number of years from the date of
determination to the related Distribution Date, (ii) adding the results
and (iii) dividing the sum by the aggregate allocations in reduction of
Notional Balance referred to in clause (i). The weighted average life
data presented above for the Class PS-1 Certificates is for
illustrative purposes only, as the Class PS-1 Certificates are not
entitled to distributions of principal and have no weighted average
life.
S-113
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1B
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 66 66 66 66
October 14, 2005.................. 44 44 44 44
October 14, 2006.................. 20 20 20 19
October 14, 2007.................. 0 0 0 0
Weighted Average Life (years)(2) 7.83% 7.82% 7.82% 7.81%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1B Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1C
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 22 22 21 19
October 14, 2008.................. 2 2 2 2
October 14, 2009.................. 0 0 0 0
Weighted Average Life (years)(2) 9.96% 9.95% 9.94% 9.92%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1C Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
S-114
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1D
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 39 39 38 37
October 14, 2010.................. 19 19 19 19
October 14, 2011.................. 4 4 4 4
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 12.20% 12.19% 12.19% 12.18%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1D Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1E
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.36% 14.36% 14.36% 14.36%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1E Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
S-115
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-2
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.66% 14.66% 14.65% 14.65%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-2 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-3
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.81% 14.80% 14.79% 14.77%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-3 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
S-116
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-4
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.95% 14.93% 14.91% 14.89%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-4 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-5
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.97% 14.97% 14.97% 14.96%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-5 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
S-117
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-6
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.97% 14.97% 14.97% 14.97%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-6 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-7
----------------------------------------
DISTRIBUTION DATE(1) 0% CPR 10% CPR 25% CPR 50% CPR
- --------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Initial Percentage ............... 100% 100% 100% 100%
October 14, 1998 ................. 100 100 100 100
October 14, 1999 ................. 100 100 100 100
October 14, 2000 ................. 100 100 100 100
October 14, 2001 ................. 100 100 100 100
October 14, 2002 ................. 100 100 100 100
October 14, 2003 ................. 100 100 100 100
October 14, 2004 ................. 100 100 100 100
October 14, 2005 ................. 100 100 100 100
October 14, 2006.................. 100 100 100 100
October 14, 2007.................. 100 100 100 100
October 14, 2008.................. 100 100 100 100
October 14, 2009.................. 100 100 100 100
October 14, 2010.................. 100 100 100 100
October 14, 2011.................. 100 100 100 100
October 14, 2012.................. 0 0 0 0
Weighted Average Life (years)(2) 14.97% 14.97% 14.97% 14.97%
</TABLE>
- ------------
(1) Assuming that the 14th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-7 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Balance of such Class by the number of years from the date
of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Balance referred to in clause (i).
S-118
<PAGE>
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of October 24, 1997 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent.
Reference is made to the Prospectus for important information in addition
to that set forth herein regarding the terms of the Pooling and Servicing
Agreement and terms and conditions of the Offered Certificates. The Depositor
will provide to a prospective or actual holder of an Offered Certificate
without charge, upon written request, a copy (without exhibits) of the
Pooling and Servicing Agreement. Requests should be addressed to Asset
Securitization Corporation, 2 World Financial Center, Building B, New York,
New York 10281-1198.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans (including all
payments due thereon after the Cut-off Date but excluding interest accrued
prior to the 17th day preceding the first Due Date following the Cut-off
Date), without recourse, to the Trustee for the benefit of the holders of
Certificates. On or prior to the Closing Date, the Depositor will deliver to
the Trustee, with respect to each Mortgage Loan, certain documents and
instruments including, among other things, the following: (i) the original
Mortgage Note endorsed in blank and delivered to the Trustee, (ii) the
original mortgage or counterpart thereof; (iii) the assignment of the
mortgage in recordable form in favor of the Trustee; (iv) if applicable,
preceding assignments of mortgages; (v) the related security agreement, if
applicable, (vi) to the extent not contained in the Mortgages, the original
assignments of leases and rents or counterpart thereof; (vii) if applicable,
the original assignments of assignments of leases and rents to the Trustee;
(viii) if applicable, preceding assignments of assignments of leases and
rents; (ix) where applicable, a certified copy of the UCC-1 Financing
Statements, if any, including UCC-3 continuation statements and UCC-3
assignments; (x) the original loan agreements; and (xi) the original lender's
title insurance policy (or marked commitments to insure). The Trustee will
hold such documents in trust for the benefit of the holders of Certificates.
The Trustee is obligated to review such documents for each Mortgage Loan
within 45 days after the later of delivery or the Closing Date and report any
missing documents or certain types of defects therein to the Depositor.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the Depositor will assign the
representations and warranties made by the Mortgage Loan Seller to the
Depositor in the Mortgage Loan Purchase and Sale Agreement to the Trustee for
the benefit of Certificateholders. In the Mortgage Loan Purchase and Sale
Agreement, the Mortgage Loan Seller will represent and warrant, among other
things, that (subject to certain exceptions specified in the Mortgage Loan
Purchase and Sale Agreement), as of the Closing Date (unless otherwise
specified):
(i) immediately prior to the sale, transfer and assignment to the
Depositor, each related Note and Mortgage were not subject to an
assignment or pledge, and the Mortgage Loan Seller has good title to, and
is the sole owner of, each Mortgage Loan;
(ii) the Mortgage Loan Seller has full right and the authority to sell,
assign and transfer such Mortgage Loan;
(iii) the Mortgage Loan Seller is transferring such Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of
any nature encumbering such Mortgage Loan;
(iv) each related Note, Mortgage, Assignment of Leases and Rents (if any)
and other agreement executed in connection with such Mortgage Loan are
legal, valid and binding obligations of the related borrower, enforceable
in accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors rights generally, or by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and there is no valid
defense, counterclaim, or right of recision available to the related
Borrower with respect to such Note, Mortgage and other agreements;
(v) each related Assignment of Leases and Rents, if any, creates a valid,
collateral or first priority assignment of, or a valid first priority
security interest in, certain rights under the related leases, subject
only to a license granted to
S-119
<PAGE>
the related borrower to exercise certain rights and to perform certain
obligations of the lessor under such leases, including the right to
operate the related Mortgaged Property; no person other than the related
borrower owns any interest in any payments due under such leases that is
superior to or of equal priority with the mortgagee's interest therein;
(vi) each related assignment of Mortgage from the Mortgage Loan Seller to
the Depositor, and any related Reassignment of Assignment of Leases and
Rents, if any, or assignment of any other agreement executed in connection
with such Mortgage Loan, from the Mortgage Loan Seller to the Depositor
constitutes the legal, valid and binding assignment from the Mortgage Loan
Seller to the Depositor except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, liquidation, receivership,
moratorium or other laws relating to or affecting creditor's rights
generally, or by general principles or equity (regardless of whether such
enforcement is considered in a proceeding in equity or law);
(vii) since origination, and except as set forth in the related mortgage
file, such Mortgage Loan has not been waived, modified, altered,
satisfied, canceled, subordinated or rescinded and, each related Mortgaged
Property has not been released from the lien of the related Mortgage in
any manner which materially interferes with the security intended to be
provided by such Mortgage;
(viii) each related Mortgage is a valid and enforceable first lien on the
related Mortgaged Property, except with respect to the Comsat Junior Loan
which is a second lien on the related Mortgaged Property, and such
Mortgaged Property (subject to the matters discussed in clause (xi) below)
is free and clear of any mechanics' and materialmen's liens which are
prior to or equal with the lien of the related Mortgage, except those
which are insured against by a lender's title insurance policy (as set
forth in the Mortgage Loan Purchase and Sale Agreement);
(ix) the Mortgage Loan Seller has not taken any action that would cause
the representations and warranties made by each related borrower in the
Mortgage Loan not to be true;
(x) the Mortgage Loan Seller has no knowledge that the representations
and warranties made by each related borrower in such Mortgage Loan are not
true in any material respect;
(xi) except with respect to the Mortgage Loan secured by the Mortgaged
Property known as the Westin Casuarina Resort Property, which has a
Certificate of Title from the Grand Cayman Island government, the lien of
each related Mortgage is insured by an ALTA lender's title insurance
policy (or a binding commitment therefor), or its equivalent as adopted in
the applicable jurisdiction, insuring the Mortgage Loan Seller, its
successors and assigns, as to a valid and perfected first priority
security interest in the related Mortgaged Property and the first priority
lien of the Mortgage in the original principal amount of such Mortgage
Loan (as set forth on the Mortgage Loan Schedule which is an exhibit to
the Pooling and Servicing Agreement) after all advances of principal,
subject only to (a) the lien of current real property taxes, ground rents,
water charges, sewer rents and assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record, none of which, individually or in the aggregate,
materially interferes with the current use of the Mortgaged Property or
the security intended to be provided by such Mortgage or with the
borrower's ability to pay its obligations when they become due or the
value of the Mortgaged Property and (c) the exceptions (general and
specific) set forth in such lender's title insurance policy, none of
which, individually or in the aggregate, materially interferes with the
security intended to be provided by such Mortgage or with the borrower's
ability to pay its obligations when they become due or the value of the
Mortgaged Property; the Mortgage Loan Seller or its successors or assigns
is the sole named insured of such policy; such policy is assignable to the
Depositor without the consent of or any notification to the insurer, and
is in full force and effect upon the consummation of the transactions
contemplated by the Mortgage Loan Purchase and Sale Agreement; no claims
have been made under such policy and the Mortgage Loan Seller has not done
anything, by act or omission, and the Mortgage Loan Seller has no
knowledge of any matter, which would impair or diminish the coverage of
such policy; to the extent required by applicable law the insurer issuing
such policy is qualified to do business in the jurisdiction in which the
related Mortgaged Properties are located;
(xii) except with respect to the mortgage loan that includes the Westin
Casuarina Resort Property Participation, the proceeds of such Mortgage
Loan have been fully disbursed and there is no requirement for future
advances thereunder and it covenants that it will not make any future
advances under the Mortgage Loan to the related borrower;
S-120
<PAGE>
(xiii) each related Mortgaged Property is free of any material damage
that would affect materially and adversely the value of such Mortgaged
Property as security for the Mortgage Loan and is in good repair and there
is no proceeding pending for the total or, except with respect to the
Kmart Credit Lease Loan secured by the Mortgaged Property located in
Monroe Township, New Jersey, partial condemnation of such Mortgaged
Property;
(xiv) each of the related borrowers (and in the case of certain loans,
each of the operators of the healthcare facilities) is in possession of
all material licenses, permits and other authorizations necessary and
required by all applicable laws for the conduct of its business; all such
licenses, permits and authorizations are valid and in full force and
effect; and if a related Mortgaged Property is improved by a healthcare
facility, the most recent inspection or survey by governmental authorities
having jurisdiction in connection with such licenses, permits and
authorizations did not cite such Mortgaged Property for material
violations (which shall include only "Level A" violations or the
equivalent, in the case of skilled nursing facilities, that have not been
cured);
(xv) the Mortgage Loan Seller or, to the best of the Mortgage Loan
Seller's knowledge, Bloomfield and CSFB, has inspected or caused to be
inspected each related Mortgaged Property within the past twelve months
preceding the Cut-off Date or within one month of origination of the
Mortgage Loan;
(xvi) such Mortgage Loan does not have a shared appreciation feature,
other contingent interest feature or, except with respect to the Comsat
Junior Loan, negative amortization;
(xvii) except with respect to the Westin Casuarina Resort Participation,
such Mortgage Loan is a whole loan and no other party holds a
participation interest in the Mortgage Loan;
(xviii) (A) the Mortgage Rate (exclusive of any default interest or yield
maintenance charges) of such Mortgage Loan complied as of the date of
origination with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury; any and all other
requirements of any federal, state or local laws, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such Mortgage Loan
have been complied with as of the date of origination of such Mortgage
Loan or (B) the Mortgage Loan Seller has received an opinion to such
effect;
(xix) (A) with respect to each Mortgage Loan originated by the Mortgage
Loan Seller, no fraudulent acts were committed by the Mortgage Loan Seller
during the origination process of such Mortgage Loan and the origination,
servicing and collection of each Mortgage Loan is in all respects legal,
proper and prudent in accordance with customary industry standards and (B)
with respect to each Mortgage Loan originated by Bloomfield, Bostonia or
CSFB, to the best of the Mortgage Loan Seller's knowledge, no fraudulent
acts were committed by Bloomfield, Bostonia or CSFB during the origination
process of such Mortgage Loan and to the best of the Mortgage Loan
Seller's knowledge, the origination, servicing and collection of each
Mortgage Loan is in all respects legal, proper and prudent in accordance
with customary industry standards;
(xx) all taxes and governmental assessments that prior to the Closing
Date became due and owing in respect of each related Mortgaged Property
have been paid, or an escrow of funds in an amount sufficient to cover
such payments has been established;
(xxi) all escrow deposits and payments required pursuant to the Mortgage
Loan are in the possession, or under the control, of the Mortgage Loan
Seller or its agent and there are no deficiencies in connection therewith;
(xxii) to the extent required under applicable law, as of the Cut-off
Date, the Mortgage Loan Seller was authorized to transact and do business
in the jurisdiction in which each related Mortgaged Property is located at
all times when it held the Mortgage Loan;
(xxiii) except with respect to the Mortgaged Properties known as the
Builders Square Properties, the Super Kmart Property, the Kmart Plaza
Shopping Center Property and the Walgreens Property, which are
self-insured by the related tenant, each related Mortgaged Property is
insured by a fire and extended perils insurance policy, issued by an
insurer meeting the requirements of the Mortgage Loans, in an amount not
less than the replacement cost and the amount necessary to avoid the
operation of any co-insurance provisions with respect to the Mortgaged
Property; each related Mortgaged Property is also covered by business
interruption insurance and comprehensive general liability insurance in
amounts generally required by institutional lenders for similar
properties; all premiums on such insurance policies required to be paid as
of the date hereof have been paid; such insurance policies require prior
notice to the insured of termination or cancellation, and no such notice
has been received; each related Mortgage obligates the related borrower to
maintain all such insurance and, at such borrower's failure to do so,
authorizes the mortgagee to maintain such insurance at the borrower's cost
and expense and to seek reimbursement therefor from such borrower;
S-121
<PAGE>
(xxiv) there is no default, breach, violation or event of acceleration
existing under the related Mortgage or the related Note and no event
which, with the passage of time or with notice and the expiration of any
grace or cure period, would and does constitute a default, breach,
violation or event of acceleration;
(xxv) such Mortgage Loan has not been 30 or more days delinquent since
origination and as of the Cut-off Date was not delinquent;
(xxvi) each related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including realization by judicial or, if
applicable, non-judicial foreclosure, and there is no exemption available
to the borrower which would interfere with such right to foreclose;
(xxvii) in each related Mortgage or Loan Agreement, the related borrower
represents and warrants that it has not used, caused or permitted to exist
and will not use, cause or permit to exist on the related Mortgaged
Property any Hazardous Materials in any manner which violates federal,
state or local laws, ordinances, regulations, orders, directives or
policies governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials; the related borrower agrees to indemnify, defend and hold the
mortgagee and its successors and assigns harmless from and against any and
all losses, liabilities, damages, injuries, penalties, fines, expenses,
and claims of any kind whatsoever (including attorneys' fees and costs)
paid, incurred or suffered by, or asserted against, any such party
resulting from a breach of any representation, warranty or covenant given
by the borrower in such Mortgage or Loan Agreement. A Phase I
environmental report was conducted by a reputable environmental engineer
in connection with such Mortgage Loan, which report, except as otherwise
disclosed herein did not indicate any material non-compliance or material
existence of Hazardous Materials. To the best of the Mortgage Loan
Seller's knowledge, each related Mortgaged Property is in material
compliance with all applicable federal, state and local laws pertaining to
environmental hazards, and no notice of violation of such laws has been
issued by any governmental agency or authority; the Mortgage Loan Seller
has not taken any action which would cause the related Mortgaged Property
not to be in compliance with all federal, state and local laws pertaining
to environmental hazards;
(xxviii) each related Mortgage or Loan Agreement contains provisions for
the acceleration of the payment of the unpaid principal balance of such
Mortgage Loan if, without the prior written consent of the mortgagee or
the satisfaction of certain conditions, the related Mortgaged Property, or
any interest therein, is directly or indirectly transferred or sold, or
encumbered in connection with subordinate financing;
(xxix) (1) the Mortgage Loan is directly secured by a Mortgage on
commercial real property or multifamily residential real property, and (2)
the fair market value of such real property, as evidenced by an MAI
appraisal conducted within 12 months of the origination of the Mortgage
Loan, was at least equal to 80% of the principal amount of the Mortgage
Loan (a) at origination (or if the Mortgage Loan has been modified in a
manner that constituted a deemed exchange under Section 1001 of the Code
at a time when the Mortgage Loan was not in default or default with
respect thereto was not reasonably foreseeable, the date of the last such
modification) or (b) at the Closing Date; provided that the fair market
value of the real property interest must first be reduced by (A) the
amount of any lien on the real property interest that is senior to the
Mortgage Loan (unless such senior lien also secures a Mortgage Loan, in
which event the computation described in (a) and (b) shall be made on an
aggregated basis) and (B) a proportionate amount of any lien that is in
parity with the Mortgage Loan (unless such other lien secures a Mortgage
Loan that is cross-collateralized with such Mortgage Loan, in which event
the computation described in (a) and (b) shall be made on an aggregate
basis);
(xxx) except with respect to the Mortgage Loans secured by the Mortgaged
Properties known as Loeb-Riverview Center and Security Square Mall neither
the Mortgage Loan Seller nor any affiliate thereof has any obligation or
right to make any capital contribution to any borrower under a Mortgage
Loan, other than contributions made on or prior to the Closing Date; and
(xxxi) with respect to each Mortgaged Property where a material portion
of the estate of the related borrower therein is a leasehold estate and
the fee interest of the ground lessor is not subject and subordinate to
the related Mortgage, that
(A) The ground lease or a memorandum regarding it has been duly
recorded. The ground lease permits the interest of the lessee to be
encumbered by the related Mortgage and does not restrict the use of
the related
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Mortgaged Property by such lessee, its successors or assigns in a
manner that would adversely affect the security provided by the
related Mortgage. There has been no material change in the terms of
such ground lease since its recordation, except by written
instruments, all of which are included in the related Mortgage File;
(B) Except with respect to the Mortgaged Property known as the Westin
Casuarina Resort Property, the lessor under such ground lease has
agreed in writing and included in the related Mortgage File that the
ground lease may not be amended, modified, canceled or terminated
without the prior written consent of the mortgagee and that any such
action without such consent is not binding on the mortgagee, its
successors or assigns;
(C) The ground lease has an original term (or an original term plus
one or more optional renewal terms, which, under all circumstances,
may be exercised, and will be enforceable, by the mortgagee) that
extends not less than 10 years beyond the stated maturity of the
related Mortgage Loan;
(D) The ground lease is prior to any mortgage or other lien upon the
related fee interest and the landlord has not entered into an
agreement to subordinate the ground lease to future mortgages or liens
on the fee interest;
(E) Except with respect to the Mortgaged Property known as Roseburg
Valley Mall Property, which requires landlord's consent, the ground
lease is assignable to the mortgagee under the leasehold estate and
its assigns (subject, in some cases, to a requirement that any such
assign be an institutional lender) without the consent of the lessor
thereunder;
(F) As of the date of execution and delivery, the ground lease is in
full force and effect and no default has occurred, nor is there any
existing condition which, but for the passage of time or giving of
notice, would result in a default under the terms of the ground lease;
(G) Except with respect to the Mortgaged Property known as the Westin
Casuarina Resort Property, the ground lease or ancillary agreement
between the lessor and the lessee requires the lessor to give notice
of any default by the lessee to the mortgagee;
(H) Except with respect to the Mortgaged Property known as the Westin
Casuarina Resort Property, a mortgagee is permitted a reasonable
opportunity to cure any default under the ground lease which is
curable after the receipt of notice of any default before the lessor
may terminate the ground lease. All rights of the mortgagee under the
ground lease and the related Mortgage (insofar as it relates to the
ground lease) may be exercised by or on behalf of the mortgagee;
(I) The ground lease does not impose any restrictions on subletting
that would be viewed as commercially unreasonable by an institutional
investor. The lessor is not permitted to disturb the possession,
interest or quiet enjoyment of any subtenant of the lessee in the
relevant portion of the Mortgaged Property subject to the ground lease
for any reason, or in any manner, which would adversely affect the
security provided by the related Mortgage;
(J) Any related insurance proceeds or condemnation award (other than
in respect of a total or substantially total loss or taking) will be
applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed
by it having the right to hold and disburse such proceeds as repair or
restoration progresses, or, if permitted by the related ground lease,
to the payment of the outstanding principal balance of the Mortgage
Loan, together with any accrued interest, except that in the case of
condemnation awards, the ground lessor is entitled to an amount of
such award generally based on the value of the unimproved land taken;
(K) Under the terms of the ground lease and the related Mortgage, any
related insurance proceeds, or condemnation award in respect of a
total or substantially total loss or taking of the related Mortgaged
Property will be applied first to the payment of the outstanding
principal balance of the Mortgage Loan, together with any accrued
interest (except where contrary to applicable law or in cases where a
different allocation would not be viewed as commercially unreasonable
by any institutional investor, taking into account the relative
duration of the ground lease and the related Mortgage and the ratio of
the market value of the related Mortgage property to the outstanding
principal balance of such Mortgage Loan, and except that certain
ground leases may require insurance proceeds to be applied to the
restoration of the property in respect of casualties occurring prior
to a specified time before the expiration of the ground lease). Until
the principal balance and accrued interest rate are
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paid in full, neither the lessee nor the lessor under the ground lease
will have the option to terminate or modify the ground lease without
prior written consent of the mortgagee as a result of any casualty or
partial condemnation, except to provide for an abatement of the rent;
(xxxii) with respect to each Mortgage Loan originated by Bloomfield
that
(A) such Mortgage Loan was underwritten in accordance with standards
established by the Mortgage Loan Seller, using application forms and
related credit documents approved by the Mortgage Loan Seller;
(B) the Mortgage Loan Seller approved each application and related
credit documents before a commitment by Bloomfield was issued, and no
such commitment was issued until the Mortgage Loan Seller agreed to
fund such loan;
(C) the closing documents for such Mortgage Loan were prepared on
forms approved by the Mortgage Loan Seller, and reflect the Mortgage
Loan Seller as the successor and assign to Bloomfield; and
(D) such loan was actually funded by the Mortgage Loan Seller, and
was assigned to the Mortgage Loan Seller at the closing;
(xxxiii) With respect to each Mortgage Loan secured by a Credit Lease:
(A) The rental payments under the Credit Lease are equal to or
greater than the payments due under the loan documents, and are
payable without notice or demand, and without setoff, counterclaim,
recoupment, abatement, reduction or defense.
(B) Except with respect to the Cablevision Credit Lease, the Comsat
Credit Leases and the Kmart Credit Leases, the obligations of Tenant
under the Credit Lease, including, but not limited to, the obligation
of Tenant to pay fixed and additional rent, are not affected by reason
of any damage to or destruction of any portion of the leased property;
any taking of the leased property or any part thereof by condemnation
or otherwise; or any prohibition, limitation, interruption, cessation,
restriction, prevention or interference of Tenant's use, occupancy or
enjoyment of the leased property, except that the Credit Lease may
permit a lease termination in any such event if notice by Tenant of
such termination is accompanied by the exercise of an option to
purchase the Mortgaged Property for at least the principal balance of
the Mortgage Loan plus accrued interest.
(C) Landlord does not have any monetary obligations under the Lease,
and every monetary obligation associated with managing, owning,
developing and operating the leased property, including, but not
limited to, the costs associated with utilities, taxes, insurance,
maintenance and repairs is an obligation of Tenant.
(D) Except with respect to the Kmart Credit Lease Loan secured by the
Mortgaged Property located in Monroe Township, New Jersey, the
Landlord does not have any continuing nonmonetary obligations under
the Credit Lease, the performance of which would involve a material
expediture of funds.
(E) Landlord has not made any false representation or warranty under
the Credit Lease that would impose any material monetary obligation
upon Landlord or result in the termination of the Credit Lease.
(F) Tenant cannot terminate the Credit Lease for any reason, prior to
the payment in full of or the payment of funds sufficient to pay in
full: (a) the principal balance of the loan; (b) all accrued and
unpaid interest on the loan; and (c) any other sums due and payable
under the loan, as of the termination date, except for a default by
Landlord under the Credit Lease.
(G) In the event Tenant assigns or sublets the leased property,
Tenant remains primarily obligated under the Credit Lease.
(H) Tenant has agreed to indemnify Landlord from any claims of any
nature arising as a result of any hazardous material affecting the
leased property caused by Tenant and arising after commencement of the
Credit Lease.
(xxxiv) With respect to each Mortgaged Property improved by a hotel
(except with respect to the Hotel Property known as the Westin Casuarina
Resort Property) or a healthcare facility, the Seller has, filed and/or
recorded (or sent for filing and/or recording on the closing date of the
related Mortgage Loan), Uniform Commercial Code financing statements on
all furniture, fixtures, equipment and all other personal property used in
the operation of the hotel;
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(xxxv) The Mortgage Loan documents for each Mortgage Loan having a
Cut-off Date Principal Balance in excess of $25,000,000 requires that the
Board of Directors of the borrower, its corporate general partner, or
managing member, as applicable, include an independent director; and
(xxxvi) The rent due under the ground lease for the Westin Casuarina
Resort Property has been fully paid for the full term of the lease.
The Pooling and Servicing Agreement requires that the Servicer, the
Special Servicer or the Trustee notify the Mortgage Loan Seller and the
Depositor upon its becoming aware of (a) any breach of any representation or
warranty contained in clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix), (xi), (xii), (xv), (xvi), (xvii), (xviii), (xix), (xx), (xxiv)
or (xxix) and (b) any breach of any representation or warranty contained in
clauses (x), (xiii), (xiv), (xxi), (xxii), (xxiii), (xxv), (xxvi), (xxvii),
(xxviii), (xxx), (xxxi), (xxxii), (xxxiii), (xxxiv), (xxxv) or (xxxvi) that
materially and adversely affects the value of such Mortgage Loan or the
interests of the holders of the Certificates therein. The Mortgage Loan
Purchase and Sale Agreement provides that, with respect to any such Mortgage
Loan, within 90 days after notice from the Servicer, the Special Servicer or
the Trustee, the Mortgage Loan Seller shall either (a) repurchase such
Mortgage Loan at an amount equal to (i) the outstanding principal balance of
the Mortgage Loan as of the Due Date as to which a payment was last made by
the borrower (less any P&I Advances previously made on account of principal),
(ii) accrued interest up to the Due Date in the month following the month in
which such repurchase occurs (less P&I Advances previously made on account of
interest), (iii) the amount of any unreimbursed Advances (with interest
thereon) and any unreimbursed servicing compensation relating to such
Mortgage Loan and (iv) any expenses reasonably incurred or to be incurred by
the Servicer, the Special Servicer or the Trustee in respect of the breach or
defect giving rise to the repurchase obligation, including any expenses
arising out of the enforcement of the repurchase obligation (such price the
"Repurchase Price") or (b) promptly cure such breach in all material
respects, provided, however, that in the event that such breach is capable of
being cured, as determined by the Servicer, but not within such 90-day period
and the Mortgage Loan Seller has commenced and is diligently proceeding with
the cure of such breach, the Mortgage Loan Seller will have an additional 90
days to complete such cure; provided, further, that with respect to such
additional 90-day period the Mortgage Loan Seller shall have delivered an
officer's certificate to the Trustee and the Servicer setting forth the
reason such breach is not capable of being cured within the initial 90-day
period and what actions the Mortgage Loan Seller is pursuing in connection
with the cure thereof and stating that the Mortgage Loan Seller anticipates
that such breach will be cured within the additional 90-day period; and,
provided, further, that in the event the Mortgage Loan Seller fails to cure
such breach within such additional 90-day period, the Repurchase Price shall
include interest on any Advances made in respect of the related Mortgage Loan
during such period.
Notwithstanding the foregoing, upon discovery by the Trustee, any
custodian for the Trustee, the Servicer or Special Servicer of a breach of a
representation or warranty that causes any Mortgage Loan not to be a
"qualified mortgage" within the meaning of the REMIC provisions of the Code,
such person shall give prompt notice thereof to the Depositor and within 90
days after such discovery, if such breach cannot be cured within such period,
the Depositor shall purchase, or cause the Mortgage Loan Seller to purchase,
such Mortgage Loan from the Trust Fund at the Repurchase Price.
The obligations of the Mortgage Loan Seller to repurchase or cure
constitute the sole remedies available to holders of Certificates or the
Trustee for a breach of a representation or warranty by the Mortgage Loan
Seller with respect to a Mortgage Loan. None of the Depositor (except as
described in the previous paragraph), the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent will be obligated to purchase a Mortgage Loan if
the Mortgage Loan Seller defaults on its obligation to repurchase or cure,
and no assurance can be given that the Mortgage Loan Seller will fulfill such
obligations. No assurance can be given that the Depositor will perform any
obligation to cure or repurchase a Mortgage Loan for a breach of any
representation referred to in the second preceding paragraph. If such
obligation is not met, as to a Mortgage Loan that is not a "qualified
mortgage," the Upper-Tier REMIC and Lower-Tier REMIC may be disqualified.
However, with respect to the Mortgage Loans acquired by the Mortgage Loan
Seller from Bloomfield, the Mortgage Loan Seller will also assign to the
Depositor, and the Depositor will further assign to the Trustee, the Mortgage
Loan Seller's rights and remedies against Bloomfield in respect of the
representations and warranties made by Bloomfield in its purchase and sale
agreement with the Mortgage Loan Seller (the "Bloomfield Purchase
Agreement"), except that the Trustee will be required to reassign such rights
and remedies to the Mortgage Loan Seller as to individual Mortgage Loans
repurchased by the Mortgage Loan Seller.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Servicer and Special
Servicer to service and administer the Mortgage Loans on behalf of the Trust
Fund solely in the best interests of and for the benefit of all of the
holders of
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Certificates (as determined by the Servicer or Special Servicer in the
exercise of its reasonable judgment) in accordance with applicable law, the
terms of the Pooling and Servicing Agreement and the Mortgage Loans and to
the extent not inconsistent with the foregoing, in the same manner in which,
and with the same care, skill, prudence and diligence with which, it (a)
services and administers similar mortgage loans comparable to the Mortgage
Loans and held for other third party portfolios or (b) administers mortgage
loans for its own account, whichever standard is higher, but without regard
to (i) any known relationship that the Servicer or Special Servicer, or an
affiliate of the Servicer or Special Servicer, may have with the borrowers or
any other party to the Pooling and Servicing Agreement; (ii) the ownership of
any Certificate by the Servicer or Special Servicer or any affiliate of the
Servicer or Special Servicer, as applicable; (iii) the Servicer's or Special
Servicer's obligation to make Advances or to incur servicing expenses with
respect to the Mortgage Loans; (iv) the Servicer's or Special Servicer's
right to receive compensation for its services under the Pooling and
Servicing Agreement or with respect to any particular transaction; or (v) the
ownership, or servicing or management for others, by the Servicer or Special
Servicer of any other mortgage loans or property (the "Servicing Standard").
The Servicer and the Special Servicer are permitted, at their own expense, to
employ subservicers, agents or attorneys in performing any of their
respective obligations under the Pooling and Servicing Agreement, but will
not thereby be relieved of any such obligation, and will be responsible for
the acts and omissions of any such subservicers, agents or attorneys. The
Pooling and Servicing Agreement provides, however, that neither the Servicer,
the Special Servicer nor any of their respective directors, officers,
employees or agents shall have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking an action
in good faith, or for errors in judgment. The foregoing provision would not
protect the Servicer or the Special Servicer for the breach of its
representations or warranties in the Pooling and Servicing Agreement, the
breach of certain specified covenants therein or any liability by reason of
willful misconduct, bad faith, fraud or negligence in the performance of its
duties or by reason of its reckless disregard of obligations or duties under
the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement requires the Servicer or the Special
Servicer, as applicable, to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans. Consistent
with the above, the Servicer or Special Servicer may, in its discretion,
waive any late payment charge in connection with any delinquent Monthly
Payment or Balloon Payment with respect to any Mortgage Loan. With respect to
the ARD Loans, the Servicer and Special Servicer will be directed in the
Pooling and Servicing Agreement not to take any enforcement action with
respect to payment of Excess Interest or principal in excess of the principal
component of the constant Monthly Payment prior to the final maturity date.
The Pooling and Servicing Agreement provides that if a Mortgage Loan provides
that the lender may in its discretion apply certain amounts to a prepayment
of principal (e.g., by applying casualty or condemnation proceeds or funds
escrowed improvements not completed by the required date) prior to the
expiration of the related Lock-out Period, the Special Servicer cannot
consent to such a prepayment unless the Special Servicer has first received
the consent of the Servicer or the holders of 66 2/3% of the Voting Rights of
the Certificates responding to a solicitation of their consent. With respect
to any Specially Serviced Mortgage Loan, subject to the restrictions set
forth below under "--Realization Upon Mortgage Loans," the Special Servicer
will be entitled to pursue any of the remedies set forth in the related
Mortgage, including the right to acquire, through foreclosure, all or any of
the Mortgaged Properties securing such Mortgage Loan. The Servicer or Special
Servicer may elect to extend a Mortgage Loan (subject to conditions described
herein) notwithstanding its decision to foreclose on certain of the Mortgaged
Properties.
ADVANCES
The Servicer will be obligated to advance, on the business day immediately
preceding a Distribution Date (the "Servicer Remittance Date") an amount
(each such amount, a "P&I Advance") equal to the amount not received in
respect of the Monthly Payment, Assumed Monthly Payment or Minimum Defaulted
Monthly Payment on a Mortgage Loan (with interest at the Mortgage
Pass-Through Rate) that was delinquent as of the close of business on the
immediately preceding Due Date (and which delinquent payment has not been
cured as of the Servicer Remittance Date), or, in the event of a default in
the payment of amounts due on the maturity date of a Mortgage Loan, the
amount equal to the Monthly Payment or portion thereof not received that was
due prior to the maturity date provided, however, the Servicer will not be
required to make an Advance to the extent it determines that such advance
would not be ultimately recoverable from late payments, net insurance
proceeds, net liquidation proceeds and other collections with respect to the
related Mortgage Loan. P&I Advances are intended to maintain a regular flow
of scheduled interest and principal payments to holders of the Certificates
entitled thereto, rather than to guarantee or insure against losses. The
Servicer will not be required or permitted to make a P&I Advance for Excess
Interest or Default Interest. The amount required to be advanced in respect
of delinquent Monthly Payments, Assumed Scheduled Payments or Minimum
Defaulted Monthly
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Payments on a Mortgage Loan that has been subject to an Appraisal Reduction
Event will equal the product of (a) the amount that would be required to be
advanced by the Servicer without giving effect to such Appraisal Reduction
Event and (b) a fraction, the numerator of which is the Stated Principal
Balance of the Mortgage Loan (as of the last day of the related Collection
Period) less any Appraisal Reduction Amounts thereof and the denominator of
which is the Stated Principal Balance (as of the last day of the related
Collection Period). In addition, and without duplication, the Servicer will
(i) make only one P&I Advance in respect of each Mortgage Loan for the
benefit of the most subordinate Sequential Class of Certificates then
outstanding unless the related defaulted Monthly Payment is cured prior to
the following Due Date on any Mortgage Loan and (ii) not make any P&I Advance
in respect of Reduction Interest Distribution Amounts or Reduction Interest
Shortfalls. The amount to be advanced by the Servicer, Trustee or Fiscal
Agent in respect of any Mortgage Loan on any Distribution Date will be
reduced by the greater of the reduction in respect of any Appraisal Reduction
Amount and the reduction described in the preceding sentence. On any Servicer
Remittance Date on which the Servicer is not required to make a P&I Advance
to the most subordinate Class of Certificates (as described in the preceding
sentence), the Servicer will initially make such P&I Advance (for accounting
purposes only) but will be required, immediately subsequent to the making of
such P&I Advance, to reimburse itself (without interest) for such P&I Advance
from and up to all amounts with respect to such Mortgage Loan that would be
distributed to the most subordinate Class on the related Distribution Date
then outstanding if such Mortgage Loan was not in default (such amount of
reimbursement, the "Subordinate Class Advance Amount"). No interest will
accrue on, or be payable with respect to, any outstanding Subordinate Class
Advance Amount.
The Trustee will provide to the Servicer written statements prior to the
Servicer Remittance Date listing (i) the aggregate Reduction Interest
Distribution Amounts and Reduction Interest Shortfalls for such Distribution
Date and (ii) the distribution due to the Holders of the most subordinate
Class of Sequential Certificates. For purposes of determining the most
subordinate Sequential Class, (i) the Class A-1A, Class A-1B, Class A-1C,
Class A-1D, Class A-CS1 and Class PS-1 Certificates collectively and (ii) the
Class B-7 and Class B-7H Certificates together will, in each case, be treated
as one Class. Also, for such purposes, neither the Class A-8Z Certificates
nor the Class B-3SC Certificates will be considered subordinate.
In addition to P&I Advances, the Servicer (and in limited circumstances,
the Special Servicer) will also be obligated (subject to the limitations
described herein) to make cash advances ("Property Advances," and together
with P&I Advances, "Advances") to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs
and expenses necessary to preserve the priority of the related Mortgage,
enforce the terms of any Mortgage Loan or to maintain such Mortgaged
Property.
To the extent the Servicer fails to make an Advance it is required to make
under the Pooling and Servicing Agreement, the Trustee, subject to a
determination of recoverability, will make such required Advance or, in the
event the Trustee fails to make such Advance, the Fiscal Agent, subject to a
determination of recoverability, will make such Advance, in each case
pursuant to the terms of the Pooling and Servicing Agreement. To the extent
the Special Servicer fails to make an Advance it is required to make under
the Pooling and Servicing Agreement, the Servicer, subject to a determination
of recoverability, will make such an Advance. Both the Trustee and the Fiscal
Agent will be entitled to rely conclusively on any non-recoverability
determination of the Servicer or the Special Servicer, as the case may be.
See "--Trustee" and "--Fiscal Agent" below.
The Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to reimbursement for any Advance made by it in
an amount equal to the amount of such Advance and interest accrued thereon at
the Advance Rate (i) from late payments on the Mortgage Loan by the
Mortgagor, (ii) from insurance proceeds, condemnation proceeds, liquidation
proceeds from the sale of the Specially Serviced Mortgage Loan or the related
Mortgaged Property or other collections relating to the Mortgage Loan or
(iii) upon determining in good faith that such Advance or interest is not
recoverable in the manner described in the preceding two clauses, from any
other amounts from time to time on deposit in the Collection Account.
The Servicer, the Special Servicer, the Trustee and the Fiscal Agent will
each be entitled to receive interest on Advances at a per annum rate equal to
the sum of (i) the Prime Rate (as defined herein) plus (ii) 1% (the "Advance
Rate"), compounded monthly, as of each Servicer Remittance Date and the
Servicer will be authorized to pay itself, the Special Servicer, the Trustee
or the Fiscal Agent, as applicable, such interest monthly from general
collections with respect to all of the Mortgage Loans prior to any payment to
holders of Certificates. To the extent that the payment of such interest at
the Advance Rate results in a shortfall in amounts otherwise payable on one
or more Classes of Certificates on the next
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Distribution Date, the Servicer, the Trustee or the Fiscal Agent, as
applicable, will be obligated to make a cash advance to cover such shortfall,
but only to the extent the Servicer, the Trustee or the Fiscal Agent, as
applicable, concludes that, with respect to each such Advance, such Advance
can be recovered from amounts payable on or in respect of the Mortgage Loan
to which the Advance is related. If the interest on such Advance is not
recovered from Default Interest on such Mortgage Loan, a shortfall will
result which will have the same effect as a Realized Loss. The "Prime Rate"
is the rate, for any day, set forth as such in the "Money Rates" section of
The Wall Street Journal, Eastern Edition.
The obligation of the Servicer, the Special Servicer, the Trustee or the
Fiscal Agent, as applicable, to make Advances with respect to any Mortgage
Loan pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. P&I Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None
of the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will
be required to make any Advance that it determines in its good faith business
judgment will not be recoverable by the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, out of related late payments,
insurance proceeds, liquidation proceeds and other collections with respect
to the Mortgage Loan as to which such Advances were made. In addition, if the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, determines in its good faith business judgment that any Advance
previously made will not be recoverable from the foregoing sources, then the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to reimburse itself for such Advance, plus
interest thereon, out of amounts payable on or in respect of all of the
Mortgage Loans prior to distributions on the Certificates. Any such judgment
or determination with respect to the recoverability of Advances must be
evidenced by an officers' certificate delivered to the Trustee, Fiscal Agent
and Depositor in the case of the Servicer, the Servicer, in the case of the
Special Servicer, the Depositor, in the case of the Trustee or the Fiscal
Agent, and the Trustee in the case of the Fiscal Agent, setting forth such
judgment or determination of nonrecoverability and the considerations of the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, forming the basis of such determination (including but not
limited to information selected by the person making such determination in
its good faith discretion such as related income and expense statements, rent
rolls, occupancy status, property inspections, inquiries by the Servicer, the
Special Servicer, the Trustee or the Fiscal Agent, as applicable, and an
independent appraisal performed in accordance with MAI standards conducted
within the past twelve months on the applicable Mortgaged Property).
ACCOUNTS
Lock Box Accounts. With respect to 59 Mortgage Loans, which represent in
the aggregate 77% of the Initial Pool Balance, one or more accounts in the
name of the related borrower (the "Lock Box Accounts") have been established
into which rents or other revenues from the related Mortgaged Properties are
deposited by the related tenants or manager. Any Lock Box which does not
require the related borrower to instruct tenants to deposit rents directly
into such account will instead require the borrower or the related property
manager to deposit rents and other revenues in the related Lock Box Account.
Agreements governing the Lock Box Accounts provide that the borrower has no
withdrawal or transfer rights with respect thereto and that all funds on
deposit in the Lock Box Accounts are periodically swept into the Cash
Collateral Accounts (as defined below). Additionally, the Mortgage Loans that
have Anticipated Repayment Dates require that a Lock Box Account be
established prior to their respective Anticipated Repayment Dates. The Lock
Box Accounts will not be an asset of the Trust REMICs.
Cash Collateral Accounts. With respect to certain of the Mortgage Loans
that have a Lock Box Account, one or more accounts in the name of the
Servicer (the "Cash Collateral Accounts") have been established into which
funds in the related Lock Box Accounts will be swept on a regular basis; with
respect to certain other of the Mortgage Loans that have a Lock Box Account,
such Lock Box Account will be swept into one or more of the Cash Collateral
Accounts only in the event of a default by the related Borrower. The Reserve
Accounts generally will be sub-accounts of the Cash Collateral Accounts. Any
excess over the amount necessary to fund the Monthly Payment, the Reserve
Accounts and any other amounts due under the Mortgage Loans will be returned
to or retained by the related borrower provided no event of default of which
the Servicer is aware of has occurred and is continuing with respect to such
Mortgage Loan. However, as described under "Description of the Mortgage Pool
- -- Certain Terms and Conditions of the Mortgage Loans -- Excess Interest,"
after the respective Anticipated Repayment Date, if applicable, all amounts
in the related Cash Collateral Account in excess of the amount necessary to
fund the Monthly Payment and Reserve Accounts will be applied to (i)
operating and capital expenses, (ii) the reduction of the principal balance
of the related Mortgage Loan until such principal is paid in full and (iii)
Excess Interest, in that order. The Cash Collateral Accounts will not be an
asset of the Trust REMICs.
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Collection Account. The Servicer will establish and maintain a segregated
account (the "Collection Account") pursuant to the Pooling and Servicing
Agreement, and on each Due Date withdraw from each Cash Collateral Account an
amount equal to the Monthly Payment on the related Mortgage Loan and deposit
such amount into the Collection Account for application towards the Monthly
Payment (including Servicing Fees) due on the related Mortgage Loan. The
Servicer shall also deposit into the Collection Account within one business
day of receipt all other payments in respect of the Mortgage Loans, other
than amounts to be deposited into any Reserve Account.
Distribution Accounts. The Trustee will establish and maintain one or more
segregated accounts (the "Distribution Account") in the name of the Trustee
for the benefit of the holders of Certificates. With respect to each
Distribution Date, the Servicer will deposit in the Distribution Account, to
the extent of funds on deposit in the Collection Account, on the Servicer
Remittance Date an aggregate amount of immediately available funds equal to
the sum of (i) the Available Funds and (ii) the portion of the Servicing Fee
representing the Trustee's Fee. The Servicer will deposit all P&I Advances
into the Distribution Account on the related Servicer Remittance Date. To the
extent the Servicer fails to do so, the Trustee or the Fiscal Agent will
deposit all P&I Advances into the Distribution Account as described herein.
See "Description of the Offered Certificates -- Distributions" herein.
Interest Reserve Account. The Servicer will establish and maintain an
Interest Reserve Account ("Interest Reserve Account") in the name of the
Trustee for the benefit of the holders of the Certificates. On each Servicer
Remittance Date relating to an Interest Accrual Period ending in any February
and on any Servicer Remittance Date relating to an Interest Accrual Period
ending in any January which occurs in a year which is not a leap year, the
Servicer will be required to deposit, in respect of the Mortgage Loan known
as the Swiss Bank Tower Loan, into the Interest Reserve Account, an amount
equal to one day's interest collected on the Stated Principal Balance of such
Mortgage Loan as of the Due Date occurring in the month preceding the month
in which such Servicer Remittance Date occurs at the related Mortgage Rate,
to the extent a full Monthly Payment or P&I Advance is made in respect
thereof (all amounts so deposited in any consecutive January and February,
"Withheld Amounts"). On each Servicer Remittance Date occurring in March, the
Servicer will be required to withdraw from the Interest Reserve Account an
amount equal to the Withheld Amounts from the preceding January and February,
if any, and deposit such amount into the Distribution Account.
The Trustee will also establish and maintain one or more segregated
accounts for each of the "Upper-Tier Distribution Account", the "Default
Interest Distribution Account" and the "Excess Interest Distribution
Account", each in the name of the Trustee for the benefit of the holders of
the Certificates.
The Cash Collateral Accounts, Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Interest Reserve Account,
the Excess Interest Distribution Account and the Default Interest
Distribution Account will be held in the name of the Trustee (or the Servicer
on behalf of the Trustee) on behalf of the holders of Certificates and the
Servicer will be authorized to make withdrawals from the Cash Collateral
Accounts, the Collection Account and the Interest Reserve Account. Each of
the Cash Collateral Account, Collection Account, any REO Account, the
Distribution Account, the Upper-Tier Distribution Account, the Interest
Reserve Account, the Excess Interest Distribution Account and the Default
Interest Distribution Account will be either (i) (A) an account or accounts
maintained with a depository institution or trust company the short term
unsecured debt obligations or commercial paper of which are rated at least
A-1 by S&P, P-1 by Moody's and F-1+ by Fitch in the case of accounts in which
funds are held for 30 days or less (or, in the case of accounts in which
funds are held for more than 30 days, the long term unsecured debt
obligations of which are rated at least "AA" by Fitch and S&P and "Aaa" by
Moody's) or (B) as to which the Trustee has received written confirmation
from each of the Rating Agencies that holding funds in such account would not
cause any Rating Agency to qualify, withdraw or downgrade any of its ratings
on the Certificates or (ii) a segregated trust account or accounts maintained
with a federal or state chartered depository institution or trust company
acting in its fiduciary capacity which, in the case of a state chartered
depository institution, is subject to regulations substantially similar to 12
C.F.R. Section 9.10(b), having in either case a combined capital surplus of
at least $50,000,000 and subject to supervision or examination by federal and
state authority, or any other account that, as evidenced by a written
confirmation from each Rating Agency that such account would not, in and of
itself, cause a downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates, which may be an account maintained with
the Trustee or the Servicer (an "Eligible Bank"). Amounts on deposit in the
Collection Account, Cash Collateral Account, any REO Account and the Interest
Reserve Account may be invested in certain United States government
securities and other high-quality investments specified in the Pooling and
Servicing Agreement ("Permitted Investments"). Interest or other income
earned on funds in the Collection Account (other than interest on payments
received on Circuit City Loans which accrues prior to the 11th day of the
month in which such payments are distributed to Certificateholders) and Cash
Collateral Accounts will be paid to the Servicer (except to
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the extent required to be paid to the related borrower) as additional
servicing compensation and interest or other income earned on funds in any
REO Account will be payable to the Special Servicer. Interest or other income
earned on funds in the Interest Reserve Account, and interest or other income
on funds in the Collection Account to the extent not payable to the Servicer,
will be paid to the Mortgage Loan Seller as compensation for arranging for
on-going monitoring and surveillance of the Offered Certificates by the
Rating Agencies.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection Account for the
following purposes, to the extent permitted and in the priorities provided in
the Pooling and Servicing Agreement: (i) to remit on or before each Servicer
Remittance Date (A) to the Distribution Account an amount equal to the sum of
(I) Available Funds and any Prepayment Premiums and (II) the Trustee Fee for
such Distribution Date, (B) to the Default Interest Distribution Account an
amount equal to the Net Default Interest received in the related Collection
Period, (C) to the Excess Interest Distribution Account an amount equal to
the Excess Interest received in the related Collection Period, if any, and
(D) to the Interest Reserve Account an amount required to be withheld as
described under "--Accounts -- Interest Reserve Account"; (ii) to pay or
reimburse the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent, as applicable, for Advances made by any of them and, if applicable,
interest on Advances (provided, that the Trustee and Fiscal Agent will have
priority with respect to such payment or reimbursement), the Servicer's right
to reimbursement for items described in this clause (ii) being limited as
described herein under "--Advances"; (iii) to pay on or before each Servicer
Remittance Date to the Servicer and the Special Servicer as compensation, the
aggregate unpaid Servicing Compensation (not including the portion of the
Servicing Fee representing the Trustee's Fee), Special Servicing Fee,
Principal Recovery Fee, and any other servicing or special servicing
compensation in respect of the immediately preceding calendar month and to
pay to the Mortgage Loan Seller its monitoring and surveillance fee payable
from the Collection Account; (iv) to pay on or before each Distribution Date
to the Depositor, Mortgage Loan Seller or Bloomfield with respect to each
Mortgage Loan or REO Property that has previously been purchased or
repurchased by it pursuant to the Pooling and Servicing Agreement, all
amounts received thereon during the related Collection Period and subsequent
to the date as of which the amount required to effect such purchase or
repurchase was determined; (v) to the extent not reimbursed or paid pursuant
to any of the above clauses, to reimburse or pay the Servicer, the Special
Servicer, the Trustee, the Fiscal Agent and/or the Depositor for unpaid
servicing compensation (in the case of the Servicer, the Special Servicer or
the Trustee) and certain other unreimbursed expenses incurred by such persons
pursuant to and to the extent reimbursable under the Pooling and Servicing
Agreement and to satisfy any indemnification obligations of the Trust Fund
under the Pooling and Servicing Agreement; (vi) to pay to the Trustee amounts
requested by it to pay taxes on certain net income with respect to REO
Properties; (vii) to withdraw any amount deposited into the Collection
Account that was not required to be deposited therein; and (viii) to clear
and terminate the Collection Account pursuant to a plan for termination and
liquidation of the Trust Fund.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Mortgage Loans contain provisions in the nature of "due-on-sale"
clauses, which by their terms (a) provide that the Mortgage Loans shall (or
may at the mortgagee's option) become due and payable upon the sale or other
transfer of an interest in the related Mortgaged Property or (b) provide that
the Mortgage Loans may not be assumed without the consent of the related
mortgagee in connection with any such sale or other transfer. The Servicer or
the Special Servicer, as applicable, will not be required to enforce such
due-on-sale clauses and in connection therewith will not be required to (i)
accelerate payments thereon or (ii) withhold its consent to such an
assumption if (x) such provision is not exercisable under applicable law or
such provision is reasonably likely to result in meritorious legal action by
the borrower or (y) the Servicer or the Special Servicer, as applicable,
determines, in accordance with the Servicing Standard, that granting such
consent would be likely to result in a greater recovery, on a present value
basis (discounting at the related Mortgage Rate), than would enforcement of
such clause. If the Servicer or the Special Servicer, as applicable,
determines that granting such consent would be likely to result in a greater
recovery, the Servicer or the Special Servicer, as applicable, is authorized
to take or enter into an assumption agreement from or with the proposed
transferee as obligor thereon provided that (a) the credit status of the
prospective transferee is in compliance with the Servicer's or Special
Servicer's, as applicable, regular commercial mortgage origination or
servicing standards and criteria and the terms of the related Mortgage and
(b) the Servicer or the Special Servicer, as applicable, has received written
confirmation from each of Fitch, Moody's and S&P that such assumption or
substitution would not, in and of itself, cause a downgrade, qualification or
withdrawal of the then current ratings assigned to the Certificates. No
assumption agreement may contain any terms that are different from any term
of any Mortgage or related Note, except pursuant to the provisions described
under "--Realization Upon Mortgage Loans" and "--Modifications," herein.
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The Mortgage Loans contain provisions in the nature of a
"due-on-encumbrance" clause which by their terms (a) provide that the
Mortgage Loans shall (or may at the mortgagee's option) become due and
payable upon the creation of any lien or other encumbrance on the related
Mortgaged Property, or (b) require the consent of the related mortgagee to
the creation of any such lien or other encumbrance on the related Mortgaged
Property. The Servicer or the Special Servicer, as applicable, will not be
required to enforce such due-on-encumbrance clauses and in connection
therewith will not be required to (i) accelerate payments thereon or (ii)
withhold its consent to such lien or encumbrance if the Servicer or the
Special Servicer, as applicable, (x) determines, in accordance with the
Servicing Standard, that such enforcement would not be in the best interests
of the Trust Fund and (y) receives prior written confirmation from each of
Fitch, Moody's and S&P that granting such consent would not, in and of
itself, cause a downgrade, qualification or withdrawal of any of the then
current ratings assigned to the Certificates. See "Certain Legal Aspects of
the Mortgage Loans -- Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
INSPECTIONS
The Servicer (or with respect to any Specially Serviced Mortgage Loan, the
Special Servicer) is required to inspect each Mortgaged Property at such
times and in such manner as are consistent with the Servicing Standards
described herein, but in any event (i) is required to inspect each Mortgaged
Property securing a Note, with a Stated Principal Balance (or in the case of
a Note secured by more than one Mortgaged Property, having an Allocated Loan
Amount) of (a) $2,000,000 or more at least once every twelve months and (b)
less than $2,000,000 at least once every 24 months, in each case commencing
in December 1998 (or at such lesser frequency, provided each Rating Agency
has confirmed in writing to the Servicer that such schedule will not result
in the withdrawal, downgrading or qualification of the then-current ratings
assigned to the Certificates) and (ii) if the Mortgage Loan (a) becomes a
"Specially Serviced Mortgage Loan," (b) is delinquent for 60 days or (c) has
a debt service coverage ratio of less than 1.0, the Special Servicer is
required to inspect the related Mortgaged Properties as soon as practicable
and thereafter at least every twelve months.
INSURANCE POLICIES
The Pooling and Servicing Agreement requires the Servicer (or the Special
Servicer in the case of an REO Property) to obtain or cause the mortgagor on
each Mortgage Loan to maintain fire and hazard insurance with extended
coverage on the related Mortgaged Property in an amount which is at least
equal to the lesser of (A) one hundred percent (100%) of the then "full
replacement cost" of the improvements and equipment, without deduction for
physical depreciation, and (B) the outstanding principal balance of the
related Mortgage Loan, or such greater amount as is necessary to prevent any
reduction, by reason of the application of co-insurance and to prevent the
Trustee thereunder from being deemed a co-insurer and provided such policy
shall include a "replacement cost" rider. The Pooling and Servicing Agreement
also requires the Servicer (or the Special Servicer in the case of an REO
Property) to obtain or cause the mortgagor on each Mortgaged Property to
maintain insurance providing coverage against at least 18 months of rent
interruptions (24 months with respect to an REO Property) and any other
insurance as is required in the related Mortgage Loan. In the case of an REO
Property, if the Special Servicer fails to maintain fire and hazard insurance
as described above or flood insurance as described below, the Servicer shall
maintain such insurance, and if the Servicer does not maintain such
insurance, the Trustee shall maintain such insurance and if the Trustee does
not maintain such insurance, the Fiscal Agent shall do so, subject to the
provisions concerning nonrecoverable Advances. Any cost incurred by the
Servicer, Special Servicer, Trustee or Fiscal Agent in maintaining any such
insurance shall not, for the purpose of calculating distributions to
Certificateholders, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so
permit. Notwithstanding the foregoing insurance requirements, and in lieu
thereof, the Pooling and Servicing Agreement permits the Servicer to allow
Tenants with respect to certain of the Credit Lease Loans to self-insure with
respect to such risks in accordance with the terms of the related Credit
Lease.
In general, the standard form of fire and hazard extended coverage policy
covers physical damage to or destruction of the improvements of the property
by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to certain conditions and exclusions in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers in different states and therefore will not contain
identical terms and conditions, most such policies will not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and
certain other kinds of uninsured risks. Nonetheless, certain of the Mortgage
Loans require insurance coverage for floods and other water-related causes
and earth movement. When a Mortgaged Property is located in a federally
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designated flood area, the Pooling and Servicing Agreement requires the
Servicer to use its best efforts to cause the related borrower to maintain,
or if not maintained, to itself obtain (subject to the provisions concerning
nonrecoverable Advances) flood insurance. Such flood insurance shall be in an
amount equal to the lesser of (i) the unpaid principal balance of the related
Mortgage Loan and (ii) the maximum amount of such insurance required by the
terms of the related Mortgage and as is available for the related property
under the national flood insurance program, if available. If an REO Property
(i) is located in a federally designated special flood hazard area or (ii) is
related to a Mortgage Loan pursuant to which earthquake insurance was in
place at the time of origination and continues to be available at
commercially reasonable rates, the Pooling and Servicing Agreement requires
that the Special Servicer obtain (subject to the issues concerning
nonrecoverable Advances) flood insurance and/or earthquake insurance. If a
recovery due to a flood or earthquake is not available for an REO Property
but would have been available if such insurance were maintained, the Special
Servicer will be required (subject to the provisions concerning
nonrecoverable Advances) to (i) immediately deposit into the Collection
Account from its own funds the amount that would have been recovered or (ii)
apply to the restoration and repair of the property from its own funds the
amount that would have been recovered, if such application is consistent with
the Servicing Standard; provided, however, that the Special Servicer shall
not be responsible for any shortfall in insurance proceeds resulting from an
insurer's refusal or inability to pay a claim.
The Servicer or the Special Servicer may obtain and maintain a blanket
insurance policy insuring against fire and hazard losses on all of the
Mortgaged Properties (other than REO Properties) as to which the related
borrower has not maintained insurance to satisfy its obligations concerning
the maintenance of insurance coverage. Any such blanket insurance policy
shall be maintained with an insurer qualified under the terms of the Pooling
and Servicing Agreement. Additionally, the Servicer or the Special Servicer
may obtain a master force placed insurance policy, as long as such policy is
issued by an insurer qualified under the terms of the Pooling and Servicing
Agreement and provides no less coverage in scope and amount than otherwise
required to be maintained as described in the preceding paragraphs.
The ability of the Servicer to assure that fire and hazard, flood or
earthquake insurance proceeds are appropriately applied may be dependent upon
its being named as an additional insured under such policy, or upon the
extent to which information in this regard is furnished by mortgagors.
Under the terms of the Mortgage Loans, the borrowers will be required to
present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Servicer or Special Servicer, as
applicable, on behalf of itself, the Trustee and Certificateholders, is
obligated to present or cause to be presented claims under any blanket
insurance policy insuring against hazard losses on Mortgaged Properties
securing the Mortgage Loans. However, the ability of the Servicer or Special
Servicer, as applicable, to present or cause to be presented such claims is
dependent upon the extent to which information in this regard is furnished to
the Servicer or Special Servicer, as applicable, by the borrowers.
All insurance policies required shall name the Trustee or the Servicer or
the Special Servicer, on behalf of the Trustee as the mortgagee, as loss
payee.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the Servicer to cause a
nationally recognized firm of independent public accountants, which is a
member of the American Institute of Certified Public Accountants, to furnish
to the Trustee, the Depositor and the Rating Agencies on or before March 15
of each year, beginning March 15, 1998, a statement to the effect that such
firm has examined certain documents and records relating to the servicing of
similar mortgage loans for the preceding twelve months and that on the basis
of their examination, conducted substantially in compliance with generally
accepted auditing standards and the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, such
servicing has been conducted in compliance with similar agreements except for
such significant exceptions or errors in records that, in the opinion of such
firm, generally accepted auditing standards and the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC require it to report, in which case such exceptions and
errors shall be so reported.
The Pooling and Servicing Agreement also requires the Servicer to deliver
to the Trustee, the Depositor and the Rating Agencies on or before March 15
of each year, beginning March 15, 1998, an officer's certificate of the
Servicer stating that, to the best of such officer's knowledge, the Servicer
has fulfilled its obligations under the Pooling and Servicing Agreement
throughout the preceding year or, if there has been a default, specifying
each default known to such officer and the action proposed to be taken with
respect thereto.
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CERTAIN MATTERS REGARDING THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
Each of the Servicer and Special Servicer may assign its rights and
delegate its duties and obligations under the Pooling and Servicing Agreement
in connection with the sale or transfer of a substantial portion of its
mortgage servicing or asset management portfolio, provided that certain
conditions are satisfied including obtaining the consent of the Trustee and
written confirmation of each Rating Agency that such assignment or delegation
will not cause a qualification, withdrawal or downgrading of the then-current
ratings assigned to the Certificates. The Pooling and Servicing Agreement
provides that the Servicer or Special Servicer may not otherwise resign from
its obligations and duties as Servicer or Special Servicer thereunder, except
upon the determination that performance of its duties is no longer
permissible under applicable law and provided that such determination is
evidenced by an opinion of counsel delivered to the Trustee. No such
resignation may become effective until the Trustee or a successor Servicer or
Special Servicer has assumed the obligations of the Servicer or Special
Servicer under the Pooling and Servicing Agreement. The Trustee or any other
successor Servicer or Special Servicer assuming the obligations of the
Servicer or Special Servicer under the Pooling and Servicing Agreement will
be entitled to the compensation to which the Servicer or Special Servicer
would have been entitled. If no successor Servicer or Special Servicer can be
obtained to perform such obligations for such compensation, additional
amounts payable to such successor Servicer or Special Servicer will be
treated as Realized Losses. In addition, the Pooling and Servicing Agreement
provides that the Depositor, upon paying the Servicer a negotiated fee, is
permitted to remove the Servicer at any time without cause provided that (i)
each Rating Agency has confirmed in writing that such removal will not result
in a downgrade, qualification or withdrawal of the then current rating of any
Class of Certificates and (ii) the successor Servicer shall be a servicing
company that (x) is an affiliate of the Depositor or (y) was acquired by an
affiliate of the Depositor, provided that such successor Servicer will not
directly service or specially service any Mortgage Loan in which an affiliate
of the Depositor has an equity interest.
The Pooling and Servicing Agreement also provides that neither the
Depositor, the Servicer, the Special Servicer, nor any director, officer,
employee or agent of the Depositor, the Servicer or the Special Servicer will
be under any liability to the Trust Fund or the holders of Certificates for
any action taken or for refraining from the taking of any action in good
faith pursuant to the Pooling and Servicing Agreement, or for errors in
judgment; provided, however, that neither the Depositor, the Servicer, the
Special Servicer nor any such person will be protected against any breach of
its representations and warranties made in the Pooling and Servicing
Agreement or any liability which would otherwise be imposed by reason of
willful misconduct, bad faith, fraud or negligence (or in the case of the
Servicer, by reason of any specific liability imposed for a breach of the
Servicing Standard) in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. The Pooling and
Servicing Agreement further provides that the Depositor, the Servicer, the
Special Servicer and any director, officer, employee or agent of the
Depositor, the Servicer and the Special Servicer will be entitled to
indemnification by the Trust Fund for any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or expense (i)
incurred by reason of willful misconduct, bad faith, fraud or negligence (or
in the case of the Servicer, by reason of any specific liability imposed for
a breach of the Servicing Standard) in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties thereunder or
(ii) imposed by any taxing authority if such loss, liability or expense is
not specifically reimbursable pursuant to the terms of the Pooling and
Servicing Agreement.
In addition, the Pooling and Servicing Agreement provides that neither the
Depositor, the Servicer, nor the Special Servicer will be under any
obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Pooling and Servicing Agreement and
which in its opinion does not expose it to any expense or liability. The
Depositor, the Servicer or the Special Servicer may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Pooling and Servicing Agreement and the rights and duties
of the parties thereto and the interests of the holders of Certificates
thereunder. In such event, the legal expenses and costs of such action and
any liability resulting therefrom will be expenses, costs and liabilities of
the Trust Fund, and the Depositor, the Servicer and the Special Servicer will
be entitled to be reimbursed therefor and to charge the Collection Account.
The Depositor is not obligated to monitor or supervise the performance of
the Servicer, the Special Servicer or the Trustee under the Pooling and
Servicing Agreement. The Depositor may, but is not obligated to, enforce the
obligations of the Servicer or the Special Servicer under the Pooling and
Servicing Agreement and may, but is not obligated to, perform or cause a
designee to perform any defaulted obligation of the Servicer or the Special
Servicer or exercise any right of the Servicer or the Special Servicer under
the Pooling and Servicing Agreement. In the event the Depositor undertakes
any such action, it will be reimbursed by the Trust Fund from the Collection
Account to the extent not recoverable from the Servicer or Special Servicer
as applicable. Any such action by the Depositor will not relieve the Servicer
or the Special Servicer of its obligations under the Pooling and Servicing
Agreement.
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Any person into which the Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Servicer is a
party, or any person succeeding to the business of the Servicer, will be the
successor of the Servicer under the Pooling and Servicing Agreement, and
shall be deemed to have assumed all of the liabilities and obligations of the
Servicer under the Pooling and Servicing Agreement if each of the Rating
Agencies has confirmed in writing that such merger or consolidation or
transfer of assets or succession, in and of itself, will not cause a
downgrade, qualification or withdrawal of the then current ratings assigned
by such Rating Agency for any Class of Certificates.
EVENTS OF DEFAULT
Events of default of the Servicer (each, an "Event of Default") under the
Pooling and Servicing Agreement consist, among other things, of (i) any
failure by the Servicer to remit to the Collection Account or any failure by
the Servicer to remit to the Trustee for deposit into the Upper-Tier
Distribution Account, Distribution Account, Excess Interest Distribution
Account, Interest Reserve Account or Default Interest Distribution Account
any amount required to be so remitted pursuant to the Pooling and Servicing
Agreement or (ii) any failure by the Servicer duly to observe or perform in
any material respect any of its other covenants or agreements or the breach
of its representations or warranties under the Pooling and Servicing
Agreement which continues unremedied for thirty (30) days after the giving of
written notice of such failure to the Servicer by the Depositor or the
Trustee, or to the Servicer and to the Depositor and the Trustee by the
holders of Certificates evidencing Percentage Interests of at least 25% of
any affected Class; or (iii) any failure by the Servicer to make any Advances
as required pursuant to the Pooling and Servicing Agreement; or (iv)
confirmation in writing by any Rating Agency that not terminating the
Servicer would, in and of itself, cause the then-current rating assigned to
any Class of Certificates to be qualified, withdrawn or downgraded; (v)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by, on behalf of or
against the Servicer indicating its insolvency or inability to pay its
obligations or (vi) the Servicer shall no longer be an "approved" servicer by
each of the Rating Agencies for mortgage pools similar to the Trust Fund.
Events of Default of the Special Servicer under the Pooling and Servicing
Agreement include the items specified in clauses (i) through (vi) above with
respect to, and to the extent applicable to, the Special Servicer.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Servicer or Special Servicer
occurs, then the Trustee may, and at the direction of the holders of
Certificates evidencing at least 25% of the aggregate Voting Rights of all
Certificateholders, the Trustee will, terminate all of the rights and
obligations of the Servicer or Special Servicer as servicer or special
servicer under the Pooling and Servicing Agreement and in and to the Trust
Fund. Notwithstanding the foregoing, upon any termination of the Servicer
under the Pooling and Servicing Agreement the Servicer will continue to be
entitled to receive all accrued and unpaid servicing compensation through the
date of termination plus all Advances and interest thereon as provided in the
Pooling and Servicing Agreement. In the event that the Servicer is also the
Special Servicer and the Servicer is terminated, the Servicer will also be
terminated as Special Servicer.
On and after the date of termination following an Event of Default by the
Servicer, the Trustee will succeed to all authority and power of the Servicer
(and the Special Servicer if the Special Servicer is also the Servicer) under
the Pooling and Servicing Agreement and will be entitled to the compensation
arrangements to which the Servicer (and the Special Servicer if the Servicer
is also the Special Servicer) would have been entitled. If the Trustee is
unwilling or unable so to act, or if the holders of Certificates evidencing
at least 25% of the aggregate Voting Rights of all Certificateholders so
request, or if the long-term unsecured debt rating of the Trustee or the
Fiscal Agent is not at least "AA" by S&P and Fitch and "Aa2" by Moody's or if
the Rating Agencies do not provide written confirmation that the succession
of the Trustee as Servicer, will not cause a qualification, withdrawal or
downgrading of the then-current ratings assigned to the Certificates, the
Trustee must appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution the appointment of
which will not result in the downgrading, qualification or withdrawal of the
rating or ratings then assigned to any Class of Certificates as evidenced in
writing by each Rating Agency to act as successor to the Servicer under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may
agree upon the servicing compensation to be paid.
If the Special Servicer is not the Servicer and an Event of Default with
respect to the Special Servicer occurs, the Trustee will terminate the
Special Servicer and the Servicer will succeed to all the power and authority
of the Special Servicer under the Pooling and Servicing Agreement (provided
that such termination would not result in the downgrading,
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qualification or withdrawal of the rating or ratings assigned to any Class of
Certificates as evidenced in writing by each Rating Agency) and will be
entitled to the compensation to which the Special Servicer would have been
entitled.
No Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement or the Mortgage Loans, unless, with respect to the
Pooling and Servicing Agreement, such holder previously shall have given to
the Trustee a written notice of a default under the Pooling and Servicing
Agreement, and of the continuance thereof, and unless also the holders of
Certificates of any Class affected thereby evidencing Percentage Interests of
at least 25% of such Class shall have made written request of the Trustee to
institute such proceeding in its own name as Trustee under the Pooling and
Servicing Agreement and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt
of such notice, request and offer of indemnity, shall have neglected or
refused to institute such proceeding.
The Trustee will have no obligation to make any investigation of matters
arising under the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates, unless such holders of
Certificates shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended at any time by the
Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent without the consent of any of the holders of Certificates (i) to cure
any ambiguity; (ii) to correct or supplement any provisions therein which may
be defective or inconsistent with any other provisions therein; (iii) to
amend any provision thereof to the extent necessary or desirable to maintain
the rating or ratings assigned to each Class of Certificates; (iv) to amend
or supplement a provision which will not adversely affect in any material
respect the interests of any Certificateholder not consenting thereto, as
evidenced in writing by an opinion of counsel or confirmation in writing from
each Rating Agency that such amendment will not result in a qualification,
withdrawal or downgrading of the then current ratings assigned to the
Certificates; and (v) to amend or supplement any provisions therein to the
extent not inconsistent with the provisions of the Pooling and Servicing
Agreement and will not result in a downgrade, qualification or withdrawal of
the then current ratings assigned to any Class of Certificates as confirmed
in writing by each Rating Agency. The Pooling Agreement provides that no such
amendment shall cause the Upper-Tier REMIC or the Lower-Tier REMIC to fail to
qualify as a REMIC.
The Pooling and Servicing Agreement may also be amended from time to time
by the Depositor, the Servicer, the Special Servicer, the Trustee and the
Fiscal Agent with the consent of the holders of Certificates evidencing at
least 66 2/3% of the Percentage Interests of each Class of Certificates
affected thereby for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or modifying in any manner the rights of the holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on the
Mortgage Loans which are required to be distributed on any Certificate; (ii)
alter the obligations of the Servicer, the Special Servicer, the Trustee or
the Fiscal Agent to make a P&I Advance or Property Advance or alter the
servicing standards set forth in the Pooling and Servicing Agreement; (iii)
change the percentages of Voting Rights of holders of Certificates which are
required to consent to any action or inaction under the Pooling and Servicing
Agreement; or (iv) amend the section in the Pooling and Servicing Agreement
relating to the amendment of the Pooling and Servicing Agreement, in each
case, without the consent of the holders of all Certificates representing all
the Percentage Interests of the Class or Classes affected thereby.
VOTING RIGHTS
The "Voting Rights" assigned to each Class shall be (a) 0% in the case of
the Class A-8Z, Class B-3SC, Class V-1, Class V-2, Class R and Class LR
Certificates, (b) 0.17% in the case of the Class A-CS1 Certificates, 5.19% in
the case of the Class PS-1 Certificates (the sum of such percentages for each
such Class outstanding is the "Fixed Voting Rights Percentage"), provided
that the Voting Rights of the (i) Class A-CS1 Certificates will be reduced to
zero upon the reduction of the Notional Balance of such Class to zero and
(ii) Class PS-1 Certificates will be reduced to zero on the Distribution Date
on which no Classes other than the Class A-8Z, Class B-3SC, Class B-7 and
Class B-7H Certificates are outstanding, (c) in the case of the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class A-1E, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7, Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5, Class B-6, Class B-7 and Class B-7H
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Certificates, a percentage equal to the product of (x) 100% minus the Fixed
Voting Rights Percentage multiplied by (y) a fraction, the numerator of which
is equal to the aggregate outstanding Certificate Balance of any such Class
and the denominator of which is equal to the aggregate outstanding
Certificate Balances of all Classes of Certificates. The Coupon Strip
Certificates will not be entitled to vote with respect to proposed extensions
of a Specially Serviced Mortgage Loan. The Voting Rights of any Class of
Certificates shall be allocated among holders of Certificates of such Class
in proportion to their respective Percentage Interests, except that any
Certificate beneficially owned by the Depositor, the Servicer, the Special
Servicer, any mortgagor, the Trustee, a manager, or any of their respective
affiliates will be deemed not to be outstanding; provided, however, that for
purposes of obtaining the consent of Certificateholders to an amendment to
the Pooling and Servicing Agreement, any Certificates beneficially owned by
the Servicer or Special Servicer or an affiliate thereof will be deemed to be
outstanding, provided that such amendment does not relate to compensation of
the Servicer, Special Servicer or otherwise benefit such entity or an
affiliate (other than solely in its capacity as Certificateholder); and,
provided, further, that for purposes of obtaining the consent of
Certificateholders to any action proposed to be taken by the Special Servicer
with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Servicer or an affiliate will be deemed to be
outstanding if the Special Servicer is not the Servicer or any affiliate. The
Certificates beneficially owned by the Special Servicer or an affiliate
thereof shall be deemed outstanding for purposes of determining who the
Directing Holders (as defined below) are and for purposes of issuing
Instructions (as defined below). The Voting Rights of each Class of
Certificates will be deemed to be reduced on any day on which an Appraisal
Reduction Amount is allocated to such Class. The Fixed Voting Right
Percentage of the Class A-CS1 and Class PS-1 Certificates will be
proportionally reduced upon the allocation of Appraisal Reduction Amounts
with respect to any component of such Classes based on the amount of such
reduction.
REALIZATION UPON MORTGAGE LOANS
Specially Serviced Mortgage Loans; Appraisals; Extensions. Contemporaneously
with the earliest of (i) the effective date of any modification of the Mortgage
Rate, principal balance or amortization terms of any Mortgage Loan, any
extension of the Maturity Date of a Mortgage Loan or consent to the release
of any Mortgaged Property or REO Property from the lien of the related
Mortgage, (ii) the occurrence of an Appraisal Reduction Event, (iii) a default
in the payment of a Balloon Payment, or (iv) the date on which the Special
Servicer, consistent with the Servicing Standard, requests an Updated Appraisal
(as defined below), the Servicer (after consultation with the Special Servicer)
will obtain an appraisal (or a letter update from an existing appraisal which
is less than two years old) of the Mortgaged Property, or REO Property, as the
case may be, from an independent appraiser who is a member of the American
Institute of Real Estate Appraisers (an "Updated Appraisal") provided, that,
the Servicer will not be required to obtain an Updated Appraisal of any
Mortgaged Property with respect to which there exists an appraisal which is
less than twelve months old.
Following a default on a Mortgage Loan at maturity, the Special Servicer
may either foreclose or elect to grant a one-year extension of the Specially
Serviced Mortgage Loan; provided that the Special Servicer may only extend
such Mortgage Loan if (i) immediately prior to the default on the Balloon
Payment the related borrower had made twelve consecutive Monthly Payments on
or prior to their Due Dates, (ii) the Special Servicer determines in its
reasonable judgment that such borrower has attempted in good faith to
refinance such Mortgage Loan or Mortgaged Property, (iii) the Special
Servicer determines that (A) extension of such Mortgage Loan is consistent
with the Servicing Standard and (B) extension of such Mortgage Loan is likely
to result in a recovery which on a net present value basis would be greater
than the recovery that would result from a foreclosure, (iv) such extension
requires that all cash flow on all related Mortgage Properties in excess of
amounts required to operate and maintain such Mortgaged Properties be applied
to payments of principal and interest on such Mortgage Loan and (v) the
Special Servicer terminates the related Manager unless the Special Servicer
determines that retaining such Manager is conducive to maintaining the value
of such Mortgaged Properties; provided, further, that, if, after notice to
all Certificateholders, holders of Certificates evidencing at least 66 2/3%
of the Voting Rights of each Class of Certificates entitled to vote direct
the Special Servicer not to extend, the Special Servicer will not extend;
provided, further, that, if the Special Servicer is not the Servicer and the
Servicer would not elect to extend, holders of Certificates evidencing
greater than (a) 50% of the aggregate Voting Rights of all Certificateholders
entitled to vote and (b) 66 2/3% of the aggregate Voting Rights of all
Certificateholders entitled to vote who respond to such notice, may direct
the Special Servicer not to extend. Notwithstanding the foregoing, the
Special Servicer may extend pursuant to the Instructions of the Directing
Holders (as described and defined below). The holders of the Class A-CS1,
Class PS-1, Class A-8Z and Class B-3SC Certificates will not be entitled to
vote with respect to proposed extensions of a Specially Serviced Mortgage
Loan. The Servicer will not foreclose or otherwise exercise any of its
remedies under the Comsat Junior Loan in the event of a default thereunder
unless the Comsat Senior Loan is also in
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default, in which case the interest of the holders of the Class A-8Z
Certificates in such Mortgage Loan will be subordinate in all respects to the
interest of the holders of the other Classes of Certificates in the Comsat
Senior Loan. The Servicer will not foreclose or otherwise exercise any of its
remedies under the Saul Centers Retail Pool Loan for any non-payment with
respect to the SC Junior Portion of such Mortgage Loan, so long as payments
received are sufficient to pay an amount equal to the initial Senior SC
Distribution Amount on any Distribution Date, until the maturity date of the
Saul Centers Retail Pool Loan.
The Special Servicer may, after presenting a proposal to and consulting
with the Servicer (if the Special Servicer is not the Servicer), and taking
into account the LTV of a Specially Serviced Mortgage Loan as indicated in
the Updated Appraisal, grant subsequent one-year extensions of such Specially
Serviced Mortgage Loan if (i) the related borrower has made twelve
consecutive monthly payments in an amount equal to or greater than the
Minimum Defaulted Monthly Payments and (ii) the requirements set forth in
clauses (ii)-(iv) of the preceding paragraph are satisfied; provided,
however, that, if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66 2/3% of the aggregate Percentage
Interests of each Class of Certificates direct the Special Servicer not to
extend, the Special Servicer will not extend; provided, further, that, if the
Special Servicer is not the Servicer and the Servicer would not elect to
extend, holders of Certificates evidencing greater than (a) 50% of the
aggregate Voting Rights of all Certificateholders and (b) 66 2/3% of the
aggregate Voting Rights of all Certificateholders who respond to such notice,
may direct the Special Servicer not to extend. Notwithstanding the foregoing,
the Special Servicer may extend pursuant to the Instructions of the Directing
Holders. The Special Servicer will not agree to any extension of a Mortgage
Loan beyond two years prior to the Rated Final Distribution Date. If such
borrower fails to make a Minimum Defaulted Monthly Payment more than once
during an extension period, no further extensions will be granted (provided,
however, that the Special Servicer may grant such extension if the borrower
has been delinquent on no more than one such Minimum Defaulted Monthly
Payment within a 24-month period and the requirements set forth in clauses
(ii) through (iv) of the preceding paragraph are satisfied).
Any extension pursuant to the two preceding paragraphs will require
monthly payments in an amount equal to or greater than the Minimum Defaulted
Monthly Payment.
The "Minimum Defaulted Monthly Payment" with respect to any extension of a
Mortgage Loan that is delinquent in respect of its Balloon Payment is equal
to (a) the principal portion of the Monthly Payment that would have been due
on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof (or, if there is no amortization schedule, the
principal portion of the constant Monthly Payment that would have been due),
assuming such Balloon Payment had not become due, after giving effect to any
modification, and (b) interest at the applicable Default Rate; provided,
however, that the Special Servicer may agree that the Minimum Defaulted
Monthly Payments may include interest at a rate lower than the related
Default Rate (but in no event lower than the related Mortgage Rate) (the
"Lower Rate") provided that if, after notice to all Certificateholders,
holders of Certificates evidencing at least 66 2/3% of the Voting Rights of
each Class direct (or, in the event that the Special Servicer is not the
Servicer and the Servicer would not agree to the Lower Rate,
Certificateholders representing greater than (a) 50% of the aggregate Voting
Rights of all Certificateholders and (b) 66 2/3% of the aggregate Voting
Rights of all Certificateholders who respond to such notice) the Special
Servicer not to agree to permit payments to include interest at the Lower
Rate, the Special Servicer shall not agree to payments with interest at the
Lower Rate; provided, further, that if the Minimum Defaulted Monthly Payment
is to include interest at the Lower Rate, the Special Servicer may agree that
interest on such Mortgage Loan accrues at the Lower Rate; and provided that
if, after notice to all Certificateholders, holders of Certificates
evidencing at least 66 2/3% of the Voting Rights of each Class direct the
Special Servicer that such Mortgage Loan shall accrue interest at the related
Default Rate, then such Mortgage Loan will continue to accrue interest at the
Default Rate thereof and the excess of interest accrued on such Mortgage Loan
over the amount included in the Minimum Defaulted Monthly Payments (i.e.,
interest at the Lower Rate) will be added to the outstanding principal
balance of such Mortgage Loan. Notwithstanding the foregoing, if the
Directing Holders have given Instructions to the Special Servicer to extend,
the Special Servicer will be required to follow the Directing Holders'
Instructions with respect to interest so long as the Minimum Defaulted
Monthly Payment is at least equal to the Lower Rate.
The Special Servicer will only be permitted to extend pursuant to the
preceding paragraphs or pursuant to instructions from Directing Holders.
Under certain circumstances the Special Servicer may modify the terms of
Specially Serviced Mortgage Loans as described below under "--Modifications."
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Defaulted Balloon Payments; Foreclosure Proceedings; Action of Directing
Holders. The Special Servicer may be given revocable instructions
("Instructions") to extend a Specially Serviced Mortgage Loan serviced by it
that has defaulted on the Balloon Payment (which extension will be restricted
to the actions that the Special Servicer could have otherwise taken with
respect to such Mortgage Loan except that (a) the actions of the Directing
Holders will not be subject to the rejection of the holders of the
Certificates and (b) the related borrower will not have had to make twelve
consecutive Monthly Payments on or prior to their Due Dates) by the holders
of a majority in Percentage Interest of the most subordinate Class of
Sequential Certificates then outstanding (determined as provided below)
having an aggregate initial Certificate Balance representing a minimum of
1.0% of the aggregate initial Certificate Balances of all Classes of
Certificates (or if the Certificate Balance of such Class or Classes has been
reduced to less than 40% of the initial Certificate Balances thereof, the
holders of such Class or Classes together with the holders of the next most
subordinate Sequential Class) (the "Directing Holders") under the following
circumstance: if the Special Servicer has determined to commence foreclosure
or acquisition proceedings, the Special Servicer will notify the Trustee (who
will, in turn, notify the Directing Holders), the Servicer and the Depositor
of its proposed action. If the Special Servicer receives contrary
Instructions within seven days from the Directing Holders, the Special
Servicer will delay such proceedings, and the procedures described below
shall apply to the servicing of such Mortgage Loan. In the event that the
Special Servicer does not receive such Instructions within such seven-day
period, the Special Servicer may proceed with the foreclosure or acquisition.
If the Directing Holders revoke their Instructions to extend the Mortgage
Loan, the Special Servicer will service the Mortgage Loan without regard to
such original Instructions; provided, however, that the Directing Holders
will be required to maintain the Collateral Account (as described below)
unless and until the Mortgage Loan is no longer a Specially Serviced Mortgage
Loan for nine consecutive months or has been liquidated. For purposes of
determining the Directing Holders with respect to any Mortgage Loan, the
Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class PS-1
Certificates collectively, and the Class B-7 and Class B-7H Certificates
together, will, in each case, be treated as one class.
Deposits by Directing Holders. If the Special Servicer receives
Instructions and the Servicer has not otherwise been required to obtain an
Updated Appraisal as described above, the Servicer (after consultation with
the Special Servicer) will obtain an Updated Appraisal as soon as reasonably
practicable to determine the fair market value of each related Mortgaged
Property, after accounting for the estimated liquidation and carrying costs
(the "Fair Market Value" of such Mortgaged Property). Within two Business
Days after the Special Servicer's receipt of Instructions, the Directing
Holders are required to deposit (in proportion to their respective Percentage
Interests) into a segregated account (the "Collateral Account") established
by the Servicer an amount equal to the lesser of (a) 125% of the Fair Market
Value of the related Mortgaged Property and (b) the outstanding principal
balance of the Mortgage Loan plus unreimbursed Advances (with interest
thereon) and unpaid accrued interest (the "Deposit"). If no Updated Appraisal
has yet been obtained, the amount of the Deposit will be determined based on
the Special Servicer's (or if the Special Servicer is a Directing Holder, the
Servicer's) estimate of the Fair Market Value of the Mortgaged Property, in
which case, upon the Special Servicer's receipt of such Updated Appraisal,
the Special Servicer (or if the Special Servicer is a Directing Holder, the
Servicer) will remit any excess deposit to the Directing Holders, or the
Directing Holders will deposit in the Collateral Account any shortfall, as
the case may be. In the event that the Directing Holders do not make the
required deposit within two business days of the Special Servicer's receipt
of Instructions, the Special Servicer will disregard such Instructions. The
Directing Holders will be deemed to have granted to the Special Servicer (or
the Servicer, if applicable) for the benefit of Certificateholders a first
priority security interest in the Collateral Account, as security for the
obligations of the Directing Holders.
If the Special Servicer is acting pursuant to Instructions, the Special
Servicer or the Servicer, as applicable, shall withdraw from the Collateral
Account and remit to the Servicer for deposit into the Collection Account on
or prior to the Business Day preceding each Servicer Remittance Date a sum
equal to the P&I Advances and Property Advances for the related Mortgage Loan
which in the absence of Instructions would be made by the Servicer (and the
obligation to make such advances shall not be subject to a non-recoverability
standard) and the Directing Holders shall, upon request therefor by the
Special Servicer (or if the Special Servicer is a Directing Holder, the
Servicer), deposit from their own funds into the Collateral Account the
amount of such P&I Advances or Property Advances. If the Directing Holders
fail to make such Deposit within one Business Day after receipt of the
Special Servicer's or Servicer's, as applicable, request, the Special
Servicer will no longer be required to follow such Instructions and will
specially service such Mortgage Loan as though no Instructions had been
given; provided, however, that the Directing Holders will be required to
maintain the Collateral Account unless and until the related Mortgage Loan is
no longer a Specially Serviced Mortgage Loan for nine consecutive months or
has been liquidated. The Special Servicer or Servicer, as applicable, will
invest amounts on deposit in the Collateral Account in Permitted Investments
upon direction by the Directing Holders. Directing Holders will be entitled
to reinvestment income as received, and will reimburse the Collateral Account
for any losses incurred.
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Settlement. If a Balloon Loan or the related Mortgaged Property which,
subject to Instructions, is liquidated or disposed of, the Servicer will
withdraw from the Collateral Account, and deposit into the Collection Account
as additional liquidation proceeds for distribution to Certificateholders in
accordance with the priorities described herein, the lesser of (a) the amount
by which 125% of the Fair Market Value (determined at the time of the
Deposit) exceeds the net sales proceeds, and (b) the amount by which the
outstanding principal balance of the related Mortgage Loan plus unreimbursed
Advances (with interest thereon) and unpaid accrued interest exceeds the net
sales proceeds, provided that in no event may such additional liquidation
proceeds exceed the unpaid principal balance, accrued and unpaid interest
(including Default Interest), unpaid Advances made by the Servicer, Special
Servicer, Trustee or Fiscal Agent and interest thereon, and any expenses paid
by the Trust Fund with respect to such Mortgage Loan.
If the amount realized upon disposition of the Mortgage Loan or Mortgaged
Property exceeds 125% of the Fair Market Value, the Servicer shall deposit
the excess in the Collection Account to the extent not required by applicable
law to be paid to the related borrower. If the Mortgage Loan has not been
realized upon on or before the third anniversary of the Instructions (or such
earlier date so that the Trust Fund owns the Mortgaged Property for no more
than two years), the Directing Holders will be required to purchase the
Mortgage Loan for a purchase price equal to the Fair Market Value (determined
at the time of the Deposit). Amounts on deposit in the Collateral Account
will be applied toward the purchase price.
If at any time following the establishment of a Collateral Account and
prior to the disposition of a Specially Serviced Mortgage Loan or Mortgaged
Property, the Mortgaged Property suffers a hazard loss that results in the
Mortgaged Property not being rebuilt and payments to the Trustee are made
under the related hazard insurance policy, the Special Servicer or Servicer,
as applicable, will pay all amounts on deposit in the Collateral Account to
the Directing Holders. In addition, after amounts required to be deposited in
the Collection Account have been withdrawn from the Collateral Account, as
described above, following foreclosure, liquidation, disposition, purchase by
Directing Holders or, if the related Mortgage Loan is no longer a Specially
Serviced Mortgage Loan for nine consecutive months, any related remaining
amounts in the Collateral Account will be released to the Directing Holders.
No Advances. Until the disposition of the Specially Serviced Mortgage Loan
or Mortgaged Property, as to which Directing Holders have provided
Instructions, or the cure of such default, no P&I Advances will be made in
respect of amounts distributable to the Class of the Directing Holders in
respect of such Mortgage Loan.
Material Defaults; Foreclosure. Upon the occurrence of a material default
under a Specially Serviced Mortgage Loan, the Special Servicer may,
consistent with servicing standards, accelerate such Specially Serviced
Mortgage Loan and commence a foreclosure or other acquisition with respect to
the related Mortgaged Property or Properties, provided, that the Special
Servicer determines that such acceleration and foreclosure are more likely to
produce a greater recovery to Certificateholders on a present value basis
(discounting at the related Mortgage Rate) than would a waiver of such
default or an extension or modification in accordance with the provisions
described above or under "--Modifications." In connection with any
foreclosure or other acquisition as to which the Special Servicer is not
required to act under Instructions from the Directing Holders, the Servicer
is required to pay the costs and expenses in any such proceedings as an
Advance unless the Servicer determines, in its good faith judgment, that such
Advance would constitute a Nonrecoverable Advance. The Servicer will be
entitled to reimbursement of Advances (with interest at the Advance Rate)
made as described in the preceding sentence. If the Special Servicer is
acting pursuant to Instructions, the cost and expenses in any such proceeding
will be required to be paid by the Directing Certificateholders or the
Special Servicer, without reimbursement therefor by the Trust Fund.
Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans. In connection with any foreclosure or other acquisition, the
cost and expenses of any such proceeding shall be paid by the Special
Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state where the Mortgaged Property is
located, the Special Servicer shall not be required to pursue a deficiency
judgment against the related Mortgagor, if available, or any other liable
party if the laws of the state do not permit such a deficiency judgment after
a non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, the Special Servicer shall
not, on behalf of the Trust Fund, obtain title to a Mortgaged Property as a
result of or in lieu of foreclosure or otherwise, and shall not otherwise
acquire possession
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of, or take any other action with respect to, any Mortgaged Property if, as a
result of any such action, the Trustee, for the Trust Fund or the holders of
Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an environmental
assessment report prepared by an independent person who regularly conducts
environmental audits, that: (i) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, after consultation with an
environmental consultant that it would be in the best economic interest of
the Trust Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith and (ii) there are no circumstances present
at such Mortgaged Property relating to the use, management or disposal of any
hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any currently
effective federal, state or local law or regulation, or that, if any such
hazardous materials are present for which such action could be required,
after consultation with an environmental consultant it would be in the best
economic interest of the Trust Fund to take such actions with respect to the
affected Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale shall be issued to the Trustee, or to its nominee, on behalf of holders
of Certificates. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall be
considered to be an REO Mortgage Loan held in the Trust Fund until such time
as the related REO Property shall be sold by the Trust Fund and shall be
reduced only by collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling
and Servicing Agreement provides that the Trustee (or the Special Servicer,
on behalf of the Trustee), must administer such Mortgaged Property so that it
qualifies at all times as "foreclosure property" within the meaning of Code
Section 860G(a)(8). The Pooling and Servicing Agreement also requires that
any such Mortgaged Property be managed and operated by an "independent
contractor," within the meaning of applicable Treasury regulations, who
furnishes or renders services to the tenants of such Mortgaged Property.
Generally, the Trust REMICs will not be taxable on income received with
respect to the Mortgaged Property to the extent that it constitutes "rents
from real property," within the meaning of Code Section 856(c)(3)(A) and
Treasury regulations thereunder. "Rents from real property" do not include
the portion of any rental based on the net income or gain of any tenant or
sub-tenant. No determination has been made whether rent on any of the
Mortgaged Properties meets this requirement. "Rents from real property"
include charges for services customarily furnished or rendered in connection
with the rental of real property, whether or not the charges are separately
stated. Services furnished to the tenants of a particular building will be
considered as customary if, in the geographic market in which the building is
located, tenants in buildings which are of similar Class are customarily
provided with the service. No determination has been made whether the
services furnished to the tenants of the Mortgaged Properties are "customary"
within the meaning of applicable regulations. It is therefore possible that a
portion of the rental income with respect to a Mortgaged Property owned by
the Trust Fund, presumably allocated based on the value of any non-qualifying
services, would not constitute "rents from real property." In addition to the
foregoing, any net income from a trade or business operated or managed by an
independent contractor on a Mortgaged Property owned by the Lower-Tier REMIC,
including but not limited to a hotel or skilled nursing care business, will
not constitute "rents from real property." Any of the foregoing types of
income may instead constitute "net income from foreclosure property," which
would be taxable to the Lower-Tier REMIC at the highest marginal federal
corporate rate (currently 35%) and may also be subject to state or local
taxes. Any such taxes would be chargeable against the related income for
purposes of determining the Net REO Proceeds available for distribution to
holders of Certificates. Under the Pooling and Servicing Agreement, the
Special Servicer is required to determine whether the earning of such income
taxable to the Lower-Tier REMIC would result in a greater recovery to
Certificateholders on a net after-tax basis than a different method of
operation of such property. See "Federal Income Tax Consequences -- Federal
Income Tax Consequences for REMIC Certificates" and "--Taxes That May Be
Imposed on the REMIC Pool -- Net Income from Foreclosure Property" in the
Prospectus.
If title to any Mortgaged Property is acquired by the Trust Fund, the
Special Servicer, pursuant to the Pooling and Servicing Agreement and on
behalf of the Trust Fund, will be required to sell the Mortgaged Property
prior to the close of the third calendar year following the year of
acquisition, unless the Trustee receives (i) an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to the close of such period will not result in the imposition of a
tax on the Trust REMICs or cause the Trust Fund to fail to qualify as REMICs
under the Code at any time that any Certificate is outstanding or (ii) an
extension from the Internal Revenue Service.
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The limitations imposed by the Pooling and Servicing Agreement and the
REMIC provisions of the Code on the operations and ownership of any Mortgaged
Property acquired on behalf of the Trust Fund may result in the recovery of
an amount less than the amount that would otherwise be recovered. See
"Certain Legal Aspects of Mortgage Loans -- Foreclosure" in the Prospectus.
The Special Servicer may offer to sell to any person any Specially
Serviced Mortgage Loan or any REO Property, or may offer to purchase any
Specially Serviced Mortgage Loan or any REO Property (in each case at the
repurchase price set forth in the Pooling and Servicing Agreement, which
includes unpaid principal and interest thereon), if and when the Special
Servicer determines, consistent with the Servicing Standard set forth in the
Pooling and Servicing Agreement, that no satisfactory arrangements can be
made for collection of delinquent payments thereon and such a sale would be
in the best economic interests of the Trust Fund, but shall, in any event, so
offer to sell any REO Property no later than the time determined by the
Special Servicer to be sufficient to result in the sale of such REO Property
within the period specified in the Pooling and Servicing Agreement, including
extensions thereof. The Special Servicer shall give the Trustee not less than
ten days' prior written notice of its intention to sell any Specially
Serviced Mortgage Loan or REO Property, in which case the Special Servicer
shall accept the highest offer received from any person for any Specially
Serviced Mortgage Loan or any REO Property in an amount at least equal to the
Repurchase Price or, at its option, if it has received no offer at least
equal to the Repurchase Price therefor, purchase the Specially Serviced
Mortgage Loan or REO Property at such Repurchase Price.
In the absence of any such offer (or purchase by the Special Servicer),
the Special Servicer shall accept the highest offer received from any person
that is determined by the Special Servicer to be a fair price for such
Specially Serviced Mortgage Loan or REO Property, if the highest offeror is a
person not affiliated with the Special Servicer, the Servicer or the
Depositor or is determined to be a fair price by the Trustee (after
consultation with an independent appraiser if the highest offeror is an
interested party). Notwithstanding anything to the contrary herein, neither
the Trustee, in its individual capacity, nor any of its affiliates may make
an offer for or purchase any Specially Serviced Mortgage Loan or any REO
Property.
The Special Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest offer if the Special Servicer
determines, in accordance with the Servicing Standard, that rejection of such
offer would be in the best interests of the holders of Certificates. In
addition, the Special Servicer may accept a lower offer if it determines, in
accordance with the Servicing Standard, that acceptance of such offer would
be in the best interests of the holders of Certificates (for example, if the
prospective buyer making the lower offer is more likely to perform its
obligations, or the terms offered by the prospective buyer making the lower
offer are more favorable), provided that the offeror is not a person
affiliated with the Special Servicer. The Special Servicer is required to use
its best efforts to sell all Specially Serviced Mortgage Loans and REO
Property prior to the Rated Final Distribution Date.
MODIFICATIONS
The Special Servicer may, consistent with the Servicing Standard, agree to
any modification, waiver or amendment of any term of, forgive or defer
interest on and principal of, and/or add collateral for, any Mortgage Loan
with the consent of Certificateholders representing 100% of the Percentage
Interests of the most subordinate Class of Sequential Certificates then
outstanding determined as provided below, subject, however, to each of the
following limitations, conditions and restrictions: (i) a material default on
such Mortgage Loan has occurred or, in the Special Servicer's reasonable and
good faith judgment, a default in respect of payment on such Mortgage Loan is
reasonably foreseeable, and such modification, waiver, amendment or other
action is reasonably likely to produce a greater recovery to
Certificateholders on a present value basis (the relevant discounting of
anticipated collections that will be distributable to Certificateholders will
be done at the related Mortgage Rate), than would liquidation; (ii) the
Special Servicer may not extend the date on which any Balloon Payment is
scheduled to be due on any Specially Serviced Mortgage Loan except as
described under "Realization Upon Mortgage Loans"; (iii) no reduction of any
scheduled monthly payment of principal and/or interest on any Specially
Serviced Mortgage Loan may result in a debt service coverage ratio for such
Mortgage Loan of greater than 1.10 to 1, and the Special Servicer may only
agree to reductions lasting a period of no more than twelve months and, in
the aggregate, no more than three consecutive reductions of twelve months or
less each; (iv) the Special Servicer may not release or substitute collateral
or release mortgagors or guarantors except in accordance with the provisions
of the related Loan Documents; (v) the Special Servicer may not forgive an
aggregate amount of principal of the Mortgage Loans in excess of the
Certificate Balance of most the subordinate Class of Sequential Certificates
then outstanding minus the aggregate of the greater of (A) any Appraisal
Reduction Amounts and (B) Delinquency Reduction
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Amounts of each Mortgage Loan that, in each case, have not resulted in a
Realized Loss; (vi) the Special Servicer will not permit any borrower to add
any collateral unless the Special Servicer has first determined in accordance
with the Servicing Standard, based upon an environmental assessment prepared
by an independent person who regularly conducts environmental assessments, at
the expense of the borrower, that such additional collateral is in compliance
with applicable environmental laws and regulations and that there are no
circumstances or conditions present with respect to such new collateral
relating to the use, management or disposal of any hazardous materials for
which investigation, testing, monitoring, containment, clean-up or
remediation would be required under any then applicable environmental laws
and/or regulations; and (vii) the Special Servicer may waive or reduce a
Lock-out Period or any Prepayment Premiums only if the commencement of a
foreclosure proceeding with respect to the related Mortgage Loan is imminent
and the Special Servicer first receives written notification from the
Servicer that such action in the opinion of the Servicer, consistent with the
Servicing Standard and based solely upon information furnished by the Special
Servicer without independent investigation of the Servicer thereof, is likely
to produce a greater recovery, on a present value basis, than would a
foreclosure. For purposes of obtaining the consent of the most subordinate
Class of Sequential Certificates outstanding to any modification described
above, (i) the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1,
and Class PS-1 Certificates collectively and (ii) the Class B-7 and Class
B-7H Certificates together, will, in each case, be treated as one class. For
purposes of determining the amount of principal which the Special Servicer
may forgive pursuant to clause (vi) above, the most subordinate Class will
include the next subordinate Class (determined as provided in the preceding
sentence) provided that Certificateholders evidencing 100% of the Percentage
Interests of such Class consent to such forgiveness. Notwithstanding the
foregoing, the Special Servicer will not be required to oppose the
confirmation of a plan in any bankruptcy or similar proceeding involving a
borrower if in its reasonable and good faith judgment such opposition would
not ultimately prevent the confirmation of such plan or one substantially
similar.
Any payment of interest, which is deferred as described herein will not,
for purposes, including, without limitation, calculating monthly
distributions to Certificateholders, be added to the unpaid principal balance
of the related Mortgage Loan, notwithstanding that the terms of such Mortgage
Loan so permit or that such interest may actually be capitalized.
Following the execution of any modification, waiver or amendment agreed to
by the Special Servicer pursuant to clause (i) above, the Special Servicer
must deliver to the Trustee an officer's certificate setting forth in
reasonable detail the basis of the determination made by it pursuant to
clause (i) above.
Except as otherwise provided above and under "Realization Upon Mortgage
Loans", the Special Servicer or the Servicer may not modify any term of a
Mortgage Loan unless such modification (i) would not be "significant" as such
term is defined in Code Section 1001 or Treasury Regulation Sections
1.860G-2(b)(3) and (ii) would be in accordance with the servicing standard
set forth in the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement will require the Servicer or Special Servicer, as applicable, to
provide copies of any modifications or extensions to each Rating Agency.
In the event that the Special Servicer is unable to obtain consent from
100% of the Percentage Interests of the most subordinate class of
Certificates, the Special Servicer will continue to retain the options
described under "Realization Upon Mortgage Loans", including foreclosure or
extension.
OPTIONAL TERMINATION
The Depositor or the Servicer and, if neither the Depositor nor the
Servicer exercises its option, the holders of the Class LR Certificates
representing greater than 50% of the Percentage Interest of the Class LR
Certificates will have the option to purchase all of the Mortgage Loans and
all property acquired in respect of any Mortgage Loan remaining in the Trust
Fund, and thereby effect termination of the Trust Fund and early retirement
of the then outstanding Certificates, on any Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage Loans remaining in the
Trust Fund is less than 1% of the aggregate principal balance of such
Mortgage Loans as of the Cut-off Date, or if the outstanding Mortgage Loans
in the Mortgage Pool consist solely of the Swiss Bank Tower Loan, Kmart Loans
and/or Circuit City Loans. The purchase price payable upon the exercise of
such option on such a Distribution Date will be an amount equal to the
greater of (i) the sum of (A) 100% of the outstanding principal balance of
each Mortgage Loan included in the Trust Fund as of the last day of the month
preceding such Distribution Date (less any P&I Advances previously made on
account of principal); (B) the fair market value of all other property
included in the Trust Fund as of the last day of the month preceding such
Distribution Date, as determined by an independent appraiser as of a date not
more than 30 days prior to the last day of the month preceding such
Distribution Date; (C) all unpaid interest accrued on such principal balance
of each such Mortgage Loan (including any Mortgage Loans as to which title to
the related Mortgaged Property has been acquired) at the Mortgage Rate (plus
the Excess Rate, to the extent applicable) to the last day of the month
preceding such
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Distribution Date (less any P&I Advances previously made on account of
principal), and (D) unreimbursed Advances (with interest thereon) and unpaid
Trust Fund expenses and (ii) the aggregate fair market value of the Mortgage
Loans and all other property acquired in respect of any Mortgage Loan in the
Trust Fund, on the last day of the month preceding such Distribution Date, as
determined by an independent appraiser acceptable to the Servicer, together
with one month's interest thereon at the Mortgage Rate. The holders of 100%
of the Percentage Interest in the Class LR Certificates may purchase any
Mortgage Loan on its Anticipated Repayment Date at a price equal to the sum
of the following: (i) 100% of the outstanding principal balance of such
Mortgage Loan on such Anticipated Repayment Date (less any P&I Advances
previously made on account of principal); (ii) all unpaid interest accrued on
such principal balance of such Mortgage Loan at the Mortgage Rate thereof, to
the last day of the Interest Accrual Period preceding such Anticipated
Repayment Date (less any P&I Advances previously made on account of
interest); (iii) the aggregate amount of all unreimbursed Advances with
respect to such Mortgage Loan, with interest thereon at the Advance Rate, and
all unpaid Special Servicing Fees, Servicing Fees and any other compensation
due to the Servicer or Special Servicer, Trustee Fees and Trust Fund
expenses; and (iv) the amount of any liquidation expenses incurred by the
Trust Fund in connection with such purchase. Notwithstanding the foregoing,
such Mortgage Loan may not be purchased if the fair market value of the
Mortgage Loan is greater than 100% of the outstanding principal balance of
such Mortgage Loan.
The Holder of 100% of the most subordinate Class of Sequential
Certificates (provided that the Class 7H Certificates shall not be considered
a Class for such purposes) may purchase any Mortgage Loan on or after its
Anticipated Repayment Date under the same terms and conditions hereunder as
in the case of a purchase by the Holder of the Class LR Certificates if the
Holder of the Class LR Certificates either (i) notifies the Holder of the
most subordinate Class of Sequential Certificates that it will not purchase
such Mortgage Loan or (ii) does not, in fact, purchase such Mortgage Loan on
its Anticipated Repayment Date. See "Description of the Certificates --
Termination" in the Prospectus.
THE TRUSTEE
LaSalle National Bank, a nationally chartered bank with its principal
offices in Chicago, Illinois, will act as Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at 135
South LaSalle Street, Suite 1600, Chicago, Illinois 60603, Attention: Asset
Backed Securities Trust Services, Nomura-D5.
The Trustee may resign at any time by giving written notice to the
Depositor, the Servicer, Special Servicer and the Rating Agencies, provided
that no such resignation shall be effective until a successor has been
appointed. Upon such notice, the Servicer will appoint a successor trustee.
If no successor trustee is appointed within one month after the giving of
such notice of resignation, the resigning Trustee may petition the court for
appointment of a successor trustee.
The Servicer or the Depositor may remove the Trustee and the Fiscal Agent
if, among other things, the Trustee ceases to be eligible to continue as such
under the Pooling and Servicing Agreement or if at any time the Trustee
becomes incapable of acting, or is adjudged bankrupt or insolvent, or a
receiver of the Trustee or its property is appointed or any public officer
takes charge or control of the Trustee or of its property. The holders of
Certificates evidencing aggregate Voting Rights of at least 50% of all
Certificateholders may remove the Trustee and the Fiscal Agent upon written
notice to the Depositor, the Servicer, the Trustee and the Fiscal Agent. Any
resignation or removal of the Trustee and the Fiscal Agent and appointment of
a successor trustee and, if such trustee is not rated at least "AA" by each
Rating Agency, fiscal agent, will not become effective until acceptance of
the appointment by the successor trustee and, if necessary, fiscal agent.
Notwithstanding the foregoing, upon any termination of the Trustee and Fiscal
Agent under the Pooling and Servicing Agreement, the Trustee and Fiscal Agent
will continue to be entitled to receive all accrued and unpaid compensation
through the date of termination plus all Advances and interest thereon as
provided in the Pooling and Servicing Agreement. Any successor trustee must
have a combined capital and surplus of at least $50,000,000 and such
appointment must not result in the downgrade, qualification or withdrawal of
the then-current ratings assigned to the Certificates, as evidenced in
writing by the Rating Agencies.
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to withdraw from the Distribution Account a monthly fee (the
"Trustee Fee"), which constitutes a portion of the Servicing Fee.
The Trust Fund will indemnify the Trustee and the Fiscal Agent against any
and all losses, liabilities, damages, claims or unanticipated expenses
(including reasonable attorneys' fees) arising in respect of the Pooling and
Servicing Agreement or the Certificates other than those resulting from the
negligence, bad faith or willful misconduct of the Trustee or the Fiscal
Agent, as applicable. Neither the Trustee nor the Fiscal Agent will be
required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties under the Pooling and
Servicing Agreement, or
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in the exercise of any of its rights or powers, if in the Trustee's or the
Fiscal Agent's opinion, as applicable, the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it. Each of the Servicer, the Special Servicer, the Depositor, the Paying
Agent, the Certificate Registrar and the Custodian will indemnify the
Trustee, the Fiscal Agent, and certain related parties for similar losses
incurred related to the willful misconduct, bad faith, fraud and/or
negligence in the performance of each such party's respective duties under
the Pooling and Servicing Agreement or by reason of reckless disregard of its
obligations and duties under the Pooling and Servicing Agreement.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the
same is located, the Depositor and the Trustee acting jointly will have the
power to appoint one or more persons or entities approved by the Trustee to
act (at the expense of the Trustee) as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any
part of the Trust Fund, and to vest in such co-trustee or separate trustee
such powers, duties, obligations, rights and trusts as the Depositor and the
Trustee may consider necessary or desirable. Except as required by applicable
law, the appointment of a co-trustee or separate trustee will not relieve the
Trustee of its responsibilities, obligations and liabilities under the
Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee (except for the information under the first paragraph of
"--The Trustee") and Servicer (except for the information under "--The
Servicer") will make no representation as to the validity or sufficiency of
the Pooling and Servicing Agreement, the Certificates or the Mortgage Loans,
this Prospectus or related documents. The Trustee will not be accountable for
the use or application by the Depositor, the Servicer or the Special Servicer
of any Certificates issued to it or of the proceeds of such Certificates, or
for the use of or application of any funds paid to the Depositor, the
Servicer or the Special Servicer in respect of the assignment of the Mortgage
Loans to the Trust Fund, or any funds deposited in or withdrawn from the Lock
Box Accounts, Cash Collateral Accounts, Reserve Accounts, Collection Account,
Excess Interest Distribution Account, Interest Reserve Account and Default
Interest Distribution Account or any other account maintained by or on behalf
of the Servicer or Special Servicer, nor will the Trustee be required to
perform, or be responsible for the manner of performance of, any of the
obligations of the Servicer or Special Servicer under the Pooling and
Servicing Agreement.
In the event that the Servicer fails to make a required Advance, the
Trustee will make such Advance, provided that the Trustee shall not be
obligated to make any Advance it deems to be nonrecoverable. The Trustee
shall be entitled to rely conclusively on any determination by the Servicer
or the Special Servicer that an Advance, if made, would not be recoverable.
The Trustee will be entitled to reimbursement for each Advance, with
interest, made by it in the same manner and to same extent as the Servicer or
the Special Servicer.
If no Event of Default has occurred, and after the curing of all Events of
Default which may have occurred, the Trustee is required to perform only
those duties specifically required under the Pooling and Servicing Agreement.
Upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine such
documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of The
Netherlands, will act as Fiscal Agent pursuant to the Pooling and Servicing
Agreement. The Fiscal Agent's office is located at 135 South LaSalle Street,
Chicago, Illinois 60603. The Fiscal Agent will be deemed to have been removed
in the event of the resignation or removal of the Trustee.
DUTIES OF THE FISCAL AGENT
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling and Servicing Agreement, the Certificates, the
Mortgage Loan, this Prospectus Supplement (except for the information above,
see "--The Fiscal Agent") or related documents. The duties and obligations of
the Fiscal Agent consist only of making Advances as described below and in
"--Advances" above; the Fiscal Agent shall not be liable except for the
performance of such duties and obligations.
In the event that the Servicer and the Trustee fail to make a required
Advance, the Fiscal Agent will make such Advance, provided that the Fiscal
Agent will not be obligated to make any Advance that it deems to be
nonrecoverable.
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The Fiscal Agent shall be entitled to rely conclusively on any determination
by the Servicer or the Trustee, as applicable, that an Advance, if made,
would not be recoverable. The Fiscal Agent will be entitled to reimbursement
for each Advance made by it in the same manner and to the same extent as the
Trustee and the Servicer.
THE SERVICER
AMRESCO Services, L.P., a Delaware limited partnership, will be the
Servicer and in such capacity will be responsible for servicing the Mortgage
Loans. AMRESCO Services, L.P. ("ASLP") is a wholly owned subsidiary of
AMRESCO, INC. ("AMRESCO"), a publicly traded (NASDAQ) company. The principal
offices of ASLP are located at 235 Peachtree Street, NE, Suite 900, Atlanta,
Georgia 30303.
As of August 31, 1997, AMRESCO's portfolio consists of approximately 9,432
loans with an aggregate principal balance of approximately $19.3 billion. The
portfolio is significantly diversified both geographically and by product
type. ASLP will provide servicing for this portfolio as well as other
securitized transactions under full, primary, sub and master servicing
contracts for both public and private placement transactions representing
both single and multi-borrower mortgage pools.
The information concerning the Servicer set forth herein has been provided
by the Servicer, and none of the Mortgage Loan Seller, the Special Servicer,
the Depositor, the Trustee, the Fiscal Agent or the Underwriter makes any
representation or warranty as to the accuracy thereof.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
entitled to withdraw monthly from the Collection Account its portion of the
Servicing Fee. The monthly servicing fee with respect to any Mortgage Loan
other than the Comsat Junior Loan and the SC Junior Portion of the Saul
Centers Retail Pool Loan (the "Servicing Fee") for any Distribution Date is
an amount per Interest Accrual Period equal to the product of (i) a per annum
rate of 0.038% (the "Servicing Fee Rate") and (ii) the Stated Principal
Balance of such Mortgage Loan as of the Due Date and includes the
compensation payable to the Servicer and the Trustee Fee. No servicing fee
will be payable with respect to the Comsat Junior Loan or the SC Junior
Portion of the Saul Centers Retail Pool Loan. The Servicer's portion of the
Servicing Fee relating to each Mortgage Loan will be retained by the Servicer
from payments and collections (including insurance proceeds, condemnation
proceeds and liquidation proceeds) in respect of such Mortgage Loan. The
Servicer will also be entitled to retain as additional servicing compensation
(together with the Servicer's portion of the Servicing Fee, "Servicing
Compensation") (i) all investment income earned on amounts on deposit in the
Collection Account and certain Reserve Accounts (to the extent consistent
with the related Mortgage Loan) and (ii) to the extent permitted by
applicable law and the related Mortgage Loans, any late payment charges,
one-half of any loan modification or extension fees (payable in connection
with a modification for which review by the Servicer is required), loan
service transaction fees, beneficiary statement changes, or similar items
(but not including Prepayment Premiums). If a review by the Servicer is not
required, the Special Servicer will be entitled to the full amount of any
modification or extension fees.
If the Servicer accepts a voluntary prepayment on a Mortgage Loan after
the related Lock-out Period with respect to such loan which results in a
Prepayment Interest Shortfall, the Servicer will be obligated to reduce its
Servicing Compensation as provided above under "Description of the Offered
Certificates -- Distributions -- Prepayment Interest Shortfalls."
The Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any subservicers
retained by it. The Trustee will withdraw monthly from the Distribution
Account the portion of the Servicing Fee representing the Trustee Fee.
SPECIAL SERVICING
AMRESCO Management, Inc. ("AMI") will initially be appointed as special
servicer (the "Special Servicer") to, among other things, oversee the
resolution of non-performing Mortgage Loans and act as disposition manager of
REO Properties. The Pooling and Servicing Agreement will provide that more
than one Special Servicer may be appointed, but only one Special Servicer may
specially service any Mortgage Loan.
In addition to its loan servicing capabilities, AMI has expertise in all
areas of asset management including loan workouts, asset valuation,
environmental reviews, and REO management and disposition and is an active
purchaser of
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unrated and sub-investment grade interests in commercial mortgage backed
securities. The principal task of AMI's asset management division is the
management, turnaround, and capital recovery of distressed and
underperforming real estate loans and foreclosed real estate assets. The
asset management division of AMI is also responsible for the valuation of
portfolios in connection with the purchase of commercial mortgage backed
securities.
The Pooling and Servicing Agreement provides that holders of Certificates
evidencing greater than 50% of the Percentage Interests of the most
subordinate Class of Sequential Certificates then outstanding (provided,
however, that for purposes of determining the most subordinate Class, the
Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class PS-1
Certificates collectively, and the Class B-7 and Class B-7H Certificates
together, will, in each case, be treated as one Class) may replace the
Special Servicer, provided that each Rating Agency confirms to the Trustee in
writing that such replacement, in and of itself, will not cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to any Class of Certificates.
The duties of the Special Servicer relate to Specially Serviced Mortgage
Loans and to any REO Property. The Pooling and Servicing Agreement will
define a "Specially Serviced Mortgage Loan" to include any Mortgage Loan with
respect to which: (i) the related borrower has not made two consecutive
Monthly Payments (and has not cured at least one such delinquency by the next
due date under the related Mortgage Loan) or (ii) the Servicer, the Trustee
and/or the Fiscal Agent has made four consecutive P&I Advances (regardless of
whether such P&I Advances have been reimbursed); (iii) the borrower has
expressed to the Servicer an inability to pay or a hardship in paying the
Mortgage Loan in accordance with its terms; (iv) the Servicer has received
notice that the borrower has become the subject of any bankruptcy, insolvency
or similar proceeding, admitted in writing the inability to pay its debts as
they come due or made an assignment for the benefit of creditors; (v) the
Servicer has received notice of a foreclosure or threatened foreclosure of
any lien on the Mortgaged Property securing the Mortgage Loan; (vi) a default
of which the Servicer has notice (other than a failure by the borrower to pay
principal or interest) and which materially and adversely affects the
interests of the Certificateholders has occurred and remained unremedied for
the applicable grace period specified in the Mortgage Loan (or, if no grace
period is specified, 60 days); provided, that a default requiring a Property
Advance will be deemed to materially and adversely affect the interests of
Certificateholders; (vii) the Special Servicer proposes to commence
foreclosure or other workout arrangements; or (viii) such borrower has failed
to make a Balloon Payment as and when due; provided, however, that a Mortgage
Loan will cease to be a Specially Serviced Mortgage Loan (i) with respect to
the circumstances described in clauses (i), (ii), and (viii) above, when the
borrower thereunder has brought the Mortgage Loan current (or, with respect
to the circumstances described in clause (viii), pursuant to a work-out
implemented by the Special Servicer) and thereafter made three consecutive
full and timely monthly payments, including pursuant to any workout of the
Mortgage Loan, (ii) with respect to the circumstances described in clause
(iii), (iv), (v) and (vii) above, when such circumstances cease to exist in
the good faith judgment of the Servicer, or (iii) with respect to the
circumstances described in clause (vi) above, when such default is cured;
provided, in either case, that at that time no circumstance exists (as
described above) that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer will
be entitled to certain fees including a special servicing fee, payable with
respect to each Interest Accrual Period, equal to 1/12 of 0.50% of the Stated
Principal Balance of each related Specially Serviced Mortgage Loan (the
"Special Servicing Fee"). The Special Servicer will be entitled, in addition
to the Special Servicing Fee, to a "Principal Recovery Fee" with respect to
each Specially Serviced Mortgage Loan or REO Property which Principal
Recovery Fee will be in an amount equal to 1% of all amounts received in
respect thereof and allocable as a recovery of principal which will be
payable when the Mortgage Loan or REO Property is sold or liquidated or when
the Specially Serviced Mortgage Loan ceases to be a Specially Serviced
Mortgage Loan. However, no Principal Recovery Fee will be payable in
connection with, or out of Liquidation Proceeds resulting from, the purchase
of any Specially Serviced Mortgage Loan or REO Property (i) by the Mortgage
Loan Seller, Bloomfield or CSFB as described herein under "Pooling and
Servicing Agreement-Representations and Warranties; Repurchase"; (ii) by the
Servicer, the Depositor or the Certificateholders as described herein under
"The Pooling and Servicing Agreement -- Optional Termination" or (iii) in
certain other limited circumstances. In addition, the Special Servicer will
be entitled to receive (i) any (or if the Servicer's consent is required, 50%
of) assumption fees and certain loan modification fees related to the
Specially Serviced Mortgage Loans and (ii) any income earned on deposits in
the REO Accounts. Notwithstanding the foregoing, in the event that the
Special Servicer is, or is an affiliate of, the holder of Certificates
representing greater than 50% of the Percentage Interests of the most
subordinate Class of Sequential Certificates then outstanding (determined as
provided below), the Special Servicer will be entitled to receive a Special
Servicing Fee for each Interest Accrual Period equal to 1/12 of 0.25% of the
Stated Principal Balance of each Specially Serviced Mortgage Loan and
one-half of the Principal Recovery Fee it would otherwise be entitled to.
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For purposes of determining whether the Special Servicer is entitled to
full compensation, with respect to any Mortgage Loan, the Class A-1A, Class
A-1B, Class A-1C, Class A-1D, Class A-CS1 and Class PS-1 Certificates
collectively, and the Class B-7 and Class B-7H Certificates together, will in
each case, be treated as one class.
SERVICER AND SPECIAL SERVICER PERMITTED TO BUY CERTIFICATES
The Servicer and Special Servicer will be permitted to purchase any Class
of Certificates. Such a purchase by the Servicer or Special Servicer could
cause a conflict relating to the Servicer's or Special Servicer's duties
pursuant to the Pooling and Servicing Agreement and the Servicer's or Special
Servicer's interest as a holder of Certificates, especially to the extent
that certain actions or events have a disproportionate effect on one or more
Classes of Certificates. The Pooling and Servicing Agreement provides that
the Servicer or Special Servicer shall administer the Mortgage Loans in
accordance with the servicing standard set forth therein without regard to
ownership of any Certificate by the Servicer or Special Servicer or any
affiliate thereof.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports
Based on information provided in monthly reports prepared by the Servicer
and the Special Servicer and delivered to the Trustee, the Trustee will
prepare and forward on each Distribution Date to each Certificateholder, the
Depositor, the Servicer, the Special Servicer, each Underwriter, each Rating
Agency and, if requested, any potential investors in the Certificates:
1. A statement (a "Distribution Date Statement") setting forth, among
other things: (i) the amount of distributions, if any, made on such
Distribution Date to the Holders of each Class of Certificates applied to
reduce the respective Certificate Balances thereof; (ii) the amount of
distributions, if any, made on such Distribution Date to Holders of each
Class of Certificates allocable to (A) the Interest Accrual Amount less
any Prepayment Interest Shortfalls (not absorbed by the Servicer) and/or
(B) Prepayment Premiums and/or Reduction Interest Distribution Amounts;
(iii) the number of outstanding Mortgage Loans, the aggregate unpaid
principal balance of the Mortgage Loans at the close of business on the
related Due Date; (iv) the number and aggregate unpaid principal balance
of Mortgage Loans (A) delinquent one Collection Period, (B) delinquent two
Collection Periods, (C) delinquent three or more Collection Periods, (D)
that are Specially Serviced Mortgage Loans that are not delinquent, or (E)
as to which foreclosure proceedings have been commenced; (v) with respect
to any Mortgage Loan as to which the related Mortgaged Property became a
REO Property during the preceding calendar month, the Stated Principal
Balance and unpaid principal balance of such Mortgage Loan as of the date
such Mortgaged Property became an REO Property; (vi) as to any Mortgage
Loan repurchased by the Mortgage Loan Seller or otherwise liquidated or
disposed of during the related Collection Period, the loan number thereof
and the amount of proceeds of any repurchase of a Mortgage Loan,
Liquidation Proceeds and/or other amounts, if any, received thereon during
the related Collection Period and the portion thereof included in the
Available Funds for such Distribution Date; (vii) with respect to any REO
Property included in the Trust Fund as of the close of business on the
related Due Date, the loan number of the related Mortgage Loan, the value
of such REO Property based on the most recent appraisal or valuation and
the amount of any other income collected with respect to any REO Property
net of related expenses and other amounts, if any, received on such REO
Property during the related Collection Period and the portion thereof
included in the Available Funds for such Distribution Date; (viii) with
respect to any REO Property sold or otherwise disposed of during the
related Collection Period, (A) the loan number of the related Mortgage
Loan and the amount of sale proceeds and other amounts, if any, received
in respect of such REO Property during the related Collection Period and
the portion thereof included in the Available Funds for such Distribution
Date and (B) the date of the related determination by the Special Servicer
that it has recovered all payments which it expects to be finally
recoverable (the "Final Recovery Determination"); (ix) the aggregate
Certificate Balance of each Class of Certificates before and after giving
effect to the distributions made on such Distribution Date, separately
identifying any reduction in the aggregate Certificate Balance of each
such Class due to Realized Losses and/or Trust fund expenses; (x) the
aggregate amount of Principal Prepayments made during the related
Collection Period and the aggregate amount of any Prepayment Interest
Shortfalls (not absorbed by the Servicer) for such Distribution Date; (xi)
the Pass-Through Rate and the Reduction Interest Pass-Through Rate, if
any, applicable to each Class of Certificates for such Distribution Date;
(xii) the aggregate amount of the Servicing Fee, Special Servicing Fee,
Principal Recovery Fee and any other servicing or special servicing
compensation retained by or paid to the Servicer and the Special Servicer
during the related Collection Period; (xiii) the amount of Realized
Losses, Trust Fund expenses, Interest Shortfalls and Reduction Interest
Shortfalls, if any, incurred with respect to the Mortgage Loans during the
related Collection Period and in the aggregate for all prior Collection
Periods (except to the extent reimbursed or paid); (xiv) the aggregate
amount of Property Advances and P&I Advances outstanding which have been
made by the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent; (xv) the amount of any Appraisal Reduction Amounts allocated during
the related
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Collection Period on a loan-by-loan basis and the total Appraisal
Reduction Amounts as of such Distribution Date on a loan-by-loan basis. In
the case of information furnished pursuant to subclauses (i), (ii) and
(ix) above, the amounts shall be expressed as a dollar amount in the
aggregate for all Certificates of each applicable Class and per single
Certificate of a specified minimum denomination.
2. A report containing information regarding the Mortgage Loans as of the
end of the related Collection Period, which report shall contain
substantially the categories of information regarding the Mortgage Loans
set forth in this Prospectus Supplement in the tables under the caption
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans" (calculated, where applicable, on the basis of the most
recent relevant information provided by the borrowers to the Servicer or
the Special Servicer and by the Servicer or the Special Servicer, as the
case may be, to the Trustee) and such information shall be presented in a
tabular format substantially similar to the format utilized in this
Prospectus under such caption and a loan-by-loan listing (in descending
balance order) showing loan name, property type, location, unpaid
principal balance, Mortgage Rate, paid through date, maturity date, net
interest portion of the Monthly Payment, principal portion of the Monthly
Payment and any Prepayment Premiums received. Such loan-by-loan listing
will be made available electronically; provided, however, the Trustee will
provide Certificateholder with a written copy of such report upon request.
Certain information made available in the Distribution Date Statements
referred to in item (1) above may be obtained by calling LaSalle National
Bank's ASAP System at (312) 904-2200 and requesting statement number 289 or
such other mechanism as the Trustee may have in place from time-to-time.
Servicer Reports
The Servicer is required to deliver to the Trustee prior to each
Distribution Date, and the Trustee is to deliver to each Certificateholder,
the Depositor, each Underwriter, each Rating Agency and, if requested, any
potential investor in the Certificates, on each Distribution Date, the
following six reports:
(a) A "Comparative Financial Status Report" setting forth, to the extent
such information is provided by the related borrowers, among other things,
the occupancy, revenue, net operating income and DSCR for the Mortgage
Loans as of the current Due Date for each of the following three periods;
(i) the most current available year-to-date, (ii) the previous two full
fiscal years, and (iii) the "base year" (representing the original
underwriting information used as of the Cut-off Date).
(b) A "Delinquent Loan Status Report" setting forth, among other things,
those Mortgage Loans which, as of the close of business on the Due Date
immediately preceding the preparation of such report, were delinquent one
Collection Period, delinquent two Collection Periods, delinquent three or
more Collection Periods, current but specially serviced, or in foreclosure
but not REO Property.
(c) An "Historical Loan Modification Report" setting forth, among other
things, those Mortgage Loans which, as of the close of business on the Due
Date immediately preceding the preparation of such report, have been
modified pursuant to the Pooling and Servicing Agreement (i) during the
related Collection Period and (ii) since the Cut-off Date, showing the
original and the revised terms thereof.
(d) An "Historical Loss Estimate Report" setting forth, among other
things, as of the close of business on the Due Date immediately preceding
the preparation of such report, (i) the aggregate amount of liquidation
proceeds and liquidation expenses, both for the current period and
historically, and (ii) the amount of Realized Losses occurring during the
related Collection Period, set forth on a Mortgage Loan-by-Mortgage Loan
basis.
(e) An "REO Status Report" setting forth, among other things, with
respect to each REO Property that was included in the Trust Fund as of the
close of business on the Due Date immediately preceding the preparation of
such report, (i) the acquisition date of such REO Property, (ii) the
amount of income collected with respect to any REO Property net of related
expenses and other amounts, if any, received on such REO Property during
the related Collection Period and (iii) the value of the REO Property
based on the most recent appraisal or other valuation thereof available to
the Servicer as of such date of determination (including any prepared
internally by the Special Servicer).
(f) A "Watch List" setting forth, among other things, any Mortgage Loan
that is in jeopardy of becoming a Specially Serviced Mortgage Loan.
Commencing in January 1998, subject to the receipt of necessary
information from any subservicer, such loan-by-loan listing will be made
available electronically in the form of the standard CSSA loan file and CSSA
property file; provided,
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however, the Trustee will provide Certificateholders with a written copy of
such report upon request. The information that pertains to Specially Serviced
Mortgage Loans and REO Properties reflected in such reports shall be based
solely upon the reports delivered by the Special Servicer to the Servicer at
least one business day prior to the Servicer Remittance Date. Absent manifest
error, none of the Servicer, the Special Servicer or the Trustee shall be
responsible for the accuracy or completeness of any information supplied to
it by a borrower or third party that is included in any reports, statements,
materials or information prepared or provided by the Servicer, the Special
Servicer or the Trustee, as applicable.
The Servicer is also required to deliver to the Trustee the following
materials:
(a) Annually, on or before June 30 or each year, commencing with June 30,
1998, with respect to each Mortgaged Property and REO Property, an
"Operating Statement Analysis" together with copies of the operating
statements and rent rolls (but only to the extent the related borrower is
required by the Mortgage to deliver, or otherwise agrees to provide such
information) for such Mortgaged Property or REO Property as of the end of
the preceding calendar year. The Servicer (or the Special Servicer in the
case of Specially Serviced Mortgage Loans and REO Properties) is required
to use its best reasonable efforts to obtain said annual operating
statements and rent rolls.
(b) Within thirty days of receipt by the Servicer (or within ten days of
receipt by the Special Servicer with respect to any Specially Serviced
Mortgage Loan or REO Property) of annual operating statements, if any,
with respect to any Mortgaged Property or REO Property, an "NOI Adjustment
Worksheet" for such Mortgaged Property (with the annual operating
statements attached thereto as an exhibit), presenting the computations
made in accordance with the methodology described in the Pooling and
Servicing Agreement to "normalize" the full year net operating income and
debt service coverage numbers used by the Servicer in the other reports
referenced above.
The Trustee is to deliver a copy of each Operating Statement Analysis
report and NOI Adjustment Worksheet that it receives from the Servicer to the
Depositor, each Underwriter and each Rating Agency promptly after its receipt
thereof. Upon request, the Trustee will make such reports available to the
Certificateholders and the Special Servicer. Any Certificateholder and any
potential investor in the Certificates may obtain a copy of any NOI
Adjustment Worksheet for a Mortgaged Property or REO Property in the
possession of the Trustee upon request.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee is required to send to each person who at any time
during the calendar year was a Certificateholder of record, a report
summarizing on an annual basis (if appropriate) the items provided to
Certificateholders in the monthly Distribution Date Statements and such other
information as may be required to enable such Certificateholders to prepare
their federal income tax returns. Such information is to include the amount
of original issue discount accrued on each Class of Certificate held by
persons other than holders exempted from the reporting requirements and
information regarding the expenses of the Trust Fund.
Other Information
The Pooling and Servicing Agreement requires that the Trustee make
available at its offices, during normal business hours, for review by any
Holder of a Certificate, the Depositor, the Special Servicer, the Servicer,
any Rating Agency, any potential investor in the Certificates or any other
Person to whom the Depositor believes such disclosure is appropriate,
originals or copies of, among other things, the following items (except to
the extent not permitted by applicable law or under any of the Mortgage Loan
documents): (i) the Pooling and Servicing Agreement and any amendments
thereto, (ii) all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Closing Date, (iii) all
annual officers' certificates and accountants' reports delivered by the
Servicer and Special Servicer to the Trustee since the Closing Date regarding
compliance with the relevant agreements, (iv) the most recent property
inspection report prepared by or on behalf of the Servicer or the Special
Servicer with respect to each Mortgaged Property, (v) the most recent annual
operating statements, rent rolls (to the extent such rent rolls have been
made available by the related borrower) and retail "sales information", if
any, collected by or on behalf of the Servicer or the Special Servicer with
respect to each Mortgaged Property, (vi) any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into by the Servicer
and/or the Special Servicer, and (vii) any and all officers' certificates and
other evidence delivered to or by the Trustee to support the Servicer's, the
Trustee's or the Fiscal Agent's, as the case may be, determination that any
Advance, if made, would not be recoverable and (viii) any other materials
provided to a requesting Certificateholder as provided in the Pooling and
Servicing Agreement in situations where such requesting Certificateholder
declined to enter into a confidentiality agreement with the Servicer. Copies
of any and all of the foregoing items will be available from the Trustee upon
request; however, the Trustee will be permitted to require payment of a sum
sufficient to cover the reasonable costs and expenses of providing such
copies.
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by the
Depositor to pay part of the purchase price of the Mortgage Loans.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary and the discussion in the Prospectus under the
heading "Certain Federal Income Tax Consequences -- Federal Income Tax
Consequences for REMIC Certificates" are a general discussion of the
anticipated material federal income tax consequences of the purchase,
ownership and disposition of the Offered Certificates and are based on the
advice of Cadwalader, Wickersham & Taft. The summary below and such
discussion in the Prospectus do not purport to address all federal income tax
consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. In addition, such summary and
such discussion do not address state, local or foreign tax issues with
respect to the acquisition, ownership or disposition of the Offered
Certificates. The authorities on which such summary and such discussion are
based are subject to change or differing interpretations, and any such change
or interpretation could apply retroactively. Such summary and such discussion
reflect the applicable provisions of the Code, as well as regulations (the
"REMIC Regulations") promulgated by the U.S. Department of the Treasury.
Investors should consult their own tax advisors in determining the federal,
state, local, foreign or any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
Elections will be made to treat the Trust Fund, exclusive of the Reserve
Accounts, the Lock Box Accounts, the Cash Collateral Accounts, the Excess
Interest and the Default Interest in respect of the Mortgage Loans (such
portion of the Trust Fund, the "Trust REMICs"), as two separate REMICs (the
"Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) within the
meaning of Code Section 860D. The Reserve Accounts, the Lock Box Accounts and
the Cash Collateral Accounts will be treated as beneficially owned by the
respective borrowers for federal income tax purposes. The Lower-Tier REMIC
will hold the Mortgage Loans (exclusive of the Excess Interest and Default
Interest) proceeds therefrom, the Collection Account, the Distribution
Account and any REO Property, and will issue (i) certain uncertificated
classes of regular interests (the "Lower-Tier Regular Interests") to the
Upper-Tier REMIC and (ii) the Class LR Certificates, which will represent the
sole class of residual interests in the Lower-Tier REMIC. The Upper-Tier
REMIC will hold the Lower-Tier Regular Interests and the Upper-Tier
Distribution Account in which distributions thereon will be deposited, and
will issue the Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-CS1,
Class PS-1, Class A-1E, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8Z, Class B-1, Class B-2, Class B-3, Class B-3SC,
Class B-4, Class B-5, Class B-6, Class B-7 and Class B-7H Certificates (the
"Regular Certificates") as classes of regular interests and the Class R
Certificates as the sole class of residual interests in the Upper-Tier REMIC.
Qualification as a REMIC requires ongoing compliance with certain conditions.
Assuming (i) the making of appropriate elections, (ii) compliance with the
Pooling and Servicing Agreement and (iii) compliance with any changes in the
law, including any amendments to the Code or applicable temporary or final
regulations of the United States Department of the Treasury ("Treasury
Regulations") thereunder, in the opinion of Cadwalader, Wickersham & Taft,
the Trust Fund will qualify as two separate REMICs. References in this
discussion to the "REMIC" will, unless the context dictates otherwise, refer
to each of the Upper-Tier REMIC and the Lower-Tier REMIC. The Class V-1 and
Class V-2 Certificates will represent pro rata undivided beneficial interests
in the portion of the Trust Fund consisting of Excess Interest and Default
Interest in respect of the Mortgage Loans, respectively, and such portions
will be treated as a grantor trust for federal income tax purposes.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" or "loans
secured by an interest in . . . health . . . institutions or facilities,
including structures designed or used primarily for residential purposes for
. . . persons under care" for domestic building and loan associations (but
only to the extent of the allocable portion of the Mortgage Loans secured by
multifamily properties and mobile home community properties, or nursing homes
and congregate care facilities, respectively) and "real estate assets" for
real estate investment trusts, to the extent described in the Prospectus. As
of the Cut-off Date, multifamily loans, mobile home community loans and loans
secured by nursing homes or congregate care facilities represent
approximately 19%, 2% and less than 1%, respectively, of the Mortgage Loans
by unpaid principal balance. Mortgage Loans which have been defeased with
U.S. Treasury obligations will not qualify for the foregoing treatments.
The Offered Certificates generally will be treated as newly originated
debt instruments for federal income tax purposes. Beneficial owners of the
Offered Certificates will be required to report income on such regular
interests in accordance with the accrual method of accounting. The Class A-8Z
Certificate will be issued with original issue discount for federal income
tax purposes in an amount equal to the excess of the Initial Certificate
Balance thereof and all interest expected to accrue thereon over their issue
price (including accrued interest). It is anticipated that the Class A-1A,
Class
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A-1B, Class A1-C, Class A-1D, Class A-1E, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6 and Class A-7 Certificates will not be issued with
original issue discount for federal income tax purposes. See "Federal Income
Tax Consequences -- Federal Income Tax Consequences for REMIC Certificates
- --Taxation of Regular Certificates -- Premium" in the Prospectus.
Although unclear for federal income tax purposes, it is anticipated that
the Class A-CS1 and Class PS-1 Certificates will be considered to be issued
with original issue discount in an amount equal to the excess of all
distributions of interest expected to be received thereon (assuming the
Weighted Average Net Mortgage Pass-Through Rate changes in accordance with
the Prepayment Assumption (as described below)), over their respective issue
prices (including accrued interest, if any). Any "negative" amounts of
original issue discount on the Coupon Strip Certificates attributable to
rapid prepayments with respect to the Mortgage Loans will not be deductible
currently, but may be offset against future positive accruals of original
issue discount, if any. Finally, a holder of a Coupon Strip Certificate may
be entitled to a loss deduction to the extent it becomes certain that such
holder will not recover a portion of its basis in such Certificate, assuming
no further prepayments. In the alternative, it is possible that rules similar
to the "noncontingent bond method" of the OID Regulations, as amended on June
12, 1996, may be promulgated with respect to the Certificates. See "Federal
Income Tax Consequences -- Federal Tax Consequences for REMIC Certificates --
Taxation of Regular Certificates -- Original Issue Discount" in the
Prospectus. Under the noncontingent bond method, if the interest payable for
any period is greater or less than the amount projected, the amount of income
included for that period would be either increased or decreased accordingly.
Any reduction in the income accrual for a period below zero (a "Negative
Adjustment") would be treated by a Certificateholder as ordinary loss to the
extent of prior income accruals and may be carried forward to offset future
interest accruals. At maturity, any remaining Negative Adjustment would be
treated as a loss on retirement of the Certificate. The legislative history
of relevant Code provisions indicates, however, that negative amount of
original issue discount on an instrument such as a REMIC regular interest may
not give rise to taxable losses in any accrual period prior to the
instrument's disposition or retirement. Thus, it is not clear whether any
losses resulting from a Negative Adjustment would be recognized currently or
be carried forward until disposition or retirement of the debt obligation.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the
Prepayment Assumption will be 0% CPR, with all ARD Loans prepaying on their
related Anticipated Repayment Dates. See "Prepayment and Yield Considerations
- -- Yield on the Class A-CS1 and Class PS-1 Certificates" herein. No
representation is made as to the rate, if any, at which the Mortgage Loans
will prepay.
Although not free from doubt, it is anticipated that any prepayment
premiums will be treated as ordinary income to the extent allocable to
beneficial owners of the Offered Certificates as such amounts become due to
such beneficial owners.
For a discussion of the tax consequences of the ownership of Offered
Certificates by any person who is not a citizen or resident of the United
States, a corporation or partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof
or is a foreign estate or trust, see "Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Certain
Foreign Investors -- Regular Certificates" in the Prospectus.
ERISA CONSIDERATIONS
The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or a
governmental plan (as defined in Section 3(32) of ERISA) that is subject to
any federal, state or local law ("Similar Law") which is, to a material
extent, similar to the foregoing provisions of ERISA or the Code (each, a
"Plan"), or a collective investment fund in which such Plans are invested, an
insurance company using the assets of separate accounts or general accounts
which include assets of Plans (or which are deemed pursuant to ERISA or any
Similar Law to include assets of Plans) or other Persons acting on behalf of
any such Plan or using the assets of any such Plan to acquire the
Subordinated Offered Certificates is restricted. See "Description of the
Offered Certificates -- Transfer Restrictions" herein. Accordingly, except as
specifically referenced herein, the following discussion does not purport to
discuss the considerations under ERISA, Section 4975 of the Code or Similar
Law with respect to the purchase, holding or disposition of the Subordinated
Offered Certificates and for purposes of the following discussion all
references to the Offered Certificates are deemed to exclude the Subordinated
Offered Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on Plans and certain persons who
perform services for Plans. For example, unless exempted, investment by a
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Plan in the Offered Certificates may constitute or give rise to a prohibited
transaction under ERISA or the Code. There are certain exemptions issued by
the United States Department of Labor (the "Department") that may be
applicable to an investment by a Plan in the Offered Certificates. The
Department has granted to the Underwriter an administrative exemption
(Prohibited Transaction Exemption 93-32, 58 Fed. Reg. 28,623 (May 14, 1993)),
referred to herein as the "Exemption," for certain mortgage-backed and asset
backed certificates underwritten in whole or in part by the Underwriter. The
Exemption might be applicable to the initial purchase, the holding, and the
subsequent resale by a Plan of certain certificates, such as the Offered
Certificates, underwritten by the Underwriter, representing interests in
pass-through trusts that consist of certain receivables, loans and other
obligations, provided that the conditions and requirements of the Exemption
are satisfied. The loans described in the Exemption include mortgage loans
such as the Mortgage Loans. However, it should be noted that in issuing the
Exemption, the Department may not have considered interests in pools of the
exact nature as some of the Offered Certificates.
Among the conditions that must be satisfied for the Exemption to apply to
the acquisition, holding and resale of the Offered Certificates are the
following:
(1) The acquisition of Offered Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party;
(2) The rights and interests evidenced by Offered Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by the
other Certificates of the Trust Fund;
(3) The Offered Certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three highest generic
rating categories from any of S&P, Moody's, Fitch or Duff & Phelps Credit
Rating Co. ("DCR");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Offered Certificates represents not more
than reasonable compensation for underwriting the Certificates. The sum of
all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Loans to the Trust Fund represents not more than the fair
market value of such Mortgage Loans. The sum of all payments made to and
retained by the Servicer and any other servicer represents not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The Trust Fund must also meet the following requirements:
(a) the corpus of the Trust Fund must consist solely of assets of the type
that have been included in other investment pools;
(b) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of the Offered Certificates
pursuant to the Exemption; and
(c) certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year prior
to any Plan's acquisition of the Offered Certificates pursuant to the
Exemption.
If all of the conditions of the Exemption are met, whether or not a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans
in the Mortgage Pool, the acquisition, holding and resale of the Offered
Certificates by Plans would be exempt from the prohibited transaction
provisions of ERISA and the Code.
Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust, provided that, among other requirements, (a)
in the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each class of certificates in which
Plans have invested is acquired by persons independent of the Restricted
Group (as defined below) and at least fifty percent of the aggregate interest
in the trust is acquired by persons independent of the Restricted Group (as
defined below); (b) such fiduciary (or its affiliate) is an obligor with
respect to five percent or less of the fair market value of the obligations
contained in the trust; (c) the Plan's investment in certificates of any
class does not exceed twenty-five percent
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of all of the certificates of that class outstanding at the time of the
acquisitions; and (d) immediately after the acquisition no more than
twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest
in one or more trusts containing assets sold or served by the same entity.
The Exemption does not apply to the purchasing or holding of Offered
Certificates by Plans sponsored by the Depositor, the Underwriter, the
Trustee, the Servicer, any obligor with respect to Mortgage Loans included in
the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any
affiliate of such parties (the "Restricted Group").
The Underwriter believes that the conditions to the applicability of the
Exemption will generally be met with respect to the Offered Certificates,
other than possibly those conditions which are dependent on facts unknown to
the Underwriter or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision
to purchase any such Certificates. However, before purchasing an Offered
Certificate, a fiduciary of a Plan should make its own determination as to
the availability of the exemptive relief provided by the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of any such exemption will be applicable to the Offered
Certificates. As noted above, the Department, in granting the Exemption may
not have considered interests in pools of the exact nature as some of the
Offered Certificates. A fiduciary of a Plan that is a governmental plan
should make its own determination as to the need for and the availability of
any exemptive relief under any Similar Law. See "Description of the Offered
Certificates -- Transfer Restrictions" herein.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "ERISA Considerations" in the
Prospectus.
BECAUSE THE SUBORDINATED OFFERED CERTIFICATES ARE SUBORDINATE TO ONE OR
MORE CLASSES OF CERTIFICATES, THE PURCHASE AND HOLDING OF THE SUBORDINATED
OFFERED CERTIFICATES BY OR ON BEHALF OF A PLAN MAY RESULT IN "PROHIBITED
TRANSACTIONS" WITHIN THE MEANING OF ERISA, SECTION 4975 OF THE CODE OR ANY
SIMILAR LAW. ACCORDINGLY, EACH PROSPECTIVE TRANSFEREE OF A SUBORDINATED
OFFERED CERTIFICATE THAT IS A DEFINITIVE CERTIFICATE WILL BE REQUIRED TO (A)
DELIVER TO THE DEPOSITOR, THE CERTIFICATE REGISTRAR AND THE TRUSTEE A
REPRESENTATION LETTER SUBSTANTIALLY IN THE FORM SET FORTH AS AN EXHIBIT TO
THE POOLING AND SERVICING AGREEMENT STATING THAT SUCH TRANSFEREE IS NOT A
PLAN OR A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN, OTHER
THAN AN INSURANCE COMPANY INVESTING THE ASSETS OF ITS GENERAL ACCOUNT UNDER
CIRCUMSTANCES WHEREBY THE PURCHASE AND SUBSEQUENT HOLDING OF THE OFFERED
CERTIFICATE WOULD BE EXEMPT FROM THE PROHIBITED TRANSACTION RESTRICTIONS OF
ERISA AND THE CODE UNDER SECTIONS I AND III OF PTE 95-60, OR (B) PROVIDE (I)
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE CERTIFICATE
REGISTRAR THAT THE PURCHASE OF THE SUBORDINATED OFFERED CERTIFICATE WILL NOT
RESULT IN THE ASSETS OF THE TRUST FUND BEING DEEMED TO BE "PLAN ASSETS" AND
SUBJECT TO THE PROHIBITED TRANSACTION RESTRICTIONS OF ERISA, THE CODE OR ANY
SIMILAR LAW AND WILL NOT SUBJECT THE DEPOSITOR, THE SERVICER, THE SPECIAL
SERVICER, THE TRUSTEE, OR THE FISCAL AGENT TO ANY OBLIGATION IN ADDITION TO
THOSE UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT AND (II) SUCH OTHER
OPINIONS OF COUNSEL, OFFICERS' CERTIFICATES AND AGREEMENTS AS THE CERTIFICATE
REGISTRAR MAY REQUIRE IN CONNECTION WITH SUCH TRANSFER. THE PURCHASER OR
TRANSFEREE OF ANY INTEREST IN A SUBORDINATED OFFERED CERTIFICATE THAT IS NOT
A DEFINITIVE CERTIFICATE SHALL BE DEEMED TO REPRESENT THAT IT IS NOT A PERSON
DESCRIBED IN CLAUSE (A) ABOVE. THE SUBORDINATED OFFERED CERTIFICATES WILL
CONTAIN A LEGEND DESCRIBING SUCH RESTRICTIONS ON TRANSFER AND THE POOLING AND
SERVICING AGREEMENT WILL PROVIDE THAT ANY ATTEMPTED OR PURPORTED TRANSFER IN
VIOLATION OF THESE TRANSFER RESTRICTIONS WILL BE NULL AND VOID AB INITIO.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans
generally or any particular Plan, or that this investment is appropriate for
Plans generally or any particular Plan.
S-153
<PAGE>
LEGAL INVESTMENT
Any Class of Certificates rated in the category of "AAA" or "AA" (or the
equivalent) by at least one Rating Agency will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended, for so long as the Mortgage Loans are secured by liens on
real estate.
Except as to the status of certain Classes of Offered Certificates as
"mortgage related securities," no representation is made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase the Offered Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Certificates. Accordingly, all
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining
whether and to what extent the Offered Certificates constitute a legal
investment or are subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Offered Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. The Underwriter has agreed to reimburse the Issuer
for up to $3,000,000 of its expenses incurred in connection with the Offering
out of the Underwriter's profits. Distribution of the Offered Certificates
will be made by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Offered Certificates
will be approximately 112.48% of the initial principal balance thereof as of
the Cut-off Date, plus accrued interest from the Cut-off Date, before
deducting expenses payable by the Depositor.
In connection with the purchase and sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. The Mortgage Loan Seller and the
Underwriter are wholly owned subsidiaries of Nomura Holding America Inc. The
Depositor is a wholly owned subsidiary of the Mortgage Loan Seller. The
Mortgage Loan Seller or an affiliate has acquired a preferred equity interest
in 9 of the borrowers or their affiliates, which are the borrowers (or
affiliates) with respect to Mortgage Loans representing approximately 9% of
the Initial Pool Balance. In addition, the Mortgage Loan Seller or an
affiliate has an equity interest in the borrower with respect to the Dayton
Mall, the San Malls, the Security Square Mall and the Westin Peachtree Hotel
and has an equity interest in the parent of the borrower with respect to the
Westin Peachtree Hotel Loan and an equity interest in the parent of the
property manager with respect to the Westin Peachtree Hotel Loan; such
Mortgage Loans represent 11% of the Initial Pool Balance. See "Risk Factors
and Other Special Considerations -- Other Financing," "--Equity Investments
by the Mortgage Loan Seller and/or its Affiliates" and "--Conflicts of
Interest" herein. In addition, the Mortgage Loan Seller or an affiliate may
have other financing arrangements with affiliates of the borrowers and may
enter into additional financing relationships in the future. Certain officers
and directors of the Depositor and its affiliates may own equity interests in
affiliates of the borrowers.
The Depositor also has been advised by the Underwriter that it currently
expects to make a market in the Offered Certificates, however, it has no
obligation to do so. Any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
This Prospectus Supplement dated October 24, 1997 and the Prospectus dated
October 24, 1997 may only be issued or passed on in the United Kingdom to a
person who is of a kind described in Article 9(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person
to whom this Prospectus Supplement and the Prospectus may otherwise lawfully
be issued or passed on.
The Trust Fund described in this Prospectus Supplement may only be
promoted (whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise) by an authorized person under Chapter
III of the Financial Services Act 1986 of the United Kingdom ("FSA") to a
person in the United Kingdom if that person is of a kind described in section
76(2) of the FSA or as permitted by the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991.
S-154
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for the
Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
RATING
It is a condition to the issuance of the Offered Certificates that (i) the
Class A-1A, Class A-1B, Class A-1C and Class A-1D Certificates be rated "AAA"
by each of Standard & Poor's Rating Services ("S&P") and Fitch Investors
Service, L.P. ("Fitch") and "Aaa" by Moody's Investors Service, Inc.
("Moody's", and together with S&P and Fitch, the "Rating Agencies"), (ii) the
Class A-CS1 and Class PS-1 Certificates be rated "AAA" by Fitch and "Aaa" by
Moody's, (iii) the Class A-1E Certificates be rated "AAA" by Fitch, "AA+" by
S&P and "Aa1" by Moody's, (iv) the Class A-2 Certificates be rated "AA" by
Fitch, "A+" by S&P and "A1" by Moody's, (v) the Class A-3 Certificates be
rated "A+" by Fitch and "A-" by S&P, (vi) the Class A-4 Certificates be rated
"A" by Fitch and "BBB+" by S&P, (vii) the Class A-5 Certificates be rated
"BBB+" by Fitch and "BBB" by S&P, (viii) the Class A-6 Certificates be rated
"BBB-" by each of Fitch and S&P, (ix) the Class A-7 Certificates be rated
"BBB-" by Fitch and (x) the Class A-8Z Certificates be rated "BBB-" by S&P.
For a description of the limitations of the ratings of the Offered
Certificates, see "Rating" herein. The Rated Final Distribution Date of each
Class of Offered Certificates is February 14, 2043.
The Rating Agencies' ratings on mortgage pass-through certificates address
the likelihood of the timely payment of interest and the ultimate repayment
of principal by the Rated Final Distribution Date. The Rating Agencies'
ratings take into consideration the credit quality of the Mortgage Pool,
structural and legal aspects associated with the Certificates, and the extent
to which the payment stream in the Mortgage Pool is adequate to make payments
required under the Certificates. Ratings on mortgage pass-through
certificates do not, however, represent an assessment of the likelihood,
timing or frequency of principal prepayments (both voluntary and involuntary)
by mortgagors, or the degree to which such prepayments might differ from
those originally anticipated. The security ratings do not address the
possibility that Certificateholders might suffer a lower than anticipated
yield. In addition, ratings on mortgage pass-through certificates do not
address the likelihood of receipt of Prepayment Premiums, Net Default
Interest or Excess Interest or the timing or frequency of the receipt
thereof. In general, the ratings thus address credit risk and not prepayment
risk. Also, a security rating does not represent any assessment of the yield
to maturity that investors may experience or the possibility that the holders
of the Class A-CS1 or Class PS-1 Certificates might not fully recover their
initial investment in the event of delinquencies or rapid prepayments of the
Mortgage Loans (including both voluntary and involuntary prepayments). As
described herein, the amounts payable with respect to the Class A-CS1 and
Class PS-1 Certificates consist only of interest. If the entire pool were to
prepay in the initial month, with the result that the Class A-CS1 and PS-1
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such holders
will nevertheless have been paid, and such result is consistent with the
rating received on the Class A-CS1 and Class PS-1 Certificates. Accordingly,
the ratings of the Class A-CS1 and Class PS-1 Certificates should be
evaluated independently from similar ratings on other types of securities.
The ratings do not address the fact that the Pass-Through Rates of the
Offered Certificates to the extent that they are based on the Weighted
Average Net Mortgage Pass-Through Rate may be affected by changes thereon.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Offered Certificates by a
rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by the Rating Agencies pursuant to the
Depositor's request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
S-155
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
A
AA .......................................................... S-129
Aaa ......................................................... S-129
ACMs ........................................................ S-47
ADA ......................................................... S-50
Advance Amount .............................................. S-68
Advance Rate ................................................ S-127
Advances .................................................... S-127
Air Rights .................................................. S-70
Air Rights Lease ............................................ S-71
Air Rights Tenant ........................................... S-71
AMRESCO ..................................................... S-145
AmSouth Borrower ............................................ S-67
AmSouth Loan ................................................ S-67
Am-South Property ........................................... S-67
ASLP ........................................................ S-145
Available Funds ............................................. S-89
B
Balloon Loans ......................................... S-20, S-72
Balloon Payment ....................................... S-20, S-73
Balloon Payments ............................................ S-48
Bloomfield Purchase Agreement ............................... S-125
Blue Cross Lease ............................................ S-64
C
Cablevision Lease ........................................... S-59
Cash Collateral Accounts .................................... S-128
CEDEL .............................................. 1, S-18, S-54
CEDEL Participants .......................................... S-106
CERCLA ...................................................... S-47
Certificate Balance ......................................... S-2
Certificate Owners .......................................... S-107
Certificate Registrar ....................................... S-104
Certificates ............................................. 1, S-15
Clarksburg .................................................. S-70
Class ....................................................... S-2
Code ................................................. S-31, S-108
Collateral Account .......................................... S-138
Collateral Substitution Deposit ............................. S-74
Collection Account .......................................... S-129
Columbia Sussex ............................................. S-69
Comsat Borrower ............................................. S-69
Comsat Facilities Lease ..................................... S-70
Comsat Junior Loan .......................................... S-69
Comsat Leases ............................................... S-70
Comsat Loans ................................................ S-69
Comsat Master Lease ......................................... S-70
Comsat Property ............................................. S-69
Comsat Senior Loan .......................................... S-69
Cooperative ................................................. S-107
Credit Lease .......................................... S-19, S-58
Credit Lease Assignments .................................... S-19
Credit Lease Default ........................................ S-59
Credit Lease Loan ............................... S-19, S-39, S-58
S-156
<PAGE>
Credit Lease Loans ................................. S-19, S-39, S-58
Credit Lease Properties ...................................... S-19
Credit Leases ................................................ S-39
Crossover Date ............................................... S-28
D
Dayton Mall Borrower ......................................... S-67
Dayton Mall Loan ............................................. S-67
Dayton Mall Property ......................................... S-67
Defeasance Lock-out Period ................................... S-21
Defeasance Option ........................................ S-21, S-74
Definitive Certificate ....................................... S-104
Department ................................................... S-152
Deposit ...................................................... S-138
Depositaries ................................................. S-105
Depositor .................................................... 1
Directing Holders ............................................ S-138
Distribution Account ......................................... S-129
Distribution Date ......................................... S-2, S-89
DSCR ...................................................... S-9, S-10
DTC .................................................... 1, S-18, C-1
E
Eligible Bank ................................................. S-129
Enhancement Policy ............................................ S-59
EPA ........................................................... S-48
ERISA ............................................ S-31, S-108, S-151
Euroclear ............................................ 1, S-18, S-54
Euroclear Operator ............................................ S-107
Euroclear Participants ........................................ S-106
Event of Default .............................................. S-134
Excess Interest ............................................... S-72
Exemption ..................................................... S-31
F
Fair Market Value ............................................. S-138
Fath Borrower ................................................. S-64
Fath Pool Loan ................................................ S-64
Fath Pool Mortgages ........................................... S-64
Fath Pool Properties .......................................... S-64
Fath Pool Property ............................................ S-64
Final Recovery Determination .................................. S-147
Fiscal Agent .............................................. S-2, S-16
Fitch ............................................. S-2, S-32, S-155
Fixed Voting Rights Percentage ................................. S-135
Form 8-K ....................................................... S-16
FSA ............................................................ S-154
G
GCI ............................................................ S-69
Global Securities .............................................. C-1
GPLP ........................................................... S-67
Guarantor .......................................... S-19, S-39, S-58
Guarantors ......................................... S-19, S-39, S-58
S-157
<PAGE>
H
Hartz RB II ................................................ S-63
Hartz Urban ................................................ S-63
Healthcare Loan ............................................ S-55
Healthcare Property ........................................ S-55
Holders .................................................... S-107
Hotel Loan ................................................. S-55
Hotel Property ............................................. S-55
I
Indirect Participants ...................................... S-105
Industrial Loan ............................................ S-55
Industrial Property ........................................ S-55
Initial Pool Balance ....................................... S-55
Instructions ............................................... S-138
Interest Reserve Account ................................... S-129
L
Lease Enhancement Policies ................................. S-19
Lease Enhancement Policy ................................... S-40
Level A .................................................... S-121
Lock Box Accounts .......................................... S-128
Lock-out Period ............................................ S-20
Lower Rate ................................................. S-137
Lower-Tier Interests ....................................... S-27
Lower-Tier REMIC ........................................... S-27
M
Method of Distribution ..................................... S-3
Mezzanine Debt ............................................. S-43
Mobile Home Loan ........................................... S-55
Mobile Home Property ....................................... S-55
Monthly Debt Service Payment ............................... S-72
Monthly Mortgage Loan Payments ............................. S-44
Monthly Operating Expenses ................................. S-44
Monthly Payments ................................... S-19, S-72
Monthly Rental Payment ..................................... S-40
Monthly Rental Payments ........................... S-19, S-58, S-59
Mortgage ................................................... S-55
Mortgage Loan Purchase and Sale Agreement .................. S-56
Mortgage Loan Seller .............................. 1, S-15, S-16
Mortgage Loans ........................................... 1, S-55
Mortgage Loans Secured by More Than One Mortgaged Property ... S-43
Mortgage Pool ................................................ 1
Mortgage Rate ................................................ S-20
Mortgaged Properties ......................................... 1
Mortgaged Property ........................................... S-19
Multifamily Loan ............................................. S-55
Multifamily Property ......................................... S-55
N
Negative Adjustment .......................................... S-151
Note ......................................................... S-55
Notional Balance ............................................. S-2
O
Offered Certificates ................................... S-2, S-88
Office Loan .................................................. S-55
Office Property .............................................. S-55
Operating License ............................................ S-40
S-158
<PAGE>
Originators .................................................... S-16
P
Participants ................................................... S-104
Permitted Investments .......................................... S-129
P&I Advance .............................................. S-8, S-126
P&I Advances ................................................... S-29
Plan ..................................................... S-108, S-151
Plans .......................................................... S-31
Pool Loan ................................................ S-8, S-79
Pool Loans ..................................................... S-75
Pooling and Servicing Agreement .......................... S-15, S-119
Preferred Interest Holder ...................................... S-44
Prepayment Premium ....................................... S-21, S-73
Primary Term ................................................... S-59
Principal Distribution Amount .................................. S-28
Private Certificates ..................................... S-2, S-88
Property Advances .............................................. S-127
PTE ............................................................ S-32
R
Rating Agencies .................................... S-2, S-32, S-155
Record Date .................................................... S-89
Regular Certificates ................................... S-30, S-150
Release Date ................................................... S-74
REMIC .......................................... S-2, S-6, S-27, S-30
REMIC Regulations .............................................. S-150
REO Account .................................................... S-88
REO Property ................................................... S-88
Repurchase Price ............................................... S-125
Reserve Accounts ............................................... S-56
Residual Certificates .......................................... S-30
Restricted Group ............................................... S-153
Retail Loan .................................................... S-55
Retail Property ................................................ S-55
Revised Rate ................................................... S-72
RLL ............................................................ S-41
Rules .......................................................... S-106
S
Saul Centers Borrower .......................................... S-61
Saul Centers Mortgages ......................................... S-60
Saul Centers Retail Pool Loan .................................. S-60
SEL ............................................................ S-3
Servicer ................................................. S-2, S-15
Servicer Remittance Date ....................................... S-126
Servicing Compensation ......................................... S-145
Servicing Fee .................................................. S-145
Servicing Fee Rate ............................................. S-145
Servicing Standard ............................................. S-126
Similar Law .................................................... S-151
S&P ............................................... S-2, S-32, S-155
Special Servicer .................................. S-2, S-15, S-145
Special Servicing Fee .......................................... S-146
Subordinate Class Advance Amount ............................... S-127
Swiss Bank Tower ............................................... S-71
Swiss Bank Tower ARD ........................................... S-71
Swiss Bank Tower Borrower ...................................... S-71
S-159
<PAGE>
Swiss Bank Tower Loan ...................................... S-71
Swiss Bank Tower LOC ....................................... S-71
T
Tenant ........................................ S-19, S-39, S-58
Tenants ....................................... S-19, S-39, S-58
Terms and Conditions ....................................... S-107
Three Penn Plaza Borrower .................................. S-63
Three Penn Plaza Loan ...................................... S-63
Three Penn Plaza Mortgage .................................. S-63
Three Penn Plaza Property .................................. S-63
Treasury Regulations ....................................... S-150
Trust Fund ................................................. 1
Trust REMICs .......................................... S-2, S-150
Trustee ............................................... S-2, S-16
Trustee Fee ................................................ S-143
U
Underwriter ................................................ 1, S-15
Updated Appraisal .......................................... S-136
Upper-Tier REMIC ........................................... S-30
W
Westin ..................................................... S-45
Westin Casuarina Resort .................................... S-68
Westin Casuarina Resort Borrower ........................... S-68
Westin Casuarina Resort Loan ............................... S-68
Westin Casuarina Resort Loan Documents ..................... S-68
Westin Casuarina Resort Loan Participation ................. S-68
Westin Peachtree ........................................... S-66
Westin Peachtree Borrower .................................. S-66
Westin Peachtree Loan ...................................... S-66
Westin Resorts ............................................. S-45
Withheld Amounts ........................................... S-129
Z
Zoning Laws ................................................ S-50
</TABLE>
S-160
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX A: CHARACTERISTICS OF THE MORTGAGE LOANS IN POOL
<TABLE>
<CAPTION>
CUT-OFF DATE
LOAN LOAN PRINCIPAL MONTHLY
# LOAN NAME BORROWER LEGAL NAME TYPE BALANCE PAYMENT
- --------- ------------------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
1 Saul Centers Retail-Senior (1) Saul Subsidiary I L.P. hyper $ 121,000,000 $942,436.78
1 Saul Centers Retail-Junior Saul Subsidiary I L.P. hyper $ 26,000,000 $160,187.09
2 3 Penn Plaza Hartz Entp. II Urban Renewal Assoc., L.P hyper $ 110,000,000 $890,079.00
3 Fath Fath Properties, L.P. hyper $ 86,043,583 $631,357.33
4 Westin Peachtree Hotel The Peachtree Hotel Company hyper $ 74,745,084 $606,955.84
5 Dayton Mall Dayton Mall Venture, LLC hyper $ 61,410,564 $462,893.95
6 Am South Marray-Ash Plaza, Inc. hyper $ 57,170,900 $439,861.22
7 The Century Building Crystal Partners, LP hyper $ 50,775,000 $386,105.90
8 Healthcare @ Hyde Park HPCH, LLC hyper $ 49,931,286 $471,630.19
9 Westin - G.C. Galleon Beach Resort LTD. fully $ 49,857,134 $441,855.35
10 Comsat - Senior Note LCOR Clarksburg, LLC fully $ 41,922,013 $448,750.00
10 Comsat - Junior Note LCOR Clarksburg, LLC bullet $ 5,740,919 $ -
11 Swissbank Tower SB Tower Opoerating Company, Inc. hyper $ 45,000,000 $302,273.20
12 McBride Portfolio MBP/BRE, L.L.C. hyper $ 24,615,000 $185,278.23
12 McBride Portfolio FLIP/BRE, Inc. hyper $ 12,616,000 $ 94,961.22
12 McBride Portfolio OIP/BRE, L.L.C. hyper $ 1,467,000 $ 11,042.18
12 McBride Portfolio NJA/BRE, L.L.C. hyper $ 6,302,000 $ 47,435.44
13 F G Hotels Assorted hyper $ 39,250,000 $323,064.80
14 Security Square Mall MDC Investment Property LLC hyper $ 36,500,000 $298,083.71
15 San Malls San Mall, LLC hyper $ 35,998,709 $276,798.93
16 JRK Crossed Multis JRK - Orlando Partners, LP hyper $ 35,908,813 $270,506.59
17 Hermalin Portfolio MG-MLP Texas Limited Partnership hyper $ 24,500,000 $177,897.15
18 Pavillion Apartments Pavilion Apartments, L.L.C. hyper $ 23,832,128 $186,657.48
19 Southern Meadows Gotham Real Estate L.P. hyper $ 19,770,886 $148,528.13
20 Brittany Place Brae Brooke Village Associates hyper $ 18,560,433 $145,537.26
21 Hybridon Office Charles River Building L.P. hyper $ 18,000,000 $146,453.94
22 Amherst Amherst Portfolio Limited Partnership hyper $ 17,979,261 $130,862.49
23 Sheraton Ocean City L.P.B Hotel Corp. hyper $ 16,473,961 $137,114.06
24 The Borgata TWC Borgata Holding LLC hyper $ 16,300,000 $114,754.28
25 Value City - 2560 Valueway MRSLV Columbus - Valueway L.L.C fully $ 16,291,287 $130,825.67
26 PHP Properties GL/PHP, LLC hyper $ 15,964,536 $155,197.14
27 Riverview Center Riverview Center Associates LP hyper $ 14,573,490 $122,400.01
28 The Foundry Building Foundry Parcel Fifteen Associates, LLC hyper $ 14,400,000 $106,566.96
29 Brainard Medical Building Brainard Medical Campus, Ltd. hyper $ 13,435,307 $108,912.16
30 Hotel Wales Carnegie Hill Hotel, Corp. hyper $ 13,116,324 $105,365.63
31 AVCO Center Corp. Avco Center Corporation hyper $ 12,551,790 $102,570.28
32 Tampa Plaza Shopping Plaza Elsinore Developers hyper $ 11,909,596 $102,394.25
33 Charter One Pool Servus Hotel Group, Inc. hyper $ 11,650,220 $101,787.58
34 JRK Oceana Hotel CH Partners, LP hyper $ 11,456,607 $ 96,428.84
35 Cablevision Net Lease CVNC Trust , Limited fully $ 11,437,915 $ 82,710.20
36 Circle Marina Shopping Center KJM Long Beach Investments L.P. hyper $ 11,241,394 $ 96,090.67
37 Super Kmart - San Antonio Buffalo Investors, LLC fully $ 11,126,629 $ 91,056.21
38 Roseburg Valley Mall RVM Associates hyper $ 10,880,000 $ 80,137.18
39 Market Square S.C. Brandywine Realty Development, Inc. hyper $ 10,243,108 $ 75,139.43
40 Mediterranean Apartments The Countywide Mediterranean Apartments, L.P. hyper $ 10,052,010 $ 78,183.18
41 30 Oak Hollow Rome, L.L.C. hyper $ 9,968,239 $ 72,845.63
42 Builders Square - Daytona Square I-1, LLC fully $ 9,630,924 $ 79,964.75
43 Builders Square - NJ Williamstown Trust fully $ 9,410,131 $ 81,261.09
44 Atlantic Beach Sheraton Atlantic Beach Hotel Limited Partnership hyper $ 9,350,000 $ 81,141.47
45 Argosy Apartments Argosy, Ltd. hyper $ 8,800,000 $ 65,493.84
46 Walnut Hills I & II W/M Investors I, L.P. hyper $ 8,736,155 $ 64,143.41
47 Builders Square - El Paso Paso Builder Company, L.C. fully $ 8,638,513 $ 74,115.00
48 Value City - Bay Road Crossing MRSLV Saginaw L.L.C. fully $ 8,545,353 $ 68,622.67
49 Steeplechase Apartments Infinity Steeplechase L.L.C. hyper $ 8,447,000 $ 64,233.12
50 Builders Square - San Antonio San Builder Company L.C. fully $ 8,393,222 $ 72,010.50
51 First National Bank Building Mobile Tower L.P., an IL LP hyper $ 8,334,034 $ 68,889.29
52 MIT - Jackson Building Forest City Cambridge, Inc. hyper $ 7,800,000 $ 59,840.42
53 Builders Square - Midland Mid Builder Company L.C. fully $ 7,654,927 $ 65,239.50
54 Cumberland Office Building Eleven Inkster, L.L.C hyper $ 7,600,000 $ 55,026.17
55 Plaza de Ville I&II W/M Plaza I, L.P. hyper $ 7,176,723 $ 50,463.71
56 Springhouse Fayette-Oxford Associates L.P. hyper $ 7,151,444 $ 52,475.80
57 The Plaza Shopping Center Lynchburg Realty LLC hyper $ 7,142,017 $ 56,275.49
58 Cressona Mall Cressona Associates, L.P. hyper $ 6,533,067 $ 55,503.68
59 Gateway Center BCW Associates, Ltd. hyper $ 6,500,000 $ 52,998.43
60 Port Royal Plaza Sandhill Venture Group hyper $ 6,487,667 $ 50,038.95
61 Wells Fargo Building Austiaj Limited Partnership hyper $ 6,484,453 $ 52,822.47
62 Autumn Woods Hoover Properties, L.L.P hyper $ 6,225,000 $ 45,848.81
63 Keegan and Willow Houston Triangle I, LLC hyper $ 5,981,710 $ 45,795.06
64 Lancers Center Cobblestone, LLC hyper $ 5,935,244 $ 44,784.84
65 Circuit City - Tennessee Bond-Circuit VIII Delaware Business Trust fully $ 5,594,550 $ 48,961.67
66 Westchester Key Apartments High Point 85 Assoc. L. P. hyper $ 5,500,000 $ 38,796.32
67 Value City - Carol Stream MRSLV Carol Stream L.L.C. fully $ 5,460,858 $ 43,852.92
68 Wind Drift Wind Drift-Oxford Associates, L.P. hyper $ 5,300,000 $ 37,094.67
69 Huntington Atrium Huntington Atrium Development, Inc. hyper $ 5,175,655 $ 43,673.83
70 Circuit City - Michigan Bond-Circuit X Delaware Business Trust fully $ 4,919,346 $ 43,052.50
71 Western Palms Western Palms Investors, L.P. hyper $ 4,794,458 $ 38,022.28
72 5 & 7 East 17th Street 5-7 East 17th, LLC hyper $ 4,686,855 $ 38,429.83
73 Quioccasin Station Shopping Ctr. QRS Limited Partnership hyper $ 4,591,568 $ 35,946.53
74 Avanti Business Center Avanti Business Center, LLC hyper $ 4,500,000 $ 35,992.94
75 Park East Apartments PEA, LLP hyper $ 4,350,000 $ 31,073.80
76 Main Street Galleria Main Street Galleria, LLC hyper $ 4,347,376 $ 33,509.41
77 West Ridge Green MHP West Ridge Green LTD. hyper $ 4,243,035 $ 30,800.70
78 Triangle East Triangle East Shopping Centre hyper $ 4,240,000 $ 31,022.99
79 Circuit City - California Bond-Circuit XI Delaware Business Trust fully $ 4,244,142 $ 37,143.33
80 Circuit City - Pennsylvania Bond-Circuit IX Delaware Business Trust fully $ 4,244,142 $ 37,143.33
81 GSS Investments - Short GSS Investments LP fully $ 928,703 $ 15,846.54
81 GSS Investments - Long GSS Investments LP fully $ 3,305,405 $ 33,699.58
82 Amberson Plaza Amberson Plaza Associates hyper $ 4,192,186 $ 32,611.28
83 Mayhew Tech Center R. B. Tech Center hyper $ 4,190,306 $ 34,587.12
84 Canterbury Townhouses Canterbury Townhouses, L.C. hyper $ 4,122,500 $ 29,962.55
85 Longwood Village Longwood Village Shopping Center hyper $ 4,080,905 $ 29,858.93
86 Value City - Gurnee MRSLV Gurnee Mills L.L.C fully $ 4,055,107 $ 32,564.17
87 Westland Square Westland Square Associates, LTD. hyper $ 4,039,769 $ 32,230.49
88 Alderman Plaza Alderman Plaza Associates hyper $ 3,997,114 $ 28,353.04
89 K-Mart Plaza Shopping Ctr. Annandale Associates, Ltd. hyper $ 3,968,090 $ 31,767.05
90 Coral Hills Apartments Houston Beverly Hollow Associates, LTD. hyper $ 3,947,184 $ 28,161.93
91 Hungarybrook Shopping Ctr Hungarybrook Limited Company hyper $ 3,892,701 $ 30,204.25
92 Cloverleaf Plaza Cloverleaf Plaza LLC hyper $ 3,865,000 $ 29,345.87
93 St. Gregory Office Building St. Gregory Properties Venture, LLC hyper $ 3,818,853 $ 31,153.14
94 Value City - Indianapolis MRSLV Indianapolis L.L.C. fully $ 3,746,136 $ 30,083.00
95 Pine Grove MHP Pine Grove Investors II L.P. hyper $ 3,743,854 $ 27,177.09
96 Burlington Convalescent Burlington Convalescent Investments LP fully $ 3,495,179 $ 35,634.38
97 Crystal Park Plaza CPARK, INC. hyper $ 3,494,752 $ 29,878.23
98 Clematis Corridor Portfolio 230 Clematis Street L.P. hyper $ 3,488,149 $ 30,666.75
99 The Bellaire Retirement Assoc. LLC balloon $ 3,477,631 $ 31,024.81
100 The Diamondhead Building Diamondhead Assoc., L.P. hyper $ 3,469,446 $ 28,608.76
101 14 Walkup Drive Westborough L.P. hyper $ 3,452,583 $ 28,610.60
102 North Main Market Summerville Development Company hyper $ 3,446,540 $ 27,293.81
103 One Enterprise Road DIV Enterprise, LLC hyper $ 3,390,950 $ 28,622.12
104 101 Lucas Valley Road One Lucas Valley Associates, LLC hyper $ 3,249,307 $ 27,797.13
105 Banzhoff Mobile Home Park Sandy Hill Estates Partnership, Banzhoff hyper $ 3,240,000 $ 26,443.64
106 The Village at Townridge Zeisler Morgan Industries, LLC hyper $ 3,226,987 $ 26,511.36
107 San Jacinto Plaza San Jacinto Choice Group, Ltd. hyper $ 3,150,000 $ 24,124.71
108 160 State Street 160 State Street Associates hyper $ 3,119,555 $ 25,520.78
109 Creekside Business Mall Office Bldg Creekside Business Mall, LLC hyper $ 3,073,251 $ 25,465.39
110 Blaisdell Apartments Blaisell Avenue Corp. hyper $ 2,992,157 $ 23,553.35
111 Cherry Hill MHP Santiago Estates Cherry Hill LP hyper $ 2,978,037 $ 22,053.44
112 Sunset Estates MHP Santiago Sunset Estates hyper $ 2,898,089 $ 21,461.40
113 Avalon Center Avalon Center Investment Company hyper $ 2,825,257 $ 22,959.82
114 The Prestridge City Line Joint Venture LLP hyper $ 2,797,127 $ 21,889.82
115 Harbourtown MHP Harbourtown LTD. hyper $ 2,745,493 $ 19,929.87
116 Value City - Euclid Value City - Euclid fully $ 2,706,277 $ 21,732.50
117 Westlodge Apartments W.L. Apartments hyper $ 2,700,000 $ 18,915.78
118 K-Mart Store KMT Stores Limited Partnership fully $ 2,592,472 $ 26,270.03
119 Milford Plaza GP-Milford Realty Trust hyper $ 2,591,331 $ 21,132.02
120 Best Western - Old Hickory Inn Tennessee Hospitality L.P. hyper $ 2,541,934 $ 23,899.44
121 Southwind Apartments (2) Southwind Apartments, LLC hyper $ 2,500,000 $ 18,992.58
122 Queen Anne Hotel Gokel Corporation hyper $ 2,448,157 $ 22,280.44
123 College Plaza College Plaza Shopping Centre hyper $ 2,439,083 $ 17,846.14
124 Steward Towers Steward Towers Limited Partnership fully $ 2,432,733 $ 21,729.14
125 Pinetree Mobile Home Park Pine Tree Estates hyper $ 2,392,170 $ 19,747.76
126 Value City - Alliance MRSLV Alliance L.L.C fully $ 2,389,429 $ 19,188.08
127 Lakeview Apartments Willow Creek Apartments, L.L.C. hyper $ 2,198,403 $ 15,548.77
128 Broadway Shopping Center Wichita Associates Limited Partnership hyper $ 2,196,838 $ 17,028.25
129 Westpointe Plaza Shopping Center Westpointe Plaza, LLC hyper $ 2,175,000 $ 17,881.62
130 Pointe O' Woods Apartments Eenhoorn-PointO'Woods, L.P. hyper $ 2,110,307 $ 16,548.16
131 Comfort Inn - Olive Branch People Business, Inc. hyper $ 2,000,000 $ 16,619.89
132 Days Inn - Monterey Mila Enterprises, Inc. hyper $ 1,898,570 $ 17,278.71
133 Bridgeport Suite Apartments Bridgeport Suites Associates, L.P. hyper $ 1,846,652 $ 14,536.91
134 LazyLand Mobile Home Lazyland Associates, LTD. hyper $ 1,837,667 $ 14,409.63
135 Knights Inn - Atlanta Durga Corp. hyper $ 1,797,291 $ 16,148.79
136 Best Western Needles Pashard Needles, Inc. hyper $ 1,787,262 $ 17,525.71
137 Northland Square Apartments Northland Square Investments, Inc. hyper $ 1,652,937 $ 13,312.57
138 Knights Inn - Bridgeville Moonlight Hospitality, Inc. hyper $ 1,599,680 $ 14,923.30
139 Benstein Business Center Benstein Associates LP hyper $ 1,598,387 $ 12,625.90
140 Carlton Place Tantilla Villas LLC hyper $ 1,598,377 $ 12,583.14
141 Walgreens Rochester-Wal Company, L.L.C. fully $ 1,550,000 $ 12,792.30
142 Emerson Mills Apts. Clipper Capital LLC hyper $ 1,479,009 $ 11,758.20
143 Mission Terrace Office Park Mission Terrace, L.P. hyper $ 1,474,170 $ 12,066.83
144 Forest Park MHP Forest Park Partners, LLC balloon $ 1,278,145 $ 10,988.20
145 Value City - 3140 Westerville MRSLV Columbus - 3140 L.L.C fully $ 1,184,944 $ 9,515.58
146 Holland MHP Holland Mobile Home Park, Inc. balloon $ 1,138,881 $ 9,118.21
147 Sherwood Commons Sherwood Commons LLC hyper $ 1,118,776 $ 8,467.04
148 Mission Pointe Far East Enterprises, Inc. hyper $ 1,113,120 $ 9,023.41
149 Oakland Corners Oakland Associates Ltd. hyper $ 1,107,144 $ 9,595.59
150 Crescent Manor Apartments Crescent Manor Apartments, L.L.C. hyper $ 1,008,760 $ 8,185.51
151 University Village Apartments II University Village Assoc. L.P. hyper $ 925,919 $ 7,593.58
152 Seminole Mobile Home Park Seminole Mobile Home Park hyper $ 897,335 $ 7,688.81
153 Kingsbrooke Townhomes Kingsmen Realty, L.L.C. hyper $ 893,607 $ 7,132.19
154 Los Arcos Apartments Ten To the Sixth, Inc. hyper $ 778,008 $ 6,292.90
155 Wagon Wheel Mobile Home Park Wagon Wheel Community L.L.C balloon $ 754,779 $ 6,225.68
--------------
$1,754,015,636
(1) The Saul Centers Retail Loan - Senior Note provides for additional amortization such that it will be paid in full in 300 months.
(2) The Southwind Apartments Loan provides for additonal amortization such that it will be paid in full in 240 months.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALLOON/
ANTICIPATED BALLOON/
REPAYMENT ANTICIPATED ANTICIPATED CUT-OFF ANTICIPATED
DATE REPAYMENT MATURITY MONTHS REMAINING REMAINING DATE REPAYMENT
BALANCE DATE DATE RATE AMORTIZATION SEASONING TERM LOCKOUT DSCR LTV DATE LTV
------- ---- ---- ---- ------------ --------- ---- ------- ---- --- --------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$96,300,160 10/11/12 10/11/27 8.640% * 360 0 180 173 1.52 60% 48%
$ - * not level 0 163 162 1.20 73% 0%
$32,998,447 3/11/12 3/11/22 7.704% * not level 0 173 172 1.28 79% 24%
$76,939,940 10/11/07 10/11/27 8.000% * 360 0 120 119 1.29 77% 69%
$51,410,410 6/11/12 6/11/22 8.560% * 300 4 176 175 1.64 54% 37%
$49,744,720 7/11/12 7/11/27 8.270% * 360 3 177 176 1.31 66% 53%
$51,741,613 9/11/07 9/11/27 8.500% * 360 1 119 117 1.31 68% 61%
$45,807,575 10/11/07 10/11/27 8.380% * 360 0 120 113 1.26 73% 65%
$24,374,192 9/11/12 9/11/17 9.670% * 240 1 179 178 2.12 73% 36%
$ 2,681,181 8/11/17 8.750% * 240 2 238 237 1.83 58% 3%
$ (0) 9/11/07 7.515% not level 1 119 118 1.00 55% 0%
$15,587,763 9/11/07 10.115% not level 1 119 118 1.00 62% 20%
$44,891,099 4/11/09 2/11/41 7.280% * 386 0 138 134 1.76 46% 46%
$20,115,526 10/11/07 10/11/22 7.710% * 300 0 120 116 1.36 68% 56%
$10,309,869 10/11/07 10/11/22 7.710% * 300 0 120 116 1.36 68% 56%
$ 1,198,841 10/11/07 10/11/22 7.710% * 300 0 120 116 1.36 68% 56%
$ 5,150,033 10/11/07 10/11/22 7.710% * 300 0 120 116 1.36 68% 56%
$31,003,566 10/11/09 10/11/22 8.764% * 300 0 144 140 1.50 73% 58%
$30,591,594 10/11/12 10/11/27 9.167% * 360 0 180 176 1.32 78% 65%
$32,565,652 10/11/07 10/11/27 8.500% * 360 0 120 116 1.20 85% 77%
$32,391,896 5/11/07 5/11/27 8.252% * 360 5 115 114 1.35 72% 65%
$19,492,817 10/11/12 10/11/27 7.890% * 360 0 180 176 1.25 81% 65%
$20,990,149 4/11/09 4/11/27 8.670% * 360 6 138 137 1.29 79% 69%
$17,807,282 7/11/07 7/11/27 8.234% * 360 3 117 116 1.29 76% 68%
$16,891,794 7/11/07 7/11/27 8.700% * 360 3 117 110 1.45 77% 70%
$16,507,684 10/11/07 10/11/27 9.125% * 360 0 120 119 1.37 64% 59%
$16,058,918 8/11/07 8/11/27 7.903% * 360 2 118 114 1.21 74% 66%
$13,087,148 8/11/09 8/11/22 8.880% * 300 2 142 141 1.43 68% 54%
$14,423,466 10/11/07 10/11/27 7.570% * 360 0 120 116 1.54 65% 58%
$ - 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 6,933,674 12/11/09 3/11/14 8.980% * 198 1 146 139 1.23 72% 31%
$13,241,431 10/11/04 10/11/22 9.010% * 300 0 84 83 1.46 51% 46%
$12,850,663 1/11/08 10/11/27 8.090% * 360 0 123 116 1.27 65% 58%
$11,268,063 8/11/07 8/11/22 8.560% * 300 2 118 111 1.41 71% 59%
$10,959,708 9/11/07 9/11/22 8.460% * 300 1 119 118 1.49 50% 42%
$11,036,722 4/11/07 4/11/24 8.870% * 324 6 114 110 1.28 54% 48%
$10,462,091 7/11/08 7/11/26 9.670% 360 15 129 125 1.34 63% 55%
$10,000,263 10/11/07 10/11/22 9.500% * 300 0 120 119 1.62 53% 46%
$ 9,744,680 5/11/07 5/11/22 8.990% * 300 5 115 114 1.49 64% 54%
$ (0) 10/11/17 8.616% not level 1 240 239 1.00 104% 0%
$ 9,602,080 6/11/07 6/11/22 9.190% * 300 4 116 109 1.29 75% 64%
$ - 5/11/19 7.985% * 261 2 259 255 1.00 96% 0%
$ 9,725,405 11/11/07 10/11/27 8.040% * 360 0 121 114 1.33 78% 69%
$ 9,121,369 12/11/07 9/11/27 7.990% * 360 1 122 115 1.45 72% 64%
$ 9,137,626 5/11/07 5/11/27 8.600% * 360 5 115 111 1.21 80% 73%
$ 8,572,056 9/11/09 9/11/27 7.950% * 360 1 143 142 1.32 74% 63%
$ 0 8/11/19 8.221% * 263 1 262 258 1.00 98% 0%
$ 1 10/11/19 8.818% not level 3 264 260 1.00 96% 0%
$ 4,094,952 1/11/13 10/11/17 8.500% * 240 0 183 176 1.43 59% 26%
$ 7,864,654 1/11/08 10/11/27 8.150% * 360 0 123 116 1.19 79% 70%
$ 7,791,309 10/11/07 7/11/27 7.990% * 360 3 120 113 1.31 75% 67%
$ - 9/11/19 8.783% 266 3 263 259 1.00 96% 0%
$ - 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 7,620,612 10/11/07 10/11/27 8.380% * 360 0 120 113 1.38 81% 73%
$ 0 9/11/19 8.783% 266 3 263 259 1.00 96% 0%
$ 5,800,463 12/11/11 12/11/21 8.710% * 300 10 170 166 1.50 66% 46%
$ 6,364,013 2/11/08 11/11/22 7.930% * 300 -1 124 117 1.30 69% 56%
$ - 3/11/20 8.792% 272 3 269 265 1.00 97% 0%
$ 6,773,103 10/11/07 10/11/27 7.860% * 360 0 120 113 1.43 74% 66%
$ 6,320,810 12/11/07 9/11/27 7.550% * 360 1 122 115 1.37 82% 73%
$ 6,394,611 10/11/07 10/11/27 8.000% * 360 0 120 113 1.29 77% 69%
$ 5,553,066 1/11/09 1/11/22 8.130% * 292 1 135 131 1.66 64% 50%
$ 5,567,275 7/11/07 7/11/22 9.125% * 300 3 117 110 1.26 78% 66%
$ 4,413,767 1/11/13 10/11/22 8.650% * 300 0 183 176 1.40 58% 39%
$ 5,311,137 11/11/07 8/11/22 7.970% * 300 2 121 114 1.36 69% 57%
$ 5,451,132 7/11/07 7/11/22 8.610% * 300 3 117 110 1.50 65% 55%
$ 5,366,952 1/11/08 10/11/25 7.850% * 336 0 123 116 1.23 75% 65%
$ 5,418,733 4/11/07 4/11/27 8.420% * 360 6 114 110 1.46 73% 66%
$ 5,129,747 12/11/09 9/11/27 8.290% * 360 1 146 139 1.23 74% 64%
$ - 6/25/19 9.012% 266 5 261 260 1.00 96% 0%
$ 4,286,949 1/11/13 10/11/27 7.590% * 360 0 183 176 1.56 69% 54%
$ - 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 4,682,806 10/11/07 10/11/27 7.510% * 360 0 120 113 1.26 80% 71%
$ 4,407,710 4/11/07 4/11/22 9.010% * 300 6 114 110 1.61 55% 47%
$ - 6/25/19 9.012% 266 5 261 260 1.00 96% 0%
$ 4,293,267 1/11/07 1/11/27 8.780% 360 9 111 107 1.25 74% 66%
$ 4,262,555 1/11/04 1/11/22 8.620% * 300 9 75 71 1.55 63% 58%
$ 3,778,182 11/11/07 8/11/22 8.145% * 300 2 121 114 1.40 74% 61%
$ 3,020,063 1/11/13 10/11/22 8.420% * 300 0 183 176 1.46 66% 45%
$ 3,410,238 1/11/13 10/11/27 7.720% * 360 0 183 176 1.44 75% 59%
$ 3,527,530 12/11/12 9/11/27 8.520% * 360 1 182 175 1.23 72% 59%
$ 3,968,089 7/11/04 7/11/27 7.870% * 360 3 81 74 1.77 57% 53%
$ 3,384,933 10/11/12 10/11/27 7.970% * 360 0 180 173 1.33 60% 48%
$ 3 6/25/19 9.012% 266 5 261 260 1.00 96% 0%
$ 3 6/25/19 9.012% 266 5 261 260 1.00 96% 0%
$ - 2/11/12 8.520% * 84 8 172 171 2.13 52% 1%
$ 89,598 2/11/12 8.714% * 180 8 172 171 2.13 52% 1%
$ 3,442,021 11/11/07 8/11/22 8.070% * 300 2 121 114 1.39 70% 57%
$ 3,537,701 7/11/07 7/11/22 8.770% * 300 3 117 110 1.35 74% 62%
$ 3,661,763 1/11/08 10/11/27 7.900% * 360 0 123 116 1.26 77% 68%
$ 3,257,924 10/11/12 10/11/27 7.970% * 360 0 180 173 1.29 77% 61%
$ - 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 3,348,185 10/11/07 7/11/22 8.360% * 300 3 120 113 1.31 78% 64%
$ 3,528,491 12/11/07 9/11/27 7.640% * 360 1 122 115 1.30 71% 63%
$ 3,290,130 11/11/07 8/11/22 8.410% * 300 2 121 114 1.28 79% 66%
$ 3,489,705 12/11/07 9/11/27 7.700% * 360 1 122 115 1.50 79% 70%
$ 3,193,322 11/11/07 8/11/22 8.040% * 300 2 121 114 1.36 75% 61%
$ 3,142,801 1/11/08 10/11/22 7.810% * 300 0 123 116 1.69 80% 65%
$ 3,408,298 8/11/07 8/11/25 8.980% * 336 2 118 111 1.36 69% 62%
$ - 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 3,501,255 7/11/04 7/11/27 7.870% * 360 3 81 74 1.47 73% 69%
$ 94,745 2/11/12 8.714% * 180 8 172 171 1.97 66% 2%
$ 3,110,999 5/11/07 5/11/24 9.420% * 324 5 115 108 1.37 67% 59%
$ 2,512,077 2/11/12 2/11/22 9.500% * 300 8 172 165 1.49 60% 43%
$ 2,049,241 4/11/12 9.230% * 264 6 174 170 1.42 68% 40%
$ 2,939,498 12/11/06 12/11/21 8.680% * 300 10 110 106 1.51 53% 45%
$ 2,927,503 1/11/07 1/11/22 8.750% * 300 9 111 107 1.32 62% 52%
$ 2,653,138 12/11/09 9/11/22 8.290% * 300 1 146 139 1.29 73% 56%
$ 3,130,614 6/11/04 6/11/23 9.160% * 312 4 80 73 1.30 59% 55%
$ 2,776,176 6/11/07 6/11/22 9.200% * 300 4 116 109 1.35 61% 52%
$ 2,698,881 1/11/13 10/11/27 9.160% * 360 0 183 176 1.29 87% 72%
$ 2,703,421 11/11/07 9/11/22 8.730% * 300 1 121 114 1.43 65% 54%
$ 2,589,282 10/11/07 10/11/22 7.910% * 300 0 120 113 1.36 74% 60%
$ 2,627,304 6/11/07 6/11/22 8.650% * 300 4 116 109 1.29 69% 58%
$ 2,607,804 12/11/06 12/11/21 8.740% * 300 10 110 106 1.54 68% 58%
$ 2,487,255 7/11/07 7/11/22 8.200% * 300 3 117 110 1.53 74% 62%
$ 2,390,345 9/11/12 9/11/27 8.090% * 360 1 179 172 1.27 73% 59%
$ 2,326,175 9/11/12 9/11/27 8.090% * 360 1 179 172 1.24 74% 60%
$ 2,371,449 8/11/07 8/11/22 8.590% * 300 2 118 111 1.53 54% 45%
$ 2,595,531 12/11/02 9/11/22 8.150% * 300 1 62 58 1.37 58% 54%
$ 2,567,587 7/11/04 7/11/27 7.870% * 360 3 81 74 2.02 50% 47%
$ 2 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 2,375,219 1/11/08 10/11/27 7.520% * 360 0 123 116 1.30 80% 70%
$ 65,656 3/11/12 8.650% * 174 1 173 166 1.28 65% 2%
$ 2,044,967 4/11/12 4/11/25 8.950% * 336 6 174 167 1.20 67% 53%
$ 1,896,941 6/11/07 6/11/17 9.550% * 240 4 116 109 1.63 76% 57%
$ 49,552 1/11/18 10/11/24 8.080% * 324 0 243 236 1.26 74% 1%
$ 1,798,845 9/11/12 9/11/22 10.010% * 300 1 179 172 1.59 47% 35%
$ 1,947,203 10/11/12 10/11/27 7.970% * 360 0 180 173 1.31 70% 56%
$ 135,575 5/11/17 8.800% * 240 5 235 231 1.42 61% 3%
$ 2,020,591 6/11/07 6/11/22 8.760% * 300 4 116 109 1.29 75% 63%
$ 4 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 1,948,408 9/11/07 9/11/27 7.610% * 360 1 119 112 1.44 73% 65%
$ 1,898,687 8/11/07 8/11/24 8.290% * 324 2 118 111 1.47 73% 63%
$ 1,817,639 1/11/08 10/11/22 8.750% * 300 0 123 116 1.44 68% 57%
$ 1,922,083 5/11/07 5/11/27 8.690% * 360 5 115 108 1.52 78% 71%
$ 1,677,467 1/11/08 10/11/22 8.880% * 300 0 123 116 1.51 63% 52%
$ 1,395,022 9/11/12 9/11/22 10.010% * 300 1 179 172 1.63 45% 33%
$ 1,522,387 11/11/07 8/11/22 8.210% * 300 2 121 114 1.64 54% 45%
$ 1,672,455 7/11/07 7/11/27 8.700% * 360 3 117 110 1.29 80% 73%
$ 810,843 12/11/12 9/11/17 8.960% * 240 1 182 175 1.56 69% 31%
$ 903,696 4/11/12 4/11/17 10.130% * 240 6 174 170 1.39 66% 33%
$ 1,387,864 3/11/07 3/11/22 8.430% * 300 7 113 106 1.46 74% 62%
$ 1,190,818 5/11/07 5/11/17 9.420% * 240 5 115 108 1.61 64% 48%
$ 1,317,964 12/11/07 9/11/22 8.260% * 300 1 122 115 1.38 67% 55%
$ 1,062,100 12/11/12 9/11/22 8.220% * 300 1 182 175 1.25 80% 53%
$ 54,976 1/11/17 7.600% * 231 0 231 224 1.52 57% 2%
$ 1,287,724 8/11/07 8/11/24 8.580% * 324 2 118 111 1.30 80% 70%
$ 1,294,327 8/11/07 8/11/24 8.920% * 324 2 118 111 1.54 69% 60%
$ 1,092,577 8/11/07 9.280% * 300 2 118 111 1.41 71% 61%
$ 1 8/11/17 7.410% 239 1 238 237 1.00 97% 0%
$ 775,484 9/11/12 8.420% * 300 1 179 172 1.30 74% 51%
$ 909,001 12/11/07 9/11/22 7.760% * 300 1 122 115 1.57 75% 61%
$ 933,563 8/11/07 8/11/22 8.560% * 300 2 118 111 1.45 71% 59%
$ 834,071 8/11/07 8/11/18 8.690% * 252 2 118 111 1.43 65% 49%
$ 694,119 4/11/12 4/11/22 8.530% * 300 6 174 167 1.40 67% 46%
$ 780,437 6/11/07 6/11/22 8.680% * 300 4 116 109 1.44 74% 62%
$ 637,152 6/11/12 6/11/22 9.220% * 300 4 176 169 1.29 75% 53%
$ 791,631 4/11/09 4/11/27 8.880% * 360 6 138 134 1.27 66% 59%
$ 714,006 4/11/07 4/11/27 9.030% * 360 6 114 107 1.32 69% 63%
$ 523,551 8/11/12 8.770% * 300 2 178 171 1.41 60% 42%
------ --- ---
8.372% 153 150
</TABLE>
<PAGE>
ANNEX B: CHARACTERISTICS OF MORTGAGED PROPERTIES IN POOL
<TABLE>
<CAPTION>
LOAN ASSET
# # PROPERTY NAME ADDRESS CITY STATE ZIP
- - ------------- ------- ---- ----- ---
SAUL CENTERS RETAIL POOL
------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1 Seven Corners 6201 Arlington Blvd. Falls Church VA 22044
1 2 Thruway Shopping Center 300 S. Stratford Rd Winston Salem NC 27103
1 3 White Oak Shopping Center 112010-112039 New Hampshire Ave. Silver Spring MD 20904
1 4 Great Eastern Plaza Marlboro Pike District Heights MD 20028
1 5 Hampshire Langley New Hampshire & University Ave. Langley Park MD 20783
1 6 Southside Plaza Hull St & Belt Blvd Richmond VA 23224
1 7 Ravenwood Loch Raven & Goucher Blvd Baltimore MD 21204
1 8 Giant Shopping Center Liberty & Milford Rd Baltimore MD 21207
1 9 Belvedere Gardens Hillen Ave/Sherwood Rd Baltimore City MD 21239
2 1 3 Penn Plaza 3 Penn Plaza Newark NJ 07102
FATH MULTIFAMILY POOL
---------------------
3 1 Aspen Village 2703 Erlene Drive Cincinnati OH 45238
3 2 Montana Valley 2678 Montana Avenue Cincinnati OH 45211
3 3 The Biltmore 6551 Melody Lane Dallas TX 75231
3 4 Lake of Woods 7235 Hamilton Avenue Mt. Healthy OH 45231
3 5 Blue Grass 3904 Lori Drive Erlanger KY 41018
3 6 Lindsay Lane 4300 Duck Creek Road Cincinnati OH 45227
3 7 Compton Lake 7777 Compton Lake Drive Mt. Healthy OH 45231
3 8 Park Lane 4201 Victory Parkway Cincinnati OH 45229
3 9 Lisa Ridge 2496 Queen City Avenue Cincinnati OH 45238
3 10 Preston Park 5757 Preston View Dallas TX 75240
3 11 Colonial Ridge 2919 Colonial Ridge Court Pleasant Ridge OH 45212
3 12 Wyoming Hills 2466 Wyoming Street Dayton OH 45410
3 13 Romaine Court 4210 Romaine Court Oakley OH 45209
3 14 College Woods 1165 Hillcrest Road Cincinnati OH 45224
3 15 Sun Valley 5469 Kirby Road Cincinnati OH 45223
3 16 Slopes of Aspen 2720 Queen City Avenue Cincinnati OH 45238
3 17 Beecher Street 838 Beecher Street Walnut Hills OH 45206
4 1 *Westin Peachtree Plaza 210 Peachtree Street Atlanta GA 30343
5 1 Dayton Mall 2700 Route 725 Dayton OH 45459
6 1 Am South 1901 Sixth Avenue Birmingham AL 35203
7 1 The Century Building 2341 Jefferson Davis Hwy Crystal City VA 22202
8 1 Healthcare @ Hyde Park 5800 South Stoney Island Ave Chicago IL 60637
9 1 *Westin Casuarina Resort Seven Mile Beach Grand Cayman BWI
10 1 Comsat 22300 Comsat Drive Clarksburg MD 20871
11 1 Swissbank Tower 10 East 50th Street New York NY 10022
MCBRIDE INDUSTRIAL OFFICE POOL
------------------------------
12 1 1655 Valley Rd. 1655 Valley Rd. Wayne NJ 07470
12 2 40 Potash Rd. 40 Potash Rd. Oakland NJ 07436
12 3 5 Thornton Rd. 5 Thornton Rd. Oakland NJ 07436
12 4 1900 Pollitt Dr. 1900 Pollitt Dr. Fair Lawn NJ 07410
12 5 1905 Nevins Rd. 1905 Nevins Rd. Fair Lawn NJ 07410
12 6 1701 Pollitt Dr. 1701 Pollitt Dr. Fair Lawn NJ 07410
12 7 16-00 Route 208 16-00 Route 208 Fair Lawn NJ 07410
12 8 1500 Pollitt Dr. 1500 Pollitt Dr. Fair Lawn NJ 07410
12 9 99 Bauer Drive 99 Bauer Drive Oakland NJ 07436
12 10 95 Bauer Drive 95 Bauer Drive Oakland NJ 07436
FG HOTEL PORTFOLIO
------------------
13 1 Ramada - Minnetonka 12201 Ridgedale Dr. Minnetonka MN 55305
13 2 *Holiday Inn - La Concha 430 Duval Street Key West FL 33040
13 3 Ramada Inn - Rockland 929 Hingham Street Rockland MA 02370
13 4 Ramada - Warner Robbins 2725 Watson Boulevard Warner Robbins GA 31093
13 5 Holiday Inn Coral Gables 2051 Le Jeune Road Coral Gables FL 33134
13 6 Residence Inn - N. Central 13636 Goldmark Drive Dallas TX 75240
13 7 Historic Inns of Annapolis 58 State Circle Annapolis MD 21401
13 8 Gull Wing Suites 22 Main St., Rte 28 South Yarmouth MA 02664
13 9 Ramada Regency - Hyannis 1127 Route 132 Hyannis MA 02601
13 10 Ramada Falmouth 40 North Main Street Falmouth MA 02540
14 1 Security Square Mall 6901Security Square Blvd Baltimore MD 21207
SAN MALLS RETAIL POOL
---------------------
15 1 Northwest Mall 555 Northwest Mall Houston TX 77092
15 2 Almeda Mall 555 Almeda Mall Houston TX 77075
JRK MULTIFAMILY POOL
--------------------
16 1 Cliffs at Sixth Avenue 12 South Holman Way Golden CO 80401
16 2 The Waterways Apartments 4937 Waterways Court Orlando FL 32839
16 3 The Cliffs of Lakewood 1388 Garrison Street Lakewood CO 80215
16 4 Lake Fairway Apartments 1642 Lomaland El Paso TX 79935
16 5 La Privada Apartments 9030 Betel El Paso TX 79907
HERMALIN MULTIFAMILY POOL
-------------------------
17 1 Pecan Ridge 2736 Lake Shore Drive Waco TX 76708
17 2 River Crest 66 Daughtry Avenue Waco TX 76706
17 3 Woodhollow 4502 Lake Shore Drive Waco TX 76710
18 1 Pavilion Apartments 2207 Summerhouse Dr Maryland Heights MO 63146
19 1 Southern Meadows 100 Terrace Road Bayport NY 11705
20 1 Brittany Place 8501 Green Belt Rd. Greenbelt MD 20770
21 1 Hybridon Office 620 Memorial Drive Cambridge MA 02139
AMHERST MULTIFAMILY POOL
------------------------
22 1 Boulders 188 East Hadley Road Amherst MA 01002
22 2 Cliffside 248 Amherst Road Sunderland MA 01375
23 1 Sheraton Fontainebleau 10100 Coastal Highway Ocean City MD 21842
24 1 The Borgata 6166 North Scottsdale Road Scottsdale AZ 85253
25 1 Value City - 2560 Valueway 2560 ValueWay Columbus OH 43224
PHP MEDICAL OFFICE POOL
-----------------------
26 1 Cranford 16 Commerce Drive Cranford NJ 07016
26 2 Eatontown 274 Highway 35 Eatontown NJ 07724
26 3 Hamilton 4622 Black Horse Pike Hamilton NJ 08609
26 4 Burlington 2103 Mount Holly Road Burlington NJ 08016
26 5 Paramus 80 Eisenhouwer Drive Paramus NJ 07652
26 6 Mount Laurel 150 Century Parkway Mount Laurel NJ 08054
27 1 Riverview Center 150 Broadway Menands NY 12204
28 1 The Foundry Building Promenade Street Providence RI 02908
29 1 Brainard Medical Building 29001 Cedar Road Lyndhurst OH 44124
30 1 Hotel Wales 1295 Madison Avenue New York NY 10128
31 1 AVCO Center 10850 Wilshire Blvd. Westwood CA 90024
32 1 Tampa Plaza Shopping Ctr. 8951 Tampa Avenue Los Angeles CA 91324
CHARTER ONE POOL
----------------
33 1 Holiday Inn - Waterloo 2468 NYS Rt. 414 Waterloo NY 13165
33 2 Holiday Inn - Oneonta Rt. 23 Oneonta NY 13820
33 3 Holiday Inn - Auburn 75 North Street Auburn NY 13021
33 4 Best Western - Cobleskill Campus Drive Extension Cobleskill NY 12043
34 1 JRK Oceana Hotel 849 Ocean Avenue Santa Monica CA 90403
35 1 Cablevision Net Lease 28 Cross Street Norwalk CT 06851
36 1 Circle Marina Shop Center 4542 PCH Hwy Long Beach CA 90804
37 1 Super Kmart - San Antonio IH-410 & Westpond Road San Antonio TX 78217
38 1 *Roseburg Valley Mall 1444 Garden Valley Roseburg OR 97470
39 1 Market Square S.C. Route 202/Concord Pike Wilmington DE 19803
40 1 Mediterranean Apartments 11555 S. Santa Gertrudes Whittier CA 90604
41 1 30 Oak Hollow 30 Oak Hollow Drive Southfield MI 48034
42 1 Builders Square - Daytona 2400 W. International Speedway Blvd. Daytona FL
43 1 Builders Square - NJ 2080 North Black Horse Pike Williamstown NJ
44 1 Atlantic Beach Sheraton Highway 58 Atlantic Beach NC 28512
45 1 Argosy Apartments 1003 Justin Lane Austin TX 78757
46 1 Walnut Hills I & II 2626 Babcock Road San Antonio TX 78229
47 1 Builders Square - El Paso 11751 Gateway West Blvd. El Paso TX 79936
48 1 Value City - Bay Road Crossing 3828 Bay Road Saginaw MI 48605
49 1 Steeplechase Apts 305 Lindenhurst Dr Lexington KY 40509
50 1 Builders Square - San Antonio 6001 Northwest Loop 410 San Antonio TX 78238
51 1 First National Bank Bldg. 107 St Francis St. Mobile AL 36601
52 1 *MIT - Jackson Building 26 Landsdowne Street Cambridge MA 02139
53 1 Builders Square - Midland 5407 Andrews Highway Midland TX 79703
54 1 Cumberland Office Building 27301 - 27345 W. 11 Mile Road Southfield MI 48034
55 1 Plaza de Ville I&II 5903 Eckhert Road San Antonio TX 78240
56 1 Springhouse 3851 Belleau Wood Lexington KY 40517
57 1 The Plaza Shopping Center Memorial Ave. & SW Lakeside Dr. Lynchburg VA 24501
58 1 Cressona Mall Route 61 Pottsville PA 17901
59 1 Gateway Center Armond Hammond Boulevard Pottstown PA
60 1 Port Royal Plaza 95 Matthews Drive Hilton Head SC 29926
61 1 Wells Fargo Building 333 Hegenberger Road Oakland CA 94621
62 1 Autumn Woods 1000 Autumn Wood Drive Hoover AL 35216
KEEGAN AND WILLOW RETAIL POOL
-----------------------------
63 1 Keegan's Village Shopping Ctr. 11873 Bissonnet Drive Houston TX 77099
63 2 Willow Park Shopping Center 14147 Northwest Freeway Houston TX 77040
64 1 Lancers Center SC Highway 9 Bypass Lancaster SC 29720
65 1 Circuit City - Tennessee 2206 Hamilton Place Blvd. Chattanooga TN 37421
66 1 Westchester Key Apartments 706 Westchester Drive High Point NC 27262
67 1 Value City - Carol Stream 1175 N. Gary Avenue Carol Stream IL 60188
68 1 Wind Drift 3833 Wind Drift Drive Indianapolis IN 46254
69 1 Huntington Atrium 775 Park Avenue Huntington NY 11743
70 1 Circuit City - Michigan 14105 Hall Rd. Shelby Township MI 48315
71 1 Western Palms MH Community 500 North 67th Ave. Phoenix AZ 85043
72 1 5 & 7 East 17th Street 5 & 7 East 17th Street New York NY 10003
73 1 Quioccasin Station Quioccasin Road & Sterling Dr. Richmond VA 23229
74 1 Avanti Business Center 17215 & 17315 Studebaker Rd. Cerritos CA 90703
75 1 Park East Apartments 2022 Kelbourne Rd. Baltimore MD 21237
76 1 Main Street Galleria 45 East Main Street Newark DE 19715
77 1 West Ridge Green MHP 9235 West Ridge Rd Elyria OH 44146
78 1 Triangle East 114 Wakelon Street Zebulon NC 27597
79 1 Circuit City - California 905 Playa Ave. Sand City CA 93955
80 1 Circuit City - Pennsylvania 5800 Carlisle Place Hampden Township PA 17109
GSS INVESTMENTS HEALTHCARE POOL
-------------------------------
81 1 Sunnyview Conv. 2000 W. Washington Blvd Los Angeles CA 90018
81 2 Shea Convalescent 7716 S. Pickering Ave Whittier CA 90602
81 3 Green Acres Lodge 8101 E. Hill Drive Rosemead CA 91770
82 1 Amberson Plaza 5030 Centre Avenue Pittsburgh PA 15213
83 1 Mayhew Tech Center 9323 Tech Center Dr Sacramento CA 91106
84 1 Canterbury Townhouses 510 Nottingham Court Hopewell VA 23860
85 1 Longwood Village 1506 South Main Street Farmville VA 23901
86 1 Value City - Gurnee 6116 Grand Avenue Gurnee IL 60031
87 1 Westland Square 4788 West Broad St. Columbus OH 43228
88 1 Alderman Plaza 3533 Highway 19N Palm Harbor FL 34684
89 1 K-Mart Plaza Shopping Ctr. 4221 John Marr Dr. Annandale VA 22003
90 1 Coral Hills Apartments 6363 Beverly Hill Houston TX 77057
91 1 Hungarybrook Shopping Ctr Brook Rd at Parham Rd Richmond VA 23227
92 1 Cloverleaf Plaza Highway 64-71 & I-540 Van Buren AR 72957
93 1 St. Gregory Office Building 1101&1111 St. Gregory Cincinnati OH 45202
94 1 Value City - Indianapolis 6002 E. 38th Street Indianapolis IN 46226
95 1 Pine Grove MHP 1100 John Rodes Blvd Melbourne FL 32934
96 1 Burlington Convalescent 845 S. Burlington Ave. Los Angeles CA 90057
97 1 Crystal Park Plaza 2700 Highway 6 East College Station TX 77845
CLEMATIS POOL
-------------
98 1 330 Clematis 330 Clematis Street West Palm Beach FL 33401
98 1 218-230 Clematis 218-230 Clematis Street Palm Beach FL 33401
99 1 The Bellaire 12621 Hale Street Riverview MI 48192
100 1 The Diamondhead Building 200 Sheffield Street Mountainside NJ 07092
101 1 14 Walkup Drive 14 Walkup Drive Westborough MA 05181
102 1 *North Main Market 1317 North Main St. Summerville SC 29483
103 1 One Enterprise Road One Enterprise Road Billerica MA 01821
104 1 101 Lucas Valley Road 101 Lucas Valley Road San Rafael CA 94903
BANZHOFF MHP POOL
-----------------
105 1 Sandy Hills Estates Sandy Hill Rd. Valencia PA 16059
105 2 Shawnee & Scotia Village Columbus Ave. Corry PA 16407
105 3 Mahoning Manor Linda Street Punxsutawney PA 15767
105 4 Parsons Mobile Home Court 13945 Doolittle Road Wattsburg PA 16442
106 1 Village at Townridge 4112 Pleasant Valley Road Raleigh NC 27612
107 1 San Jacinto Plaza 5607 Uvalde Road Houston TX 77049
108 1 160 State Street 160 State Street Boston MA 02109
109 1 Creekside Business Mall 1475 Bascom Avenue Campbell CA 95008
110 1 2200 Blaisdell Apartments 2200 Blaisdell Road Minneapolis MN 55404
111 1 Cherry Hill MHP 2917 West 19th Avenue Kennewick WA 99337
112 1 Sunset Estates MHP 2102 N. Steptoe Kennewick WA 99336
113 1 Avalon Center 20220 Avalon Blvd Carson CA 90746
114 1 The Prestridge 3901 Suitland Road Suitland MD 20746
115 1 Harbourtown MHP 6320 Poorman Road Vermillion Township OH 44128
116 1 Value City - Euclid 22400 Shore Center Drive Euclid OH 44123
117 1 Westlodge Apartments 4219 Baker Road Baytown TX 77521
118 1 K-Mart Store 2376 Main St. Billings MT 59105
119 1 *Milford Plaza Nemway Drive Milford MA 01603
120 1 Best Western - Old Hickory Inn 1849 Hwy. 45 Bypass Jackson TN 38035
121 1 Southwind Apartments SEC of 48th & Giles Road Bellevue NE 68005
122 1 Queen Anne Hotel 1590 Sutter St. San Francisco CA 94109
123 1 College Plaza 102 College Plaza Jacksonville NC 28546
124 1 Steward Towers 200 Fort Meade Road Laurel MD 20706
125 1 Pine Tree Estates Route 25 Standish ME 04084
126 1 Value City - Alliance 1425 E. State Street Alliance OH 44601
127 1 Lakeview Apartments 3161 Willow Creek Rd. Prescott AZ 86301
128 1 Broadway Shopping Center Broadway & 47th St. Wichita KS 67216
129 1 Westpointe Plaza Shopping Ctr. 1450 W. Patrick Street Frederick MD 21702
130 1 Pointe O' Woods Apts 4065 Pointe O' Woods Dr Grand Rapids MI 49508
131 1 Comfort Inn - Olive Branch Hwy. 78 & Hwy. 302 Olive Branch MS 38654
132 1 Days Inn - Monterey 1288 Munras Avenue Monterey CA 93940
133 1 Bridgeport Suite Apartments 330 West 3rd Street Bridgeport PA 19405
134 1 Lazy Land Mobile Home Park 4111 S.W. 25th St. Fort Lauderdale FL 33317
135 1 Knights Inn - Atlanta 5230 South Cobb Drive Smyrna GA 30080
136 1 Best Western - Needles 2371 West Broadway Needles CA 92363
137 1 Northland Square Apartment 4565 Northland Square Columbus OH 43231
138 1 Knights Inn - Bridgeville 111 Hickory Grade Road Bridgeville PA 15017
139 1 Benstein Business Center 1006 Benstein Rd Walled Lake MI 48390
140 1 Carlton Place 6464 E WT Harris Bl Charlotte NC 28205
141 1 Walgreens 11th Ave. & 31st Street Rock Island IL 61201
142 1 Emerson Mill Apartments 100 Main Street Pembroke NH 03275
143 1 Mission Terrace Office Park 1313 S.E. Military Drive San Antonio TX 78213
144 1 Forest Park 27901 Norris Road Bozeman MT 59715
145 1 Value City - 3140 Westerville 3140 Westerville Rd. Westerville OH 43224
146 1 Holland Mobile Home Park 1308 S.W. 21 Lane Fort Lauderdale FL 33312
147 1 Sherwood Commons 48 Sunny Valley Rd. New Milford CT 06776
148 1 Mission Pointe 3051 Jet Wing Dr. Colorado Springs CO 80903
149 1 Oakland Corners 4109-4123 E Lancaster Av Fort Worth TX 76103
150 1 Crescent Manor Apartments 1744 Crescent Lake Waterford Township MI 48054
151 1 University Village Apts. II 1310,1228,1218 CA & 2918 Redwood Kalamazoo MI 49006
152 1 Seminole MHP 5015 Seminole Blvd St. Petersburg FL 33708
153 1 Kingsbrooke Townhomes 3250 Kingsbrooke Jackson MI 49202
154 1 Los Arcos 7440 E. 22nd Street Tucson AZ 85710
155 1 Wagon Wheel MHP 1119 North 46th St. Phoenix AZ 85008
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF DATE
CUT-OFF DATE PRINCIPAL
YEAR BUILT/ UNIT ORIGINAL LOAN PRINCIPAL BALANCE 1995
PROPERTY TYPE RENOVATED UNITS TYPE BALANCE BALANCE /UNIT REVENUE
------------- --------- ----- ---- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail-Anchored 1956/1997 545,843 sf $ 47,964,592 $ 47,964,592 $ 88 $ 4,907,681
Retail-Anchored 1955/1965/1996 339,564 sf 27,436,000 27,436,000 81 3,804,146
Retail-Anchored 1959 480,156 sf 25,344,000 25,344,000 53 3,597,244
Retail-Anchored 1958 255,448 sf 12,000,000 12,000,000 47 920,235
Retail-Anchored 1960/1980 134,425 sf 10,990,000 10,990,000 82 1,668,528
Retail-Anchored 1957/1980 352,516 sf 10,620,408 10,620,408 30 1,746,189
Retail-Anchored 1959 87,750 sf 7,085,000 7,085,000 81 981,625
Retail-Anchored 1959 70,040 sf 2,800,000 2,800,000 40 422,267
Retail-Anchored 1958 54,941 sf 2,760,000 2,760,000 50 452,900
----------- ------------- ------------ ---------- -------------
2,320,683 147,000,000 147,000,000 63 18,500,815
Office 1992 781,627 sf 110,000,000 110,000,000 141
Multifamily 1965/1996 922 units 17,537,174 17,537,174 19,021 4,037,289
Multifamily 1968/1996 319 units 9,340,708 9,340,708 29,281 1,761,730
Multifamily 1973/1996 584 units 8,616,429 8,616,429 14,754 1,896,498
Multifamily 1966/1996 263 units 7,433,658 7,433,658 28,265 1,423,318
Multifamily 1966/1996 246 units 6,026,435 6,026,435 24,498 1,167,874
Multifamily 1969/1996 263 units 5,041,635 5,041,635 19,170 1,132,803
Multifamily 1972/1996 163 units 4,527,397 4,527,397 27,775 869,429
Multifamily 1960/1995 150 units 4,452,318 4,452,318 29,682 917,180
Multifamily 1970/1996 216 units 3,837,570 3,837,570 17,767 791,870
Multifamily 1971/1995 144 units 3,381,872 3,381,872 23,485 898,929
Multifamily 1963/1996 142 units 3,272,274 3,272,274 23,044 720,597
Multifamily 1972/1994 114 units 2,573,876 2,573,876 22,578 535,468
Multifamily 1966/1986 96 units 2,540,763 2,540,763 26,466 477,777
Multifamily 1965/1996 135 units 2,393,288 2,393,288 17,728 568,115
Multifamily 1968/1996 116 units 2,134,058 2,134,058 18,397 527,380
Multifamily 1969/1994 96 units 1,696,073 1,696,073 17,667 413,115
Multifamily 1969/1996 60 units 1,238,055 1,238,055 20,634 273,338
----------- ------------- ------------ ---------- -------------
4,029 86,043,583 86,043,583 21,356 18,412,710
Hotel-Full Service 1976 1,068 rooms 75,000,000 74,745,084 69,986 47,925,134
Retail-Anchored 1969/1995 663,286 sf 61,500,000 61,410,564 93 10,716,596
Office 1989 613,764 sf 57,205,555 57,170,900 93 11,884,609
Office 1973/1987 351,765 sf 50,775,000 50,775,000 144 9,174,843
Hospital 1916/1983 241 beds 50,000,000 49,931,286 207,184 47,155,345
Hotel-Full Service 1995 341 rooms 50,000,000 49,857,134 146,209
Office 1969/1983/1983 532,000 sf 47,800,000 47,662,932 90
Office-Air Rights 1990 314,375 sf 45,000,000 45,000,000 143 17,407,347
Office 1989 155,700 sf 15,304,000 15,304,000 98 2,762,475
Office 1971 60,994 sf 7,947,000 7,947,000 130 1,067,153
Industrial 1973 151,874 sf 6,302,000 6,302,000 41 940,169
Industrial 1958/1996 77,262 sf 5,042,000 5,042,000 65 1,403,721
Industrial 1955 151,700 sf 3,972,000 3,972,000 26 620,930
Industrial 1958/1993 105,367 sf 2,608,000 2,608,000 25 861,607
Office 1983 54,140 sf 1,364,000 1,364,000 25 775,632
Industrial 1958/1981 18,936 sf 994,000 994,000 52 139,605
Industrial 1971 20,449 sf 890,000 890,000 44 113,901
Office 1974/1994 6,792 sf 577,000 577,000 85 78,108
----------- ------------- ------------ ---------- -------------
803,214 45,000,000 45,000,000 56 8,763,301
Hotel-Full Service 1985 222 rooms 8,642,700 8,642,700 38,931 5,798,683
Hotel-Full Service 1926/1986 160 rooms 8,090,500 8,090,500 50,566 6,994,370
Hotel-Full Service 1988 127 rooms 5,511,000 5,511,000 43,394 2,145,918
Hotel-Full Service 1984/1994 127 rooms 3,958,700 3,958,700 24,138 1,776,477
Hotel-Full Service 1970 127 rooms 3,579,300 3,579,300 21,305 4,032,774
Hotel-Ext. Stay 1977/1997 127 rooms 3,378,700 3,378,700 48,267 1,892,249
Hotel-Full Service 1737/1972/1984 127 rooms 2,422,600 2,422,600 18,927 6,443,463
Hotel-Ltd. Service 1988 127 rooms 1,446,500 1,446,500 10,636 1,428,781
Hotel-Full Service 1982 127 rooms 1,116,800 1,116,800 5,698 2,319,940
Hotel-Full Service 1987 127 rooms 1,103,200 1,103,200 15,322 1,085,510
----------- ------------- ------------ ---------- -------------
1,398 39,250,000 39,250,000 28,076 33,918,165
Retail-Anchored 1972/1986 127 sf 36,500,000 36,500,000 100 9,912,821
Retail-Anchored 1968/1990 274,475 sf 17,999,355 17,999,355 66 6,415,445
Retail-Anchored 1968/1980 300,287 sf 17,999,354 17,999,354 60 5,506,107
----------- ------------- ------------ ---------- -------------
574,762 35,998,709 35,998,709 63 11,921,552
Multifamily 1974/1994 314 units 11,100,000 11,071,884 35,261 2,273,187
Multifamily 1986/1988 360 units 9,500,000 9,475,937 26,322 1,876,265
Multifamily 1972/1994 200 units 7,200,000 7,181,763 35,909 1,367,922
Multifamily 1976/1994 256 units 4,200,000 4,189,362 16,365 1,172,748
Multifamily 1981 240 units 4,000,000 3,989,868 16,624 1,111,966
----------- ------------- ------------ ---------- -------------
1,370 36,000,000 35,908,813 26,211 7,802,088
Multifamily 1984 252 units 8,900,000 8,900,000 35,317 1,636,594
Multifamily 1984 232 units 8,200,000 8,200,000 35,345 1,521,135
Multifamily 1984 220 units 7,400,000 7,400,000 33,636 1,244,861
----------- ------------- ------------ ---------- -------------
704 24,500,000 24,500,000 34,801 4,402,590
Multifamily 1975/1978/1997 804 units 23,900,000 23,832,128 29,642 4,402,667
Multifamily 1972/1996 452 units 19,800,000 19,770,886 43,741 2,856,795
Multifamily 1964/1966/1994 591 units 18,584,000 18,560,433 31,405 4,636,029
Office 1900/1996 91,500 sf 18,000,000 18,000,000 197 -
Multifamily 1973/1994 255 units 9,800,000 9,788,709 38,387 1,550,173
Multifamily 1968/1995 280 units 8,200,000 8,190,552 29,252 1,805,506
----------- ------------- ------------ ---------- -------------
535 18,000,000 17,979,261 33,606 3,355,679
Hotel-Full Service 1986/1986 250 rooms 16,500,000 16,473,961 65,896 11,134,653
Retail-Anchored 1981 87,742 sf 16,300,000 16,300,000 186 2,970,614
Industrial-Warehouse 1993/1996 410,307 sf 16,321,328 16,291,287 40
Office-Medical Off. 1979/1994 17,247 sf 2,959,350 2,952,791 171
Office-Medical Off. 1994 12,560 sf 2,895,349 2,888,931 230
Office-Medical Off. 1994 12,560 sf 2,633,250 2,627,413 209
Office-Medical Off. 1994 12,564 sf 2,617,975 2,612,172 208
Office-Medical Off. 1994 12,560 sf 2,538,783 2,533,156 202
Office-Medical Off. 1994 12,564 sf 2,355,293 2,350,073 187
----------- ------------- ------------ ----------
80,055 16,000,000 15,964,536 199 -
Office 1929/1995 961,486 sf 14,573,490 14,573,490 15 3,435,462
Office 1900/1997 227,873 sf 14,400,000 14,400,000 63 1,333,817
Office-Medical Off. 1972/1993 112,788 sf 13,458,000 13,435,307 119 3,278,967
Hotel-Full Service 1900/1988 86 rooms 13,129,129 13,116,324 152,515 4,563,359
Office 1972/1993 162,553 sf 12,600,000 12,551,790 77 3,501,273
Retail-Anchored 1975/1995 102,788 sf 12,000,000 11,909,596 116 150,940
Hotel-Full Service 1975/1992 148 rooms 4,272,411 4,272,411 28,868 3,868,043
Hotel-Full Service 1973/1996 120 rooms 3,445,566 3,445,566 28,713 2,921,644
Hotel-Full Service 1980/1996 166 rooms 2,139,330 2,139,330 12,888 3,763,880
Hotel-Full Service 1964/1994 76 rooms 1,792,913 1,792,913 23,591 2,261,750
----------- ------------- ------------ ---------- -------------
510 11,650,220 11,650,220 22,844 12,815,317
Hotel-Full Service 1958/1996 63 rooms 11,500,000 11,456,607 181,851
Office 1997 73,240 sf 11,438,497 11,437,915 156
Retail-Anchored 1967/1990 115,908 sf 11,275,000 11,241,394 97 2,142,335
Retail-Anchored 1993 167,318 sf 11,157,866 11,126,629 67
Retail-Anchored 1980 203,913 sf 10,880,000 10,880,000 53 2,197,829
Retail-Anchored 1970/1991 107,485 sf 10,250,000 10,243,108 95 1,304,630
Multifamily 1970/1996 255 units 10,075,000 10,052,010 39,420 1,944,741
Office 1989 134,540 sf 9,975,000 9,968,239 74 2,099,251
Retail-Anchored 1994 110,731 sf 9,644,813 9,630,924 87
Retail-Anchored 1994 109,800 sf 9,445,932 9,410,131 86
Hotel-Full Service 1989/1996 200 rooms 9,350,000 9,350,000 46,750 5,764,742
Multifamily 1985 288 units 8,800,000 8,800,000 30,556 1,738,220
Multifamily 1980/1996 424 units 8,750,000 8,736,155 20,604 2,275,766
Retail-Anchored 1994 109,800 sf 8,670,705 8,638,513 79
Industrial-Warehouse 1996 150,938 sf 8,561,111 8,545,353 57
Multifamily 1985/1996 296 units 8,447,000 8,447,000 28,537 1,743,583
Retail-Anchored 1994 109,800 sf 8,424,500 8,393,222 76
Office 1966/1997 283,444 sf 8,407,000 8,334,034 29 2,680,409
Office 1911/1987 98,879 sf 7,800,000 7,800,000 79 1,987,035
Retail-Anchored 1995 109,800 sf 7,681,999 7,654,927 70
Office 1987 107,997 sf 7,600,000 7,600,000 70 1,463,908
Multifamily 1984 304 units 7,182,000 7,176,723 23,608 1,872,433
Multifamily 1986 224 units 7,151,444 7,151,444 31,926 1,377,581
Retail-Anchored 1959/1991 474,059 sf 7,149,852 7,142,017 15 2,064,752
Retail-Anchored 1974/1992 282,211 sf 6,547,000 6,533,067 23 1,340,863
Industrial-Warehouse 1962/1969 777,940 sf 6,500,000 6,500,000 8 1,082,068
Retail-Anchored 1984/1997 88,894 sf 6,500,000 6,487,667 73 1,069,503
Office 1972/1996 135,282 sf 6,500,000 6,484,453 48 1,310,309
Multifamily 1986 206 units 6,225,000 6,225,000 30,218 1,203,547
Retail-Anchored 1979 92,240 sf 3,191,400 3,181,672 34 720,506
Retail-Anchored 1979 64,397 sf 2,808,600 2,800,039 43 621,010
----------- ------------- ------------ ---------- -------------
156,637 6,000,000 5,981,710 38 1,341,516
Retail-Anchored 1987/1993 180,194 sf 5,939,000 5,935,244 33 943,599
Retail-Anchored 1997 38,986 sf 5,628,514 5,594,550 144
Multifamily 1972 196 units 5,500,000 5,500,000 28,061 1,122,226
Retail-Anchored 1992 106,492 sf 5,470,928 5,460,858 51
Multifamily 1981 166 units 5,300,000 5,300,000 31,928 1,062,275
Office 1988 72,824 sf 5,200,000 5,175,655 71 1,455,710
Retail-Anchored 1997 32,390 sf 4,949,211 4,919,346 152
Mobile Home Park 1973 305 pads 4,820,000 4,794,458 15,720 822,297
Office 1920/1990 103,500 sf 4,725,000 4,686,855 45 956,262
Retail-Anchored 1987 75,888 sf 4,600,000 4,591,568 61 826,351
Office 1982 93,321 sf 4,500,000 4,500,000 48
Multifamily 1970 221 units 4,350,000 4,350,000 19,683 1,231,524
Retail-Anchored 1995 35,577 sf 4,350,000 4,347,376 122
Mobile Home Park 1973/1996 302 pads 4,250,000 4,243,035 14,050 940,594
Retail-Anchored 1986 109,815 sf 4,240,000 4,240,000 39 672,651
Retail-Anchored 1997 27,362 sf 4,269,908 4,244,142 155
Retail-Anchored 1997 39,089 sf 4,269,908 4,244,142 109
Nursing 1969 93 beds 1,929,000 1,865,173 20,056 2,594,008
Nursing 1964 54 beds 1,450,000 1,402,023 25,963 2,077,274
Nursing 1915/1986 85 beds 1,000,000 966,912 11,375 2,238,307
----------- ------------- ------------ ---------- -------------
232 4,379,000 4,234,108 18,250 6,909,589
Multifamily 1973/1990 138 units 4,200,000 4,192,186 30,378 966,116
Office 1980 67,181 sf 4,200,000 4,190,306 62 508,561
Multifamily 1986/1988 140 units 4,122,500 4,122,500 29,446 796,349
Retail-Anchored 1985 115,886 sf 4,080,905 4,080,905 35 685,767
Retail-Anchored 1991 79,902 sf 4,062,585 4,055,107 51
Retail-Unanchored 1986 67,075 sf 4,050,000 4,039,769 60 725,171
Retail-Anchored 1982/1996 57,937 sf 4,000,000 3,997,114 69 792,871
Retail-Anchored 1973 115,680 sf 3,975,000 3,968,090 34 597,180
Multifamily 1973/1994 174 units 3,950,000 3,947,184 22,685 972,104
Retail-Anchored 1988 87,103 sf 3,900,000 3,892,701 45 556,957
Retail-Anchored 1978 225,036 sf 3,865,000 3,865,000 17 796,250
Office 1989 49,258 sf 3,823,000 3,818,853 78 968,905
Retail-Anchored 1963 108,883 sf 3,753,044 3,746,136 34
Mobile Home Park 1973 316 pads 3,750,000 3,743,854 11,848 831,033
Nursing 1963 124 beds 3,573,000 3,495,179 28,187 3,577,188
Office 1985/1993 86,574 sf 3,504,000 3,494,752 40 885,122
Retail-Unanchored 1920/1995 37,315 sf 1,847,000 1,835,502 49 363,655
Retail-Unanchored 1925/1995 28,207 sf 1,663,000 1,652,647 59 91,859
----------- ------------- ------------ ---------- -------------
65,522 3,510,000 3,488,149 53 455,514
Congregate Care 1972/1995 85 units 3,500,000 3,477,631 40,913 332,264
Office 1971 100,750 sf 3,500,000 3,469,446 34 1,175,456
Industrial 1982/1992 100,000 sf 3,480,000 3,452,583 35 189,000
Retail-Anchored 1987 112,796 sf 3,450,000 3,446,540 31 637,895
Industrial-Warehouse 1989/1996 161,563 sf 3,400,000 3,390,950 21 671,478
Office 1981/1996 35,187 sf 3,259,000 3,249,307 92 625,119
Mobile Home Park 1973 106 pads 1,532,260 1,532,260 14,455 274,640
Mobile Home Park 1975 126 pads 905,360 905,360 7,185 135,086
Mobile Home Park 1965 61 pads 471,960 471,960 7,737 90,023
Mobile Home Park 1974 40 pads 330,420 330,420 8,261 102,350
----------- ------------- ------------ ---------- -------------
333 3,240,000 3,240,000 9,730 602,099
Retail-Unanchored 1988 47,341 sf 3,230,000 3,226,987 68 571,888
Retail-Anchored 1980/1995 124,704 sf 3,150,000 3,150,000 25 438,869
Office 1921/1984 28,453 sf 3,130,000 3,119,555 110 722,816
Office 1980/1987 49,277 sf 3,100,000 3,073,251 62 481,410
Multifamily 1962/1996 150 units 3,000,000 2,992,157 19,948 882,687
Mobile Home Park 1983/1988 166 pads 2,980,000 2,978,037 17,940 442,127
Mobile Home Park 1979/1990 169 units 2,900,000 2,898,089 17,148 483,881
Retail-Anchored 1964/1990 52,747 sf 2,830,000 2,825,257 54 622,417
Multifamily 1968/1995 283 units 2,800,000 2,797,127 9,884 1,827,061
Mobile Home Park 1972/1997 228 pads 2,750,000 2,745,493 12,042 677,892
Retail-Anchored 1960 65,982 sf 2,711,267 2,706,277 41
Multifamily 1978/1995 198 units 2,700,000 2,700,000 13,636 817,677
Retail-Anchored 1986 86,479 sf 2,600,000 2,592,472 30 441,614
Retail-Anchored 1970/1994 151,634 sf 2,600,000 2,591,331 17 757,260
Hotel-Full Service 1976/1994 142 rooms 2,555,000 2,541,934 17,901 1,982,642
Multifamily 1992 96 units 2,500,000 2,500,000 26,042 489,972
Hotel-Full Service 1890/1980/1996 49 rooms 2,450,000 2,448,157 49,962 1,228,834
Retail-Anchored 1983/1994 66,462 sf 2,439,083 2,439,083 37 385,291
Multifamily 1964/1994 154 units 2,450,000 2,432,733 15,797 919,804
Mobile Home Park 1969/1992 178 pads 2,400,000 2,392,170 13,439 420,334
Retail-Anchored 1970 61,350 sf 2,393,835 2,389,429 39
Multifamily 1988 72 units 2,200,000 2,198,403 30,533 402,486
Retail-Anchored 1965/1994 103,501 sf 2,200,000 2,196,838 21 491,287
Retail-Unanchored 1987 30,462 sf 2,175,000 2,175,000 71 436,164
Multifamily 1966/1993 121 units 2,115,000 2,110,307 17,441 631,575
Hotel-Ltd. Service 1994 63 rooms 2,000,000 2,000,000 31,746 939,240
Hotel-Ltd. Service 1956/1996 35 rooms 1,900,000 1,898,570 54,245 694,252
Multifamily 1974/1995 137 units 1,850,000 1,846,652 13,479
Mobile Home Park 1962 115 pads 1,840,000 1,837,667 15,980 411,038
Hotel-Ltd. Service 1984/1996 96 rooms 1,800,000 1,797,291 18,722 1,007,217
Hotel-Full Service 1992 63 rooms 1,800,000 1,787,262 28,369 702,771
Multifamily 1973/1989 101 units 1,663,000 1,652,937 16,366 455,895
Hotel-Ltd. Service 1984/1995 104 rooms 1,610,000 1,599,680 15,382 1,142,042
Industrial 1988 48,000 sf 1,600,000 1,598,387 33 236,738
Multifamily 1987 53 units 1,600,000 1,598,377 30,158 328,587
Retail-Anchored 1996 13,905 sf 1,550,000 1,550,000 111
Multifamily 1880/1986 71 units 1,481,000 1,479,009 20,831 352,192
Office 1985 34,509 sf 1,476,000 1,474,170 43 281,282
Mobile Home Park 1970 134 units 1,280,000 1,278,145 9,538 281,716
Industrial-Warehouse 1967 46,000 sf 1,187,129 1,184,944 26
Mobile Home Park 1966 80 pads 1,140,000 1,138,881 14,236 276,078
Multifamily 1967/1994 36 units 1,120,000 1,118,776 31,077 210,231
Retail-Unanchored 1985 28,584 sf 1,115,000 1,113,120 39
Retail-Anchored 1979/1996 55,638 sf 1,110,000 1,107,144 20 334,906
Multifamily 1967 48 units 1,014,000 1,008,760 21,016 293,065
Multifamily 1965/1996 59 units 929,000 925,919 15,694 312,532
Mobile Home Park 1950 75 pads 900,000 897,335 11,964 212,817
Multifamily 1971 40 units 896,000 893,607 22,340 242,917
Multifamily 1975/1996 48 units 780,000 778,008 16,208 351,572
Mobile Home Park 1963/1997 87 pads 756,000 754,779 8,676 138,679
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1997 UNDERWRITTEN
REVENUE REVENUE 1997 PERIOD REVENUE 1995 NOI 1996 NOI 1997 NOI
------- ------- ----------- ------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C>
$ 5,926,651 $ 6,303,655 TTM 7/31/97 $ 7,599,583 $ 3,557,797 $ 4,454,847 $ 4,993,147
4,112,135 4,326,157 TTM 7/31/97 4,409,233 2,921,023 3,181,237 3,390,161
3,829,319 3,862,998 TTM 7/31/97 3,835,282 2,956,472 3,146,087 3,202,634
1,627,602 1,895,269 TTM 7/31/97 1,876,296 632,759 1,206,784 1,441,960
1,699,964 1,777,310 TTM 7/31/97 1,708,958 1,273,647 1,320,381 1,393,487
1,727,676 1,731,826 TTM 7/31/97 1,850,471 1,217,365 1,208,541 1,249,158
1,032,999 998,904 TTM 7/31/97 1,052,830 775,911 797,673 781,577
446,361 427,423 TTM 7/31/97 437,786 300,489 319,889 308,249
477,907 471,499 TTM 7/31/97 456,076 299,686 309,052 319,559
- ------------- ------------- ------------- ------------- ------------- -------------
20,880,614 21,795,041 23,226,515 13,935,149 15,944,491 17,079,932
20,286,680
4,119,557 4,195,001 TTM 6/30/97 4,195,001 2,156,708 2,035,050 2,135,959
1,740,613 1,849,422 TTM 6/30/97 1,852,715 999,056 1,018,851 1,125,486
2,186,193 2,235,911 TTM 6/30/97 2,375,448 520,156 810,803 815,128
1,492,949 1,512,185 TTM 6/30/97 1,582,721 852,538 870,301 904,218
1,241,295 1,245,854 TTM 6/30/97 1,298,526 661,877 723,727 742,172
1,153,272 1,183,425 TTM 6/30/97 1,246,723 591,910 575,649 596,613
862,878 899,329 TTM 6/30/97 923,745 540,376 490,663 542,090
915,005 907,591 TTM 6/30/97 934,926 544,354 521,543 515,890
842,950 923,430 TTM 6/30/97 928,389 362,524 389,690 459,437
943,798 971,677 TTM 6/30/97 983,922 430,882 427,384 436,303
732,768 745,468 TTM 6/30/97 745,468 388,804 392,670 394,327
557,587 561,071 TTM 6/30/97 574,757 285,827 304,354 316,733
488,823 505,899 TTM 6/30/97 532,996 285,958 287,035 303,638
556,499 586,630 TTM 6/30/97 601,498 320,421 268,341 296,697
530,998 543,714 TTM 6/30/97 552,144 268,141 258,795 263,726
414,095 402,314 TTM 6/30/97 419,220 227,220 214,498 190,524
272,578 274,810 TTM 6/30/97 293,279 155,137 154,174 156,300
- ------------- ------------- ------------- ------------- ------------- -------------
19,051,858 19,543,731 20,041,478 9,591,889 9,743,528 10,195,241
57,853,289 59,077,423 TTM 5/31/97 53,597,166 13,221,951 18,684,537 19,629,690
11,839,089 11,892,438 TTM 7/31/97 12,042,865 6,865,381 7,533,411 7,844,078
11,930,963 11,932,458 TTM 6/30/97 11,876,162 8,087,829 8,003,811 8,044,159
9,496,255 9,572,328 TTM 6/30/97 9,205,377 6,402,193 6,802,332 6,890,101
68,393,789 73,015,923 TTM 7/31/97 73,015,923 9,674,231 16,346,633 17,156,324
29,778,000 33,232,998 TTM 6/30/97 32,142,416 14,473,800 17,048,273
8,579,293
17,500,669 17,648,400 TTM 6/30/97 16,209,401 8,639,122 9,098,114 9,486,139
2,307,474 2,307,474 TTM 6/30/97 2,134,413 2,762,475 2,274,800 2,285,101
1,068,194 1,085,743 TTM 6/30/97 1,182,134 1,039,596 1,041,680 1,056,934
941,225 944,786 TTM 6/30/97 899,528 904,007 896,616 902,042
736,564 687,631 TTM 6/30/97 736,306 884,441 643,833 657,849
620,930 620,930 TTM 12/31/96 589,883 587,646 606,318 606,318
813,569 883,547 TTM 6/30/97 870,663 446,580 325,086 400,198
709,829 824,971 TTM 6/30/97 632,494 408,774 308,689 420,820
143,483 155,116 TTM 6/30/97 154,729 131,714 134,330 143,183
113,901 132,169 TTM 4/30/97 130,705 113,901 113,901 132,169
78,108 78,108 TTM 4/30/97 81,674 77,208 78,108 77,313
- ------------- ------------- ------------- ------------- ------------- -------------
7,533,277 7,720,475 7,412,529 7,356,342 6,423,361 6,681,927
6,256,731 6,363,899 TTM 6/30/97 6,020,812 1,414,430 1,612,904 1,633,640
6,785,948 6,886,448 TTM 6/30/97 6,632,303 1,629,670 1,538,985 1,763,486
2,485,708 2,668,029 TTM 6/30/97 2,461,925 666,767 957,002 1,116,187
1,991,048 1,979,340 TTM 6/30/97 1,895,899 577,280 735,010 744,714
3,638,406 3,245,217 TTM 6/30/97 3,638,406 1,013,427 633,058 331,232
2,055,271 1,989,104 TTM 6/30/97 1,829,438 567,477 673,924 595,780
6,294,610 6,467,241 TTM 6/30/97 6,215,113 980,171 898,422 1,073,095
1,331,845 1,320,217 TTM 6/30/97 1,320,217 370,846 365,769 346,659
2,233,510 2,361,506 TTM 6/30/97 2,266,794 544,437 346,427 351,629
1,240,538 1,278,957 TTM 6/30/97 1,244,058 233,788 293,597 291,433
- ------------- ------------- ------------- ------------- ------------- -------------
34,313,615 34,559,958 33,524,965 7,998,293 8,055,098 8,247,855
9,185,877 9,045,888 TTM 7/31/97 8,685,342 6,840,963 5,906,432 5,944,038
5,539,133 5,289,210 TTM 5/31/97 5,164,243 3,551,898 2,752,671 2,572,328
5,111,228 5,071,902 TTM 5/31/97 4,949,140 2,740,035 2,568,972 2,482,285
- ------------- ------------- ------------- ------------- ------------- -------------
10,650,361 10,361,112 10,113,383 6,291,933 5,321,643 5,054,613
2,235,710 2,264,771 TTM 6/30/97 2,285,573 1,471,353 1,420,877 1,422,959
2,003,497 2,042,426 TTM 6/30/97 2,104,351 873,746 1,132,446 1,130,599
1,378,578 1,382,065 TTM 6//30/97 1,395,394 869,757 919,287 921,165
1,163,685 1,166,722 TTM 6/30/97 1,190,568 546,956 575,568 590,510
1,131,778 1,128,135 TTM 6/30/97 1,128,135 549,382 577,383 581,994
- ------------- ------------- ------------- ------------- ------------- -------------
7,913,248 7,984,119 8,104,021 4,311,194 4,625,561 4,647,227
1,667,139 1,717,892 TTM 8/31/97 1,785,511 1,126,705 1,011,266 1,031,311
1,543,040 1,605,791 TTM 6/30/97 1,626,339 1,023,262 938,027 981,349
1,283,323 1,318,689 TTM 8/31/97 1,321,223 848,253 785,286 808,658
- ------------- ------------- ------------- ------------- ------------- -------------
4,493,502 4,642,372 4,733,073 2,998,220 2,734,579 2,821,318
4,530,521 4,595,181 TTM 6/30/97 4,734,278 2,849,627 2,912,379 2,937,576
4,216,774 4,291,848 TTM 6/30/97 4,327,414 1,362,139 2,204,799 2,324,513
4,752,291 4,947,689 TTM 6/30/97 5,099,830 2,258,342 2,287,798 2,563,599
- - 2,711,641 - - -
1,909,767 2,016,161 TTM 6/30/97 1,959,231 647,163 978,029 987,305
1,793,780 1,838,043 TTM 6/30/97 1,866,931 941,622 941,805 932,498
- ------------- ------------- ------------- ------------- ------------- -------------
3,703,547 3,854,204 3,826,162 1,588,785 1,919,834 1,919,803
11,543,421 11,671,197 TTM 4/30/97 11,459,532 2,973,418 3,264,725 3,299,628
3,279,068 3,259,355 TTM 6/30/97 3,402,622 2,064,322 2,330,347 2,276,715
1,569,908
467,085
456,983
415,616
413,015
400,705
371,744
-------------
- - 2,525,148 - - -
3,602,161 3,917,717 TTM 6/30/97 4,106,090 1,938,297 2,011,158 2,302,510
2,144,812 2,958,989 TTM 6/30/97 2,914,443 859,322 1,534,586 2,266,987
3,278,984 3,351,313 TTM 6/30/97 3,052,885 2,353,341 2,289,340 2,373,568
5,237,940 5,605,054 TTM 6/30/97 5,148,572 1,917,887 2,255,697 2,569,420
3,769,129 3,707,111 TTM 6/30/97 3,420,703 2,154,907 2,262,547 2,292,167
1,486,384 1,985,331 TTM 6/30/97 1,995,737 92,285 1,357,331 1,753,624
3,961,208 4,014,686 TTM 6/30/97 3,883,321 986,895 1,072,094 1,137,956
2,979,488 2,955,921 TTM 6/30/97 2,864,491 641,575 796,869 843,201
3,745,119 3,853,812 TTM 6/30/97 3,703,583 639,499 685,024 846,522
2,129,520 2,167,816 TTM 6/30/97 2,163,944 399,864 374,609 452,675
- ------------- ------------- ------------- ------------- ------------- -------------
12,815,335 12,992,235 12,615,339 2,667,833 2,928,596 3,280,354
4,215,679 TTM 7/31/97 4,002,258 2,108,310
2,312,771 2,153,775 TTM 6/30/97 2,177,250 1,742,126 1,921,139 1,736,002
2,218,940 2,235,971 TTM 7/31/97 2,278,813 1,432,297 1,418,122 1,349,866
1,271,180 1,571,108 TTM 7/31/97 1,679,281 1,059,987 1,028,096 1,338,374
1,971,828 1,966,098 TTM 6/30/97 1,960,764 1,190,735 1,219,936 1,245,847
2,192,870 2,462,274 Imp TTM 7/31/97 2,393,675 1,187,876 1,294,904 1,564,308
-
-
5,966,964 6,050,298 TTM 7/31/97 5,902,249 1,567,615 1,636,635 1,869,157
1,834,803 1,822,141 TTM 6/30/97 1,832,656 976,538 1,014,872 947,131
2,214,476 2,185,459 TTM 5/31/97 2,185,459 1,159,997 1,125,944 1,114,640
-
1,793,073 1,886,416 TTM 7/31/97 1,861,828 1,160,823 1,064,401 1,222,041
-
2,663,715 3,017,012 TTM 7/31/97 3,107,965 1,021,702 994,672 1,395,161
2,098,600 2,054,005 TTM 6/30/97 2,188,356 925,825 1,033,600 989,602
-
1,593,883 1,792,315 TTM 7/31/97 1,678,284 929,797 1,036,258 1,224,276
1,820,507 1,788,317 TTM 7/31/97 1,800,714 971,830 932,476 875,434
1,402,293 1,393,016 TTM 5/31/97 1,443,676 796,877 807,219 784,876
2,077,703 2,036,785 TTM 6/30/97 1,978,504 1,392,898 1,421,628 1,509,589
1,683,677 1,682,196 TTM 6/30/97 1,695,612 712,318 958,227 936,983
1,827,688 2,030,192 TTM 7/31/97 1,824,679 557,000 1,135,340 1,364,692
1,120,985 1,146,172 TTM 7/31/97 1,123,465 825,926 892,051 925,724
1,697,578 1,679,145 TTM 5/31/97 1,763,249 800,437 1,156,292 1,154,589
1,224,193 1,195,717 TTM 5/31/97 1,220,810 731,934 744,969 711,226
717,086 651,760 Imp TTM 6/30/97 760,179 490,668 475,248 414,510
685,575 635,643 Imp TTM 6/30/97 612,847 415,911 352,629 303,269
- ------------- ------------- ------------- ------------- ------------- -------------
1,402,661 1,287,403 1,373,026 906,579 827,877 717,779
964,698 917,292 TTM 6/30/97 930,813 803,877 816,725 764,316
1,185,267 1,220,178 TTM 6/30/97 1,227,468 701,998 737,147 775,397
1,094,592 1,098,328 TTM 7/31/97 1,098,328 574,883 606,020 609,836
1,486,010 1,593,553 TTM 6/30/97 1,492,288 1,005,887 1,088,375 1,159,347
852,889 898,356 TTM 6/30/97 929,810 520,448 546,285 573,573
1,016,664 1,243,140 Ann. 7/31/97 1,255,135 698,941 622,138 789,661
839,647 812,640 TTM 5/30/97 837,768 656,793 667,731 652,568
1,290,256 1,235,819 TTM 7/31/97 1,348,463 739,932 648,593
1,226,393 1,259,143 TTM 7/31/97 1,291,605 564,531 525,383 549,369
671,943 TTM 7/31/97 675,486 542,051
982,791 991,495 TTM 6/30/97 987,477 688,338 726,839 742,455
679,048 687,051 TTM 6/30/97 675,769 544,193 534,889 553,513
2,943,103 3,301,201 TTM 6/30/97 3,301,201 542,389 431,957 441,314
2,337,398 2,277,788 TTM 6/30/97 2,277,788 363,240 455,570 400,211
2,215,312 2,228,513 TTM 6/30/97 2,198,429 546,956 524,312 522,518
- ------------- ------------- ------------- ------------- ------------- -------------
7,495,813 7,807,502 7,777,418 1,452,585 1,411,839 1,364,043
968,914 1,017,779 TTM 5/31/97 1,022,034 526,375 508,895 563,123
754,299 810,896 TTM 7/31/97 821,659 401,604 636,239 690,625
845,939 858,429 TTM 7/20/97 859,921 538,575 537,222 525,531
677,854 676,133 TTM 6/30/97 654,791 559,975 546,883 540,430
766,964 829,716 TTM 6/30/97 776,143 555,626 570,205 592,788
793,486 845,488 TTM 7/31/97 724,512 577,263 566,202 609,547
589,832 619,972 TTM 6/17/1997 589,794 531,163 537,300 564,775
1,029,691 1,066,729 TTM 7/31/97 1,163,155 435,477 423,806 458,693
649,944 691,651 TTM 6/30/97 698,282 433,033 510,010 575,956
830,265 842,254 TTM 7/31/97 827,210 673,649 698,759 730,580
964,228 971,412 TTM 5/31/97 945,713 640,610 646,316 632,227
839,176 845,359 TTM 6/30/97 900,510 443,135 434,528 456,414
3,938,357 3,835,897 TTM 6/30/97 3,835,897 814,157 991,847 881,507
949,256 1,023,531 TTM 6/30/97 994,320 527,828 593,257 664,268
460,444 552,860 TTM 7/31/97 543,483 224,599 317,897 374,279
211,174 304,449 TTM 7/31/97 390,056 44,831 157,272 225,253
- ------------- ------------- ------------- ------------- ------------- -------------
671,618 857,309 933,539 269,430 475,169 599,532
902,979 1,175,950 TTM 6/30/97 1,168,472 8,739 413,204 616,226
1,173,361 1,304,374 TTM 6/30/97 1,370,087 468,042 405,503 506,613
333,614 680,642 Ann 7/31/97 668,836 287,351 414,530 596,725
669,820 698,760 TTM 6/30/97 688,587 441,813 470,758 499,456
734,927 731,249 TTM 6/30/97 755,225 441,987 475,432 484,725
649,615 692,827 TTM 6/30/97 725,649 518,688 439,869 529,683
291,228 291,480 TTM 7/31/97 283,741 196,685 205,255 199,575
132,027 154,477 TTM 7/31/97 187,200 98,537 87,831 121,603
98,680 103,918 TTM 7/31/97 97,662 55,779 63,251 71,337
107,605 110,509 TTM 7/31/97 68,058 74,135 85,527 87,386
- ------------- ------------- ------------- ------------- ------------- -------------
629,540 660,384 636,661 425,136 441,864 479,901
655,471 662,859 TTM 7/31/97 689,467 416,328 489,661 489,842
661,312 669,390 TTM 5/31/97 648,550 304,081 477,644 494,336
751,176 799,061 TTM 6/30/97 788,673 389,549 411,553 448,050
811,138 Imp TTM 6/30/97 864,220 221,689 484,931
868,757 884,656 TTM 6/30/97 899,208 492,738 447,347 461,476
454,212 461,330 TTM 6/30/97 461,330 322,028 333,968 338,043
518,688 526,192 TTM 6/30/97 515,766 331,701 338,588 341,276
618,176 644,131 TTM 5/31/97 633,453 445,962 443,178 469,672
1,850,611 1,843,408 TTM 5/24/97 1,841,696 378,417 457,315 435,439
696,250 706,863 TTM 6/30/97 709,733 507,550 523,552 529,208
858,375 868,704 TTM 7/31/97 882,985 290,582 336,127 331,414
441,614 441,614 TTM 12/31/96 441,614 424,687 424,299 424,299
736,975 732,473 Imp TTM 6/30/97 736,960 444,649 375,491 365,045
1,922,761 1,952,524 TTM 3/31/97 1,923,263 725,536 677,347 712,155
494,080 490,757 TTM 5/31/97 501,035 352,090 355,408 350,473
1,416,502 1,609,074 TTM 6/30/97 1,416,448 371,492 631,660 795,880
397,507 408,954 TTM 6/30/97 402,950 306,408 320,560 324,401
988,712 998,190 TTM 6/30/97 987,201 396,222 431,730 417,909
445,571 441,649 Imp TTM 6/30/97 440,389 300,170 316,598 304,583
422,176 423,468 Imp TTM 7/31/97 437,170 267,238 268,555 280,885
462,597 462,743 Imp TTM 6/30/97 463,347 384,338 361,460 358,448
482,354 459,922 TTM 5/31/97 458,726 314,561 372,626 340,743
624,862 648,959 TTM 6/30/97 702,467 291,845 281,160 282,249
1,029,198 1,097,422 TTM 4/30/97 955,522 369,778 399,663 458,684
819,757 818,449 TTM 6/30/97 798,054 431,463 476,509 475,763
517,261 581,275 TTM 6/30/97 594,038 259,644 327,384
420,101 411,617 TTM 6/30/97 423,550 254,839 241,645 241,107
1,136,493 1,043,066 TTM 6/30/97 850,895 545,919 643,711 556,155
714,100 742,379 TTM 6/30/97 716,056 321,043 268,062 331,261
453,208 464,669 TTM 6/30/97 500,875 222,659 213,484 239,068
1,192,959 1,201,461 TTM 6/30/97 1,131,921 408,085 400,520 458,528
333,615 342,039 TTM 7/31/97 349,728 161,986 232,970 218,343
342,210 345,761 TTM 7/31/97 342,697 205,383 215,477 214,758
241,000
376,756 383,734 TTM 6/30/97 383,734 172,717 184,087 205,599
310,771 346,520 TTM 6/30/97 376,552 204,379 235,788 272,212
293,087 297,732 TTM 7/31/97 298,864 162,100 189,373 195,122
275,558 270,858 TTM 6/30/97 271,833 171,220 163,838 169,040
250,160 253,953 TTM 7/31/97 255,057 101,412 141,841 168,066
244,058 263,325 6/30/97 Ann 255,177 193,680 203,970
342,095 347,215 TTM 5/31/97 329,549 205,218 220,533 217,515
287,865 302,288 TTM 6/30/97 293,215 160,687 152,796 190,887
320,608 335,200 TTM 6/30/97 335,200 133,551 133,560 149,202
211,980 215,010 TTM 6/30/97 217,881 129,689 126,329 131,396
241,130 255,130 TTM 6/30/97 248,945 124,420 118,320 129,921
353,770 345,569 TTM 6/30/97 355,400 125,763 126,183 127,996
158,569 163,476 TTM 7/31/97 184,077 93,346 78,987 87,834
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NET CASH
UNDERWRITTEN NOI FLOW
NOI NET CASH FLOW DSCR DSCR LOCK BOX VALUE LTV
--- ------------- ---- ---- -------- ----- ---
<C> <C> <C> <C> <C> <C> <C>
$ 6,110,945 $ 5,875,191 1.62 1.52 $ 62,300,000 60%
3,468,312 3,219,842 1.62 1.52 36,100,000 60%
3,197,782 3,062,911 1.62 1.52 35,200,000 60%
1,417,446 1,348,257 1.62 1.52 16,000,000 60%
1,325,509 1,225,758 1.62 1.52 15,600,000 60%
1,365,339 1,128,418 1.62 1.52 17,700,000 60%
825,302 780,879 1.62 1.52 10,900,000 60%
311,886 289,988 1.62 1.52 4,000,000 60%
304,738 277,940 1.62 1.52 4,600,000 60%
- ------------ ------------ ---- ---- --------------- ---
18,327,259 17,209,184 1.62 1.52 HARD 202,400,000 60%
13,761,709 13,715,839 1.29 1.28 Hard 140,000,000 79%
2,174,422 1,943,922 1.42 1.29 21,200,000 77%
1,118,289 1,038,539 1.42 1.29 11,000,000 77%
966,504 820,504 1.42 1.29 13,740,000 77%
957,455 891,705 1.42 1.29 9,500,000 77%
780,070 718,570 1.42 1.29 7,700,000 77%
685,360 619,610 1.42 1.29 6,725,000 77%
566,032 525,282 1.42 1.29 5,800,000 77%
547,951 510,451 1.42 1.29 5,850,000 77%
484,139 430,139 1.42 1.29 4,880,000 77%
436,687 400,687 1.42 1.29 4,875,000 77%
398,218 362,718 1.42 1.29 4,235,000 77%
326,941 298,441 1.42 1.29 3,350,000 77%
331,646 307,646 1.42 1.29 3,250,000 77%
313,309 279,559 1.42 1.29 3,130,000 77%
273,644 244,644 1.42 1.29 2,700,000 77%
208,528 184,528 1.42 1.29 2,270,000 77%
175,602 160,602 1.42 1.29 1,700,000 77%
- ------------ ------------ ---- ---- --------------- ---
10,744,797 9,737,547 1.42 1.29 SOFT 111,905,000 77%
14,602,176 11,922,318 2.00 1.64 Hard 138,800,000 54%
7,896,064 7,277,416 1.42 1.31 Hard 93,000,000 66%
7,834,624 6,922,347 1.48 1.31 Hard 84,500,000 68%
6,383,986 5,815,112 1.38 1.26 Hard 70,000,000 73%
13,755,423 11,971,423 2.43 2.12 Hard 68,000,000 73%
15,218,377 13,611,256 2.05 1.83 Hard 120,000,000 58%
5,385,000 5,385,000 1.00 1.00 Hard 76,700,000 55%
7,597,608 6,387,633 2.07 1.74 Hard 97,000,000 46%
2,070,381 1,865,455 1.53 1.36 22,000,000 68%
1,117,861 1,015,913 1.53 1.36 10,000,000 68%
830,756 768,378 1.53 1.36 8,100,000 68%
684,437 614,907 1.53 1.36 6,650,000 68%
559,490 484,554 1.53 1.36 6,750,000 68%
386,246 314,234 1.53 1.36 5,750,000 68%
228,079 164,419 1.53 1.36 3,000,000 68%
138,154 121,289 1.53 1.36 1,375,000 68%
126,784 108,549 1.53 1.36 1,500,000 68%
78,429 70,354 1.53 1.36 750,000 68%
- ------------ ------------ ---- ---- --------------- ---
6,220,617 5,528,052 1.53 1.36 HARD 65,875,000 68%
1,427,100 1,126,059 1.90 1.50 10,800,000 73%
1,534,502 1,202,887 1.90 1.50 10,200,000 73%
929,272 806,176 1.90 1.50 7,100,000 73%
687,685 592,890 1.90 1.50 5,000,000 73%
731,902 549,982 1.90 1.50 4,500,000 73%
505,731 414,259 1.90 1.50 4,400,000 73%
846,945 536,189 1.90 1.50 3,800,000 73%
166,109 232,120 1.90 1.50 2,650,000 73%
265,557 152,217 1.90 1.50 2,900,000 73%
270,201 207,998 1.90 1.50 2,200,000 73%
- ------------ ------------ ---- ---- --------------- ---
7,365,004 5,820,777 1.90 1.50 HARD 53,550,000 73%
5,174,315 4,719,940 1.45 1.32 Hard 47,000,000 78%
2,369,612 1,992,321 1.40 1.20 20,000,000 85%
2,294,117 1,993,584 1.40 1.20 22,200,000 85%
- ------------ ------------ ---- ---- --------------- ---
4,663,729 3,985,905 1.40 1.20 HARD 42,200,000 85%
1,420,516 1,335,108 1.45 1.35 15,500,000 72%
1,170,789 1,074,669 1.45 1.35 12,150,000 72%
923,337 873,337 1.45 1.35 9,850,000 72%
597,567 556,339 1.45 1.35 6,400,000 72%
591,902 531,902 1.45 1.35 5,900,000 72%
- ------------ ------------ ---- ---- --------------- ---
4,704,111 4,371,355 1.45 1.35 SOFT 49,800,000 72%
1,091,550 1,027,216 1.34 1.25 10,990,000 81%
977,169 913,444 1.34 1.25 10,110,000 81%
795,218 738,218 1.34 1.25 9,100,000 81%
- ------------ ------------ ---- ---- --------------- ---
2,863,937 2,678,878 1.34 1.25 SOFT 30,200,000 81%
3,084,736 2,883,736 1.38 1.29 30,300,000 79%
2,405,167 2,292,167 1.35 1.29 Soft 26,000,000 76%
2,675,784 2,528,034 1.53 1.45 Soft 24,100,000 77%
2,622,241 2,412,049 1.49 1.37 Hard 28,000,000 64%
1,066,251 1,002,501 1.30 1.21 13,200,000 74%
971,306 901,306 1.30 1.21 11,100,000 74%
- ------------ ------------ ---- ---- --------------- ---
2,037,557 1,903,807 1.30 1.21 SOFT 24,300,000 74%
2,932,907 2,359,930 1.78 1.43 Hard 24,250,000 68%
2,352,378 2,126,022 1.71 1.54 Hard 25,000,000 65%
1,569,908 1,569,908 1.00 1.00 Hard 16,800,000 97%
453,073 424,293 1.32 1.23 4,100,000 72%
443,274 417,592 1.32 1.23 4,000,000 72%
403,147 378,741 1.32 1.23 3,600,000 72%
400,624 376,189 1.32 1.23 3,600,000 72%
388,684 365,128 1.32 1.23 3,500,000 72%
360,592 337,815 1.32 1.23 3,250,000 72%
- ------------ ------------ ---- ---- --------------- ---
2,449,394 2,299,758 1.32 1.23 HARD 22,050,000 72%
2,487,397 2,149,695 1.69 1.46 Hard 28,500,000 51%
2,077,678 1,620,207 1.62 1.27 Hard 22,200,000 65%
2,045,310 1,841,053 1.56 1.41 No 19,000,000 71%
2,139,806 1,882,377 1.69 1.49 Hard 26,000,000 50%
1,902,914 1,572,388 1.55 1.28 No 23,200,000 54%
1,758,002 1,643,744 1.43 1.34 No 19,000,000 63%
924,548 730,382 2.14 1.62 7,600,000 53%
712,158 568,933 2.14 1.62 4,400,000 53%
558,312 373,133 2.14 1.62 6,200,000 53%
414,680 306,483 2.14 1.62 3,750,000 53%
- ------------ ------------ ---- ---- --------------- ---
2,609,698 1,978,931 2.14 1.62 HARD 21,950,000 53%
1,928,393 1,728,280 1.67 1.49 Hard 18,000,000 64%
995,500 995,500 1.00 1.00 Hard 11,000,000 104%
1,652,669 1,488,499 1.43 1.29 No 15,000,000 75%
1,092,675 1.00 1.00 Hard 11,600,000 96%
1,388,821 1,277,422 1.44 1.33 Hard 14,000,000 78%
1,394,907 1,303,116 1.55 1.45 No 14,300,000 72%
1,201,022 1,137,272 1.28 1.21 Soft 12,600,000 80%
1,429,311 1,157,375 1.64 1.32 Hard 13,500,000 74%
- 959,577 1.00 1.00 Hard 9,800,000 98%
- 975,133 1.00 1.00 Hard 9,800,000 90%
1,685,095 1,389,983 1.73 1.43 No 15,900,000 59%
1,018,825 935,185 1.30 1.19 Soft 11,200,000 79%
1,115,674 1,009,674 1.45 1.31 No 11,600,000 75%
- 889,380 1.00 1.00 Hard 9,000,000 96%
823,472 823,472 1.00 1.00 Hard 8,800,000 97%
1,139,557 1,065,557 1.48 1.38 No 10,400,000 81%
- 864,126 1.00 1.00 Hard 8,750,000 96%
1,426,989 1,236,905 1.73 1.50 No 12,557,000 66%
994,261 936,169 1.38 1.30 No 11,290,000 69%
- 782,874 1.00 1.00 Hard 7,900,000 97%
1,104,473 942,926 1.67 1.43 No 10,250,000 74%
917,497 828,124 1.52 1.37 No 8,700,000 82%
870,285 814,285 1.38 1.29 No 9,250,000 77%
1,357,567 1,121,998 2.01 1.66 No 11,100,000 64%
951,492 841,560 1.43 1.26 No 8,400,000 78%
1,091,082 890,872 1.72 1.40 No 11,300,000 58%
884,530 814,182 1.47 1.36 No 9,400,000 69%
1,121,858 953,644 1.77 1.50 No 10,000,000 65%
735,104 678,483 1.34 1.23 No 8,300,000 75%
504,795 442,766 1.64 1.46 4,600,000 73%
396,352 359,432 1.64 1.46 3,600,000 73%
- ------------ ------------ ---- ---- --------------- ---
901,147 802,198 1.64 1.46 NO 8,200,000 73%
746,396 663,343 1.39 1.23 No 8,000,000 74%
587,540 1.00 1.00 Hard 5,800,000 96%
776,275 726,209 1.67 1.56 No 8,000,000 69%
526,235 1.00 1.00 Hard 5,650,000 97%
603,695 562,195 1.36 1.26 No 6,600,000 80%
982,749 843,715 1.88 1.61 No 9,350,000 55%
516,630 1.00 1.00 Hard 5,100,000 96%
586,222 570,972 1.28 1.25 No 6,500,000 74%
810,043 714,838 1.76 1.55 Hard 7,400,000 63%
659,682 603,041 1.53 1.40 No 6,230,000 74%
762,209 630,710 1.76 1.46 No 6,775,000 66%
590,637 535,387 1.58 1.44 No 5,800,000 75%
537,549 492,644 1.34 1.23 No 6,000,000 72%
669,726 654,626 1.81 1.77 No 7,500,000 57%
534,525 496,219 1.44 1.33 Hard 7,100,000 60%
445,720 1.00 1.00 Hard 4,400,000 96%
445,720 1.00 1.00 Hard 4,400,000 96%
440,089 412,189 2.24 2.13 3,100,000 52%
399,402 383,202 2.24 2.13 2,100,000 52%
493,784 468,284 2.24 2.13 3,000,000 52%
- ------------ ------------ ---- ---- --------------- ---
1,333,275 1,263,675 2.24 2.13 NO 8,200,000 52%
580,423 544,820 1.48 1.39 No 6,000,000 70%
652,960 561,415 1.57 1.35 No 5,700,000 74%
500,572 452,272 1.39 1.26 Soft 5,350,000 77%
519,941 461,206 1.45 1.29 Hard 5,300,000 77%
390,770 1.00 1.00 Hard 4,200,000 97%
576,478 507,077 1.49 1.31 No 5,200,000 78%
491,212 440,850 1.44 1.30 No 5,600,000 71%
517,708 488,091 1.36 1.28 No 5,000,000 79%
550,754 507,254 1.63 1.50 No 5,000,000 79%
551,418 493,892 1.52 1.36 No 5,200,000 75%
696,875 594,967 1.98 1.69 No 4,840,000 80%
585,745 507,832 1.57 1.36 No 5,500,000 69%
360,996 1.00 1.00 Hard 3,860,000 97%
489,741 478,681 1.50 1.47 No 5,100,000 73%
881,507 844,307 2.06 1.97 No 5,300,000 66%
619,233 490,565 1.73 1.37 No 5,250,000 67%
341,991 290,418 1.74 1.49 No 3,100,000 60%
298,183 257,995 1.74 1.49 No 2,700,000 60%
- ------------ ------------ ---- ---- --------------- ---
640,174 548,413 1.74 1.49 NO 5,800,000 60%
550,442 529,192 1.48 1.42 No 5,100,000 68%
661,960 519,728 1.93 1.51 No 6,600,000 53%
564,363 452,230 1.64 1.32 No 5,600,000 62%
472,487 423,143 1.44 1.29 No 4,750,000 73%
508,195 446,278 1.48 1.30 No 5,700,000 59%
507,857 448,792 1.52 1.35 No 5,370,000 61%
177,058 173,348 1.33 1.29 1,825,000 87%
140,804 136,405 1.33 1.29 1,050,000 87%
57,976 55,841 1.33 1.29 500,000 87%
45,176 43,456 1.33 1.29 350,000 87%
- ------------ ------------ ---- ---- --------------- ---
421,014 409,050 1.33 1.29 NO 3,725,000 87%
507,650 453,387 1.60 1.43 No 5,000,000 65%
461,676 395,147 1.59 1.36 No 4,280,000 74%
448,991 395,834 1.47 1.29 No 4,500,000 69%
555,654 469,365 1.82 1.54 No 4,500,000 68%
475,399 433,822 1.68 1.53 No 4,025,000 74%
337,240 336,178 1.27 1.27 No 4,070,000 73%
328,706 320,256 1.28 1.24 No 3,900,000 74%
451,789 422,072 1.64 1.53 No 5,250,000 54%
429,372 358,622 1.63 1.37 No 4,800,000 58%
497,078 483,966 2.08 2.02 No 5,500,000 50%
260,790 1.00 1.00 Hard 2,790,000 97%
344,036 294,536 1.52 1.30 No 3,375,000 80%
423,051 404,025 1.34 1.28 No 4,000,000 65%
386,571 303,113 1.52 1.20 Hard 3,850,000 67%
564,822 468,659 1.97 1.63 Hard 3,350,000 76%
311,220 287,220 1.37 1.26 No 3,400,000 74%
495,774 424,952 1.85 1.59 No 5,200,000 47%
320,485 279,652 1.50 1.31 Hard 3,500,000 70%
408,934 370,434 1.57 1.42 No 4,000,000 61%
313,098 305,008 1.32 1.29 No 3,200,000 75%
230,257 1.00 1.00 Hard 2,460,000 97%
286,067 268,067 1.53 1.44 No 3,010,000 73%
338,226 299,435 1.66 1.47 No 3,000,000 73%
336,873 307,938 1.57 1.44 No 3,200,000 68%
331,766 301,516 1.67 1.52 No 2,720,000 78%
348,369 300,593 1.75 1.51 No 3,200,000 63%
377,161 337,258 1.82 1.63 No 4,200,000 45%
320,573 286,323 1.84 1.64 No 3,400,000 54%
229,537 223,787 1.33 1.29 No 2,300,000 80%
344,407 301,862 1.78 1.56 No 2,600,000 69%
328,890 293,087 1.56 1.39 No 2,700,000 66%
257,917 232,667 1.61 1.46 No 2,225,000 74%
345,648 289,052 1.93 1.61 No 2,500,000 64%
241,943 209,232 1.60 1.38 No 2,400,000 67%
203,998 188,699 1.35 1.25 No 2,000,000 80%
234,975 232,889 1.53 1.52 No 2,700,000 57%
190,848 183,996 1.35 1.30 No 1,850,000 80%
270,058 223,535 1.87 1.54 No 2,150,000 69%
192,327 185,627 1.46 1.41 No 1,800,000 71%
114,187 1.00 1.00 Hard 1,220,000 97%
146,359 142,359 1.34 1.30 No 1,530,000 74%
168,484 159,484 1.66 1.57 No 1,500,000 75%
183,765 157,536 1.70 1.45 No 1,575,000 71%
204,025 164,376 1.77 1.43 No 1,700,000 65%
154,026 137,900 1.57 1.40 No 1,500,000 67%
150,213 131,555 1.65 1.44 No 1,250,000 74%
121,005 119,030 1.31 1.29 No 1,200,000 75%
121,782 108,782 1.42 1.27 No 1,345,000 66%
113,487 100,027 1.50 1.32 No 1,130,000 69%
109,617 105,267 1.47 1.41 No 1,260,000 60%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U/W ACTUAL
BALLOON/
ANTICIPATED AUDIT/AGREED AUDITS/AGREED ONGOING ONGOING
REPAYMENT 1997 1997 OCCUPANCY U/W UPON PROCEDURES UPON PROCEDURES CAPITAL CAPITAL
DATE LTV OCCUPANCY PERIOD OCCUPANCY UPFRONT FORWARD RESERVE RESERVE
-------- --------- ------ --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
48% 94% 9/1/97 94% $ 0.16 $ 0.15
48% 95% 9/1/97 95% 0.16 0.15
48% 100% 9/1/97 95% 0.16 0.15
48% 89% 9/1/97 89% 0.16 0.15
48% 100% 9/1/97 92% 0.16 0.15
48% 77% 9/1/97 77% 0.16 0.15
48% 100% 9/1/97 95% 0.16 0.15
48% 100% 9/1/97 95% 0.16 0.15
48% 100% 9/1/97 95% 0.16 0.15
---
48% YES YES
24% 100% 7/31/97 100% Yes No 0.05 0.08
69% 90% 7/31/97 90% 250 200
69% 99% 7/31/97 91% 250 200
69% 88% 7/31/97 80% 250 200
69% 99% 7/31/97 94% 250 200
69% 98% 7/31/97 92% 250 200
69% 99% 7/31/97 90% 250 200
69% 97% 7/31/97 94% 250 200
69% 95% 7/31/97 88% 250 200
69% 89% 7/31/97 86% 250 200
69% 98% 7/31/97 92% 250 200
69% 93% 7/31/97 93% 250 200
69% 96% 7/31/97 90% 250 200
69% 98% 7/31/97 93% 250 200
69% 99% 7/31/97 94% 250 200
69% 92% 7/31/97 87% 250 200
69% 93% 7/31/97 84% 250 200
69% 97% 7/31/97 92% 250 200
---
69% NO YES
37% 69% TTM 5/31/97 67% Yes No 5% 5%
53% 86% 6/1/97 84% No Yes 0.30 0.30
61% 86% 7/31/97 86% Yes Yes 0.20 0.15
65% 100% 7/25/97 95% No No 0.20 0.20
36% 68% TTM 7/31/97 68% Yes Yes 8,000 8,000
3% 71% TTM 6/30/97 70% Yes Yes 5% 4%
0% 100% 7/31/97 100% No No - -
46% 100% 6/97 95% Yes Yes - -
56% 100% 8/1/97 92% 0.15 0.15
56% 100% 8/1/97 97% 0.15 0.15
56% 100% 8/1/97 95% 0.15 0.15
56% 100% 8/1/97 95% 0.30 0.15
56% 100% 8/1/97 95% 0.23 0.15
56% 70% 8/1/97 70% 0.24 0.15
56% 67% 8/1/97 77% 0.17 0.15
56% 100% 8/1/97 93% 0.25 0.15
56% 100% 8/1/97 93% 0.15 0.15
56% 100% 8/1/97 93% 0.25 0.15
---
56% YES YES
58% 65% TTM 6/30/97 69% 5% 4%
58% 75% TTM 6/30/97 75% 5% 4%
58% 72% TTM 6/30/97 68% 5% 4%
58% 69% TTM 6/30/97 65% 5% 4%
58% 60% TTM 6/30/97 69% 5% 4%
58% 83% TTM 6/30/97 80% 5% 4%
58% 63% TTM 6/30/97 63% 5% 4%
58% 42% TTM 6/30/97 42% 5% 4%
58% 43% TTM 6/30/97 43% 5% 4%
58% 58% TTM 6/30/97 56% 5% 4%
---
58% YES YES
65% 94% 8/1/97 94% No Yes 0.20 0.20
77% 79% 8/97 78% 0.48 0.48
77% 74% 8/97 74% 0.35 0.35
---
77% NO YES
65% 95% 6/30/97 94% 272 272
65% 89% 3/31/97 87% 267 267
65% 95% 6/30/97 93% 250 241
65% 95% 6/30/97 92% 250 232
65% 89% 6/30/97 89% 250 227
---
65% YES NO
65% 95% 7/21/97 95% 255 255
65% 95% 7/21/97 95% 275 275
65% 99% 7/21/97 94% 259 259
---
65% YES YES
69% 98% 7/31/97 95% Yes Yes 250 250
68% 94% 5/1/97 92% No Yes 250 250
70% 97% 7/17/97 95% No No 250 250
59% 100% 8/1/97 96% No Yes 0.15 0.15
66% 88% 6/24/97 96% 250 250
66% 92% 6/24/97 92% 250 250
---
66% NO YES
54% 65% TTM 4/30/97 64% Yes Yes 5% 4%
58% 92% 8/1/96 92% No No 0.35 0.20
0% 100% 9/3/97 100% No No - -
31% 100% 8/15/97 95% 0.25 -
31% 100% 8/15/97 95% 0.26 -
31% 100% 8/15/97 95% 0.29 -
31% 100% 8/15/97 95% 0.30 -
31% 100% 8/15/97 95% 0.27 -
31% 100% 8/15/97 95% 0.30 -
---
31% NO NO
46% 69% 7/1/97 69% No No 0.15 0.15
58% 93% 6/25/97 93% No No 0.20 0.20
59% 90% 5/30/97 90% No No 0.20 0.20
42% 88% TTM 7/31/97 81% Yes Yes 5% 4%
48% 91% 1/28/97 90% No No 0.20 0.20
55% 100% 6/30/97 95% No No 0.20 0.20
46% 70% TTM 6/30/97 69% 5% 4%
46% 66% TTM 6/30/97 66% 5% 4%
46% 63% TTM 6/30/97 62% 5% 4%
46% 63% TTM 6/30/97 62% 5% 4%
---
46% YES NO
54% 84% TTM 7/31/97 80% Yes No 5% 4%
0% 100% 5/1/97 100% No No - -
64% 92% 7/23/97 93% No No 0.15 0.15
0% No No 0 0
69% 97% 8/18/97 95% No No 0.20 0.20
64% 100% 6/1/97 95% No No 0.15 0.15
73% 97% 6/1/97 95% No No 250 250
63% 98% 7/1/97 95% No Yes 0.20 0.20
0% No No - -
0% No No - -
26% 60% TTM 7/31/97 63% No No 5% 4%
70% 94% 5/31/97 94% No Yes 290 290
67% 91% 5/20/97 92% No No 250 250
0% 0% No No - -
0% 100% 9/3/97 100% No No - -
73% 93% 7/22/97 93% No No 250 250
0% No No - -
46% 87% 1/1/97 87% No No 0.20 0.20
56% 100% 7/17/97 95% No No 0.15 0.15
0% No No - -
66% 100% 9/1/97 92% No No 0.22 0.22
73% 96% 7/21/97 90% No No 294 294
69% 91% 7/25/97 91% Yes No 250 250
50% 78% 6/10/97 78% No No 0.15 0.15
66% 92% 5/22/97 90% No No 0.19 0.19
39% 79% 7/1/97 79% No No 0.12 0.12
57% 98% 7/1/97 95% No No 0.15 0.15
55% 86% 6/25/97 85% No No 0.20 0.20
65% 95% 6/30/97 93% No No 275 250
66% 95% 6/30/97 94% 0.15 0.15
66% 97% 6/30/97 95% 0.15 0.15
---
66% NO NO
64% 95% 7/11/97 91% No No 0.21 0.21
0% 100% 4/30/97 100% No No - -
54% 97% 7/26/97 95% No No 255 250
0% 100% 9/3/97 100% No No - -
71% 95% 8/25/97 95% No No 250 250
47% 95% 6/1/97 95% No No 0.25 0.18
0% 100% 4/30/97 100% No No - -
66% 85% 6/30/97 85% No No 50.00 -
58% 100% 6/1/97 95% No No 0 0
61% 93% 7/01/97 91% No No 0.28 0.28
45% 87% 8/1/97 86% No No 0 0
59% 95% 7/2/97 95% No No 250.00 250.00
59% 94% 8/27/97 94% No No 0 0
53% 98% 6/1/97 95% No No 50.00 25.00
48% 99% 9/4/97 97% No No 0 0
0% 100% 4/30/97 100% No No - -
0% 100% 4/30/97 100% No No - -
1% 91% TTM 6/30/97 91% 300 300
1% 95% TTM 6/30/97 95% 300 300
1% 96% TTM 6/30/97 95% 300 300
--
1% NO NO
57% 100% 5/31/97 95% No No 258 258
62% 98% 6/1/97 92% No No 0.36 0.20
68% 91% 8/1/97 91% No No 346 250
61% 96% 7/17/97 94% No No 0.20 0.20
0% 100% 9/3/97 100% No No - -
64% 93% 5/27/97 93% No No 0.20 0.15
63% 78% 7/28/97 78% No No 0.24 0.24
66% 100% 7/23/97 97% No No 0.16 0.15
70% 95% 6/20/97 92% No No 250 250
61% 96% 5/5/97 95% No No 0.19 0.19
65% 97% 7/97 94% No No 0.15 0.15
62% 99% 6/10/97 95% No No 0.20 0.20
0% 100% 9/3/97 100% No No - -
69% 94% 6/1/97 94% No No 35.00 -
2% 92% TTM 6/30/97 92% No No 300 300
59% 100% 6/30/97 95% No No 0.20 0.20
43% 98% 7/15/97 95% No No 0.18 0.18
43% 100% 7/15/97 92% No No 0.16 0.16
---
43% NO NO
40% 100% 6/30/97 95% No No 250.00 250.00
45% 88% 7/1/97 88% No No 0.20 0.20
52% 100% 7/1/97 95% No No 0.31 0.31
56% 100% 7/8/97 98% No No 0.17 0.17
55% 100% 7/23/97 94% No No 0.15 0.15
52% 92% 7/10/97 91% No No 0.32 0.32
72% 97% 7/1/97 95% 35 -
72% 76% 8/1/97 78% 25 -
72% 97% 8/1/97 95% 35 -
72% 95% 8/26/97 95% 43 -
---
72% NO NO
54% 94% 8/4/97 93% No No 0.20 0.15
60% 98% 5/1/97 95% No No 0.15 0.15
58% 100% 7/7/97 95% No No 0.20 0.20
58% 100% 6/30/97 95% No No 0.20 0.20
62% 98% 6/30/97 95% No No 277 277
59% 100% 7/24/97 95% No No 50.00 -
60% 99% 6/20/97 95% No No 50 -
45% 95% 6/1/97 95% No No 0.15 0.15
54% 92% 8/28/97 92% No No 250 250
47% 98% 6/1/97 95% No No 57.51 25.00
0% 100% 9/3/97 100% No No - -
70% 92% 7/30/97 88% No No 250.00 250.00
2% 100% 1/1/97 100% No No 0.22 0.22
53% 97% 6/30/97 92% No No 0.15 0.15
57% 73% TTM 3/31/97 72% No No 5% 4%
1% 100% 7/1/97 95% No No 250.00 200.00
35% 81% TTM 6/30/97 74% No No 5% 4%
56% 100% 7/18/97 97% No Yes 0.23 0.23
3% 93% 6/06/97 93% No No 250 250
63% 97% 6/30/97 95% No No 50.00 -
0% 100% 9/3/97 100% No No - -
65% 100% 8/18/97 95% No No 250.00 250.00
63% 94% 4/16/97 93% No No 0.15 0.20
57% 88% 6/2/97 88% No No 0.15 0.15
71% 93% 6/30/97 93% No No 250 150
52% 82% TTM 4/30/97 73% No No 0.05 0.04
33% 77% TTM 6/30/97 75% No No 5% 5%
45% 93% 8/5/97 91% No No 250.00 225.00
73% 96% 6/19/97 95% No No 50 -
31% 77% TTM 6/30/97 65% No No 0.05 0.04
33% 61% TTM 6/30/97 61% No No 5% 5%
62% 97% 6/1/97 95% No No 250.00 250.00
48% 71% TTM 6/30/97 67% No No 5% 4%
55% 92% 6/1/97 92% No No 0.29 0.29
53% 98% 7/25/97 92% No No 289 289
2% 100% 6/18/97 100% No No 0.15 0.15
70% 99% 7/29/97 95% No No 250 250
60% 100% 6/05/97 93% No No 0.22 0.22
61% 92% 7/31/97 92% No No 50 -
0% 100% 9/3/97 100% No No - -
51% 98% 8/1/97 95% No No 50 -
61% 100% 8/1/97 95% No No 250.00 250.00
59% 100% 7/8/97 93% No No 0.19 0.19
49% 100% 6/1/97 95% No No 0.15 0.15
46% 94% 6/30/97 94% No No 336 300
62% 92% TTM 6/30/97 92% No No 316.23 316.23
53% 96% 6/1/97 95% No No 25 -
59% 95% 6/30/97 95% No No 325.00 325.00
63% 95% 7/17/97 92% No No 280 280
42% 97% 7/15/97 95% No No 50.00 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEASE % OF LEASE % OF LEASE % OF
RESERVE EXPIRATION TOTAL EXPIRATION TOTAL EXPIRATION TOTAL
UNITS TENANT 1 DATE SF TENANT 2 DATE SF TENANT 3 DATE SF
----- -------- ---- -- -------- ---- -- -------- ---- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$/psf Shoppers Club 2016 13% Home Depot 2026 23% Best Buy 2009 9%
$/psf Stein Mart 2002 12% Reading China 2004 8% Fresh Market 1998 5%
$/psf Sears 2016 67% Giant Food 2018 11% Rite Aid 1999 1%
$/psf Giant Food 1998 22% Caldor 2017 44%
$/psf Safeway 2000 30% McCroy 2000 13%
$/psf CVS Drug 2002 4% Nicks-Comm Pride 1999 11%
$/psf Giant Food 1999 66%
$/psf Giant Food 2019 83%
$/psf Giant Food 1998 59% Rite Aid 2000 14%
$/psf Blue Cross/Blue Shield 2012 99%
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
% revenue
$/psf JC Penney 2011 27%
$/psf AmSouth Bank 2004 33%
$/psf GSA 1998 21% John J. McMullen 1999 14%
$/bed
% revenue
$/psf Comsat 2007 100%
$/psf Swiss Bank Corporation 2086 100%
$/psf Rickitt and Coleman 2003 100%
$/psf TCI 2012 100%
$/psf Estee Lauder 2003 100%
$/psf Paid Prescriptions(Merck) 2006 100%
$/psf Roadcon (Cyro) 2004 100%
$/psf MDA Services 2000 40% Symtron Systems 2001 30%
$/psf Auditrial 2001 7%
$/psf New Jersey Bell 2001 100%
$/psf Stratton Travel 2001 100%
$/psf Greetree Learning 2004 100%
% revenue
% revenue
% revenue
% revenue
% revenue
% revenue
% revenue
% revenue
% revenue
% revenue
$/psf *Sears *JC Penny *Hecht's
$/psf *JC Penney 0 *Foleys 0 Office Max 2000 8%
$/psf *JC Penney 0 *Foleys 0 Ross Dress 4 2003 9%
Less
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
$/psf Hybridon 2012 100%
$/unit
$/unit
% revenue
$/psf Capriccio 2000 11%
$/psf Value City 2017 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Pinnacle Health Entp. 2014 100%
$/psf Department of Labor 2000 16% Dept. of Audit/ 1998 12%
Control
$/psf
$/psf Weisman/Mt. Sinai 1999 8% Meridia Hilcrest 2007 7%
Hospt.
% revenue
$/psf
$/psf Staples 2006 22% Bed, Bath & Beyond 2006 41%
% revenue
% revenue
% revenue
% revenue
% revenue
$/psf Cabelvision 2017 100%
$/psf Staples 2003 14% Big 5 Sporting Goods 2013 9% Blockbuster 2008 7%
Music
Kmart 2018 100%
$/psf Sears 2004 32% Bon Marche 2011 19%
$/psf TJ Maxx 2000 29% Bassett Direct Plus 2006 19% Good's 1999 15%
Furniture
$/unit
$/psf Midwest 2003 20% Wausau 2001 19%
Builder's Square 2019 100%
Builder's Square 2019 100%
% revenue
$/unit
$/unit
Builder's Square 2019 100%
$/psf Value City 2017 100%
$/unit
0 Builder's Square 2019 100%
$/psf AmSouth Bank 2011 23% Hand Arendall 2003 14%
$/psf ARIAD Pharmaceuticals 2002 82%
0 Builder's Square 2020 100%
$/psf National Tech Team 2000 53%
$/unit
$/unit
$/psf Foodland 2003 27% Rose's 2007 15% Heironimus 1999 13%
$/psf Hills Department Store 1998 34% Insalaco Market 2015 26% CVS 1999 6%
$/psf
$/psf Bi Lo 2005 32% Revco 2000 10%
$/psf
$/unit
$/psf Kroger 1999 48% Hollywood Video 2007 11%
$/psf Kroger 2000 53% Pizza Hut 1999 4%
$/psf Wal-Mart 2007 53% Revco 2002 5% Bi-Lo 2006 19%
$/psf Circuit City 2019 100%
$/unit
$/psf Value City 2017 100%
$/unit
$/psf
$/psf Circuit City 2019 100%
$/unit
$/psf
$/psf Food Lion 2006 36% Revco 2001 11%
$/psf LA Board of Education 2005 36%
$/unit
$/psf The Gap 2004 15%
$/unit
$/psf Food Lion 2006 28% Kerr Drugs 2006 9% Belks 2016 19%
$/psf Circuit City 2019 100%
$/psf Circuit City 2019 100%
$/bed
$/bed
$/bed
$/unit
$/psf State of California 2004 29% Brooks Fiber 2007 23%
$/unit
$/psf Food Lion 2010 23% Revco 2000 7% Leggett's 2006 29%
$/psf Value City 2017 100%
$/psf
$/psf *Kash and Karry Madison Bank 2011 11%
$/psf Kmart 2002 93%
$/unit
$/psf Food Lion 2016 41% Revco 2003 10%
$/psf Walmart 2006 30% Buds 1999 16% Price Cutter 2006 23%
$/psf Jacor Broadcasting 2000 56%
$/psf Value City 2017 100%
$/unit
$/bed
$/psf
$/psf
$/psf
$/bed
$/psf IRS 2001 27% Sears 2002 12%
$/psf
$/psf Wal Mart 2007 73%
$/psf
$/psf
$/unit
$/unit
$/unit
$/unit
$/psf Kinkos 2000 15% Blockbuster Video 2000 13%
$/psf Kmart 2003 64% Weiners 1999 20%
$/psf
$/psf
$/unit
$/unit
$/unit
$/psf 32nd St. Market 2001 57%
$/unit
$/unit
$/psf Value City 2017 100%
$/unit
$/psf K-Mart 2012 100%
$/psf Bradlees 2004 55% Jo-Ann Fabrics 2003 17% Fashion Bug 2001 5%
% revenue
$/unit
% revenue
$/psf Food Lion 2007 46% Revco 1997 13%
$/unit
$/unit
$/psf Value City 2017 100%
$/unit
$/psf Checkers 2007 58% Big Lots 2004 29%
$/psf
$/unit
% revenue
% revenue
$/unit
$/unit
% revenue
% revenue
$/unit
% revenue
$/psf
$/unit
$/psf Walgreens 2057 100%
$/unit
$/psf
$/unit
$/psf Value City 2017 100%
$/unit
$/unit
$/psf
$/psf Winn Dixie 2000 59% Eckerd Drugs 1999 16%
$/unit
$/unit
$/unit
$/unit
$/unit
$/unit
</TABLE>
<PAGE>
ANNEX C
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset
Securitization Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1997-D5 (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), CEDEL or Euroclear. The
Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional Eurobond practice (i.e., seven calendar days settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Offered Certificates will be effected on a delivery
against payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations of their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of CEDE & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, calculated on the basis of a year
of 360 days consisting of twelve 30-day months. Payment will then be made by
the respective Depositary to the DTC Participant's account against delivery
of the Global Securities. After settlement has been completed, the Global
Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the CEDEL
Participant's
C-1
<PAGE>
or Euroclear Participant's account. The securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants can elect not to pre-position funds and allow that
credit line to be drawn upon to finance settlement. Under this procedure,
CEDEL Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts.
However, interest on the Global Securities would accrue from the value date.
Therefore, in many cases the investment income on the Global Securities
earned during that one day period may substantially reduce or offset the
amount of such overdraft charges, although this result will depend on each
CEDEL Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date,
calculated on the basis of a year of 360 days consisting of 12 30-day months.
The payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the CEDEL Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred
over the one-day period. If settlement is not completed on the intended value
date (i.e., the trade fails) receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as
of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments
C-2
<PAGE>
of interest (including original issue discount) on registered debt issued by
U.S. Persons (as defined herein), unless (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain or intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate.
Exceptions for non-U.S. Persons (Form W-8): Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exception for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of a
Certificate and reside in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by the holder of a Certificate or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust if (A) for taxable years beginning
after December 31, 1996 (or for taxable years ending after August 20, 1996,
if the trustee has made an applicable election) a court within the United
States is able to exercise primary supervision over the administration of
such trust, and one or more U.S. Persons have the authority to control all
substantial decisions of such trust, or (B) for all other taxable years, such
trust is subject to United States federal income tax regardless of the source
of its income. This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
C-3
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
C-4
<PAGE>
ANNEX D
WEIGHTED AVERAGE NET MORTGAGE PASS-THROUGH RATES
<TABLE>
<CAPTION>
DISTRIBUTION DATE
(ASSUMING THAT THE 14TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE) WAC
<S> <C> <C>
November 14, 1997 . = 8.33408
December 14, 1997 . = 8.33417
January 14, 1998 .. = 8.58109
February 14, 1998 . = 8.58121
March 14, 1998 ..... = 7.84063
April 14, 1998 ..... = 8.58763
May 14, 1998 ....... = 8.33456
June 14, 1998 ...... = 8.58786
July 14, 1998 ...... = 8.33473
August 14, 1998 ... = 8.58810
September 14, 1998 = 8.58823
October 14, 1998 .. = 8.33499
November 14, 1998 . = 8.58847
December 14, 1998 . = 8.33518
January 14, 1999 .. = 8.58242
February 14, 1999 . = 8.58255
March 14, 1999 ..... = 7.84103
April 14, 1999 ..... = 8.58909
May 14, 1999 ....... = 8.33563
June 14, 1999 ...... = 8.58935
July 14, 1999 ...... = 8.33582
August 14, 1999 ... = 8.58962
September 14, 1999 = 8.58976
October 14, 1999 .. = 8.33612
November 14, 1999 . = 8.59004
December 14, 1999 . = 8.33633
January 14, 2000 .. = 8.59034
February 14, 2000 . = 8.58410
March 14, 2000 ..... = 8.08906
April 14, 2000 ..... = 8.59077
May 14, 2000 ....... = 8.33686
June 14, 2000 ...... = 8.59107
July 14, 2000 ...... = 8.33707
August 14, 2000 ... = 8.59138
September 14, 2000 = 8.59154
October 14, 2000 .. = 8.33741
November 14, 2000 . = 8.59187
December 14, 2000 . = 8.33764
January 14, 2001 .. = 8.58571
February 14, 2001 . = 8.58588
March 14, 2001 ..... = 7.84192
April 14, 2001 ..... = 8.59267
May 14, 2001 ....... = 8.33822
June 14, 2001 ...... = 8.59302
July 14, 2001 ...... = 8.33847
August 14, 2001 ... = 8.59337
September 14, 2001 . = 8.59355
October 14, 2001 ... = 8.33885
November 14, 2001 . = 8.59392
December 14, 2001 . = 8.33912
January 14, 2002 .. = 8.58771
February 14, 2002 . = 8.58790
March 14, 2002 ..... = 7.84240
April 14, 2002 ..... = 8.59484
May 14, 2002 ....... = 8.33980
June 14, 2002 ...... = 8.59530
July 14, 2002 ...... = 8.34015
August 14, 2002 ... = 8.59576
September 14, 2002 = 8.59601
October 14, 2002 .. = 8.34068
November 14, 2002 . = 8.59649
December 14, 2002 . = 8.34105
January 14, 2003 .. = 8.59061
February 14, 2003 . = 8.59086
March 14, 2003 ..... = 7.84373
April 14, 2003 ..... = 8.59807
May 14, 2003 ....... = 8.34234
June 14, 2003 ...... = 8.59859
July 14, 2003 ...... = 8.34273
August 14, 2003 ... = 8.59912
September 14, 2003 = 8.59939
October 14, 2003 .. = 8.34333
November 14, 2003 . = 8.59995
December 14, 2003 . = 8.34375
January 14, 2004 .. = 8.60052
February 14, 2004 . = 8.59320
March 14, 2004 ..... = 8.09401
April 14, 2004 ..... = 8.60066
May 14, 2004 ....... = 8.34417
June 14, 2004 ...... = 8.60126
July 14, 2004 ...... = 8.34306
August 14, 2004 ... = 8.60349
September 14, 2004 = 8.60381
October 14, 2004 .. = 8.34706
November 14, 2004 . = 8.59868
December 14, 2004 . = 8.34215
January 14, 2005 .. = 8.59218
February 14, 2005 . = 8.59252
March 14, 2005 ..... = 7.84298
April 14, 2005 ..... = 8.60034
May 14, 2005 ....... = 8.34338
June 14, 2005 ...... = 8.60104
D-1
<PAGE>
DISTRIBUTION DATE
(ASSUMING THAT THE 14TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE) WAC
July 14, 2005 ...... = 8.34389
August 14, 2005 ... = 8.60175
September 14, 2005 = 8.60211
October 14, 2005 .. = 8.34469
November 14, 2005 . = 8.60285
December 14, 2005 . = 8.34524
January 14, 2006 .. = 8.59627
February 14, 2006 . = 8.59665
March 14, 2006 ..... = 7.84422
April 14, 2006 ..... = 8.60477
May 14, 2006 ....... = 8.34665
June 14, 2006 ...... = 8.60557
July 14, 2006 ...... = 8.34723
August 14, 2006 ... = 8.60638
September 14, 2006 = 8.60681
October 14, 2006 .. = 8.34814
November 14, 2006 . = 8.60766
December 14, 2006 . = 8.34877
January 14, 2007 .. = 8.59959
February 14, 2007 . = 8.59877
March 14, 2007 ..... = 7.84131
April 14, 2007 ..... = 8.60724
May 14, 2007 ....... = 8.34094
June 14, 2007 ...... = 8.59374
July 14, 2007 ...... = 8.32424
August 14, 2007 ... = 8.57377
September 14, 2007 = 8.57355
October 14, 2007 .. = 8.31063
November 14, 2007 . = 8.61204
December 14, 2007 . = 8.37186
January 14, 2008 .. = 8.64039
February 14, 2008 . = 8.64829
March 14, 2008 ..... = 8.18090
April 14, 2008 ..... = 8.66325
May 14, 2008 ....... = 8.41508
June 14, 2008 ...... = 8.66374
July 14, 2008 ...... = 8.41549
August 14, 2008 ... = 8.65033
September 14, 2008 = 8.65058
October 14, 2008 .. = 8.39859
November 14, 2008 . = 8.65106
December 14, 2008 . = 8.39896
January 14, 2009 .. = 8.63627
February 14, 2009 . = 8.63866
March 14, 2009 ..... = 7.92823
April 14, 2009 ..... = 8.65465
May 14, 2009 ....... = 8.47671
June 14, 2009 ...... = 8.72923
July 14, 2009 ...... = 8.47779
August 14, 2009 ... = 8.73047
September 14, 2009 = 8.72236
October 14, 2009 .. = 8.47970
November 14, 2009 . = 8.71575
December 14, 2009 . = 8.46741
January 14, 2010 .. = 8.71318
February 14, 2010 . = 8.71401
March 14, 2010 ..... = 7.97001
April 14, 2010 ..... = 8.71564
May 14, 2010 ....... = 8.46805
June 14, 2010 ...... = 8.71736
July 14, 2010 ...... = 8.46961
August 14, 2010 ... = 8.71912
September 14, 2010 = 8.72004
October 14, 2010 .. = 8.47203
November 14, 2010 . = 8.72188
December 14, 2010 . = 8.47370
January 14, 2011 .. = 8.72379
February 14, 2011 . = 8.72477
March 14, 2011 ..... = 7.97739
April 14, 2011 ..... = 8.72673
May 14, 2011 ....... = 8.47809
June 14, 2011 ...... = 8.72875
July 14, 2011 ...... = 8.47989
August 14, 2011 ... = 8.73078
September 14, 2011 = 8.73183
October 14, 2011 .. = 8.48269
November 14, 2011 . = 8.73396
December 14, 2011 . = 8.48464
January 14, 2012 .. = 8.73338
February 14, 2012 . = 8.73453
March 14, 2012 ..... = 8.23011
April 14, 2012 ..... = 8.79374
May 14, 2012 ....... = 8.53589
June 14, 2012 ...... = 8.78482
July 14, 2012 ...... = 8.53647
August 14, 2012 ... = 8.82431
September 14, 2012 = 8.82421
October 14, 2012 .. = 8.48488
November 14, 2012 . = 8.52038
December 14, 2012 . = 8.36618
January 14, 2013 .. = 8.50903
February 14, 2013 . = 8.50186
March 14, 2013 ..... = 8.15587
April 14, 2013 ..... = 8.50359
May 14, 2013 ....... = 8.38900
June 14, 2013 ...... = 8.50547
D-2
<PAGE>
DISTRIBUTION DATE
(ASSUMING THAT THE 14TH DAY OF
EACH MONTH IS THE DISTRIBUTION
DATE) WAC
July 14, 2013 ...... = 8.39100
August 14, 2013 ... = 8.50746
September 14, 2013 = 8.50851
October 14, 2013 .. = 8.39424
November 14, 2013 . = 8.51068
December 14, 2013 . = 8.39656
January 14, 2014 .. = 8.51299
February 14, 2014 . = 8.51421
March 14, 2014 ..... = 8.17010
April 14, 2014 ..... = 8.51672
May 14, 2014 ....... = 8.40309
June 14, 2014 ...... = 8.51945
July 14, 2014 ...... = 8.40604
August 14, 2014 ... = 8.52238
September 14, 2014 = 8.52395
October 14, 2014 .. = 8.41091
November 14, 2014 . = 8.52724
December 14, 2014 . = 8.41450
January 14, 2015 .. = 8.53082
February 14, 2015 . = 8.53274
March 14, 2015 ..... = 8.19200
April 14, 2015 ..... = 8.53677
May 14, 2015 ....... = 8.42495
June 14, 2015 ...... = 8.54124
July 14, 2015 ...... = 8.42987
August 14, 2015 ... = 8.54617
September 14, 2015 = 8.54885
October 14, 2015 .. = 8.43828
November 14, 2015 . = 8.55463
December 14, 2015 . = 8.44469
January 14, 2016 .. = 8.56111
February 14, 2016 . = 8.56467
March 14, 2016 ..... = 8.34317
April 14, 2016 ..... = 8.57249
May 14, 2016 ....... = 8.46457
June 14, 2016 ...... = 8.58148
July 14, 2016 ...... = 8.47467
August 14, 2016 ... = 8.59191
September 14, 2016 = 8.59779
October 14, 2016 .. = 8.49317
November 14, 2016 . = 8.61118
December 14, 2016 . = 8.50851
January 14, 2017 .. = 8.62732
February 14, 2017 . = 8.63835
March 14, 2017 ..... = 8.32212
April 14, 2017 ..... = 8.65993
May 14, 2017 ....... = 8.56511
June 14, 2017 ...... = 8.68519
July 14, 2017 ...... = 8.59714
August 14, 2017 ... = 8.72237
September 14, 2017 = 8.69811
October 14, 2017 .. = 8.63103
November 14, 2017 . = 8.70210
December 14, 2017 .. = 8.63449
January 14, 2018 ... = 8.70410
February 14, 2018 .. = 8.70696
March 14, 2018...... = 8.50984
April 14, 2018...... = 8.70830
May 14, 2018........ = 8.64420
June 14, 2018....... = 8.70992
July 14, 2018....... = 8.64734
August 14, 2018..... = 8.71201
September 14, 2018 . = 8.71329
October 14, 2018 ... = 8.65403
November 14, 2018 .. = 8.71658
December 14, 2018 .. = 8.66081
January 14, 2019 ... = 8.72139
February 14, 2019 .. = 8.72474
March 14, 2019...... = 8.57786
April 14, 2019...... = 8.73513
May 14, 2019........ = 8.70389
June 14, 2019....... = 8.75729
July 14, 2019....... = 8.72355
August 14, 2019..... = 8.73591
September 14, 2019 . = 8.75766
October 14, 2019 ... = 8.75829
November 14, 2019 .. = 8.75370
December 14, 2019 .. = 8.75370
January 14, 2020 ... = 8.75370
February 14, 2020 .. = 8.75370
March 14, 2020...... = 8.75370
April 14, 2020...... = 0.00
</TABLE>
D-3
<PAGE>
PROSPECTUS DATED OCTOBER 24, 1997
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
ASSET SECURITIZATION CORPORATION
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in series. Each
series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any series, the "Trust
Fund") consisting of a segregated pool of various types of multifamily or
commercial mortgage loans and/or installment contracts for the sale of
multifamily or commercial properties (the "Mortgage Loans"), mortgage-backed
securities evidencing interests therein or secured thereby (the "MBS"), or a
combination of Mortgage Loans and MBS (with respect to any series,
collectively, "Mortgage Assets"). The Trust Fund for a series of Certificates
may also include letters of credit, insurance policies, guarantees, reserve
funds or other types of credit support, or any combination thereof (with
respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds", "Description of the
Certificates" and "Description of Credit Support".
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based
on fixed, variable or adjustable rates; (ii) be senior or subordinate to one
or more other classes of Certificates in respect of certain distributions on
the Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions; (v) provide for distributions of accrued interest
thereon only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; or
(vi) provide for distributions of principal sequentially, or based on
specified payment schedules, to the extent of available funds, in each case
as described in the related Prospectus Supplement. Any such classes may
include classes of Offered Certificates. See "Description of the
Certificates".
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, any Master Servicer, any Special Servicer or any
of their respective affiliates, except to the limited extent described herein
and in the related Prospectus Supplement. Only those Certificates and assets
in the related Trust Fund as are disclosed in the related Prospectus
Supplement will be guaranteed or insured by any governmental agency or
instrumentality or by any other person. The assets in each Trust Fund will be
held in trust for the benefit of the holders of the related series of
Certificates pursuant to a Pooling and Servicing Agreement or a Trust
Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including voluntary and
involuntary prepayments) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Special Considerations" herein and such information as may be set
forth under the caption "Special Considerations" in the related Prospectus
Supplement before purchasing any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof
as one or more "real estate mortgage investment conduits" for federal income
tax purposes. See also "Federal Income Tax Consequences" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of a series of
Offered Certificates unless accompanied by a Prospectus Supplement.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement. All Offered Certificates will be distributed by, or sold by
underwriters managed by:
NOMURA SECURITIES INTERNATIONAL, INC.
THE DATE OF THIS PROSPECTUS IS OCTOBER 24, 1997
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set
forth with respect to such Certificates, as appropriate: (i) a description of
the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate
principal amount and distribution dates relating to such series and, if
applicable, the initial and final scheduled distribution dates for each
class; (iii) information as to the assets comprising the Trust Fund,
including the general characteristics of the assets included therein,
including the Mortgage Assets and any Credit Support and Cash Flow Agreements
(with respect to the Certificates of any series, the "Trust Assets"); (iv)
the circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Certificates; (viii) information as to any
Master Servicer, any Special Servicer (or provision for the appointment
thereof) and the Trustee, as applicable; (ix) information as to the nature
and extent of subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (x) whether such
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Offered Certificates. This Prospectus and the Prospectus Supplement relating
to each series of Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 75 Park Place, 14th Floor, New York, New York 10007.
The Commission also maintains a site on the World Wide Web (the "Web") at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
system.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Offered Certificates or an offer of the Offered Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information
herein is correct as of any time subsequent to its date; however, if any
material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, such
reports may be sent on behalf of the related Trust Fund to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Offered Certificates, pursuant to the applicable Agreement. If
so specified in the related Prospectus Supplement, such reports may be sent
to beneficial owners identified to the Master Servicer or Trustee. Such
reports may also be available to holders of interests in the Certificates
(the "Certificateholders") upon request to their respective DTC participants.
See "Description of the Certificates--Reports to Certificateholders" and
"Description of the Agreements--Evidence as to Compliance". The Depositor
will file or cause to be filed with the Commission such
2
<PAGE>
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder. Reports filed by the
Depositor with the Commission pursuant to the Exchange Act will be filed by
means of the EDGAR system and therefore should be available at the
Commission's site on the Web.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the Offered Certificates evidencing an
interest therein. The Depositor will provide or cause to be provided without
charge to each person to whom this Prospectus is delivered in connection with
the offering of one or more classes of Offered Certificates, a copy of any or
all documents or reports incorporated herein by reference, in each case to
the extent such documents or reports relate to one or more of such classes of
such Offered Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed in writing to its principal
executive office at 2 World Financial Center -- Building B, New York, New
York 10281-1198, Attention: Secretary, or by telephone at (212) 667-9300. The
Depositor has determined that its financial statements are not material to
the offering of any Offered Certificates. See "Financial Information" herein.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Supplement ............................................................... 2
Available Information ............................................................... 2
Incorporation of Certain Information by Reference ................................... 3
Summary of Prospectus................................................................ 8
Special Considerations............................................................... 13
Limited Liquidity.................................................................... 13
Limited Assets....................................................................... 13
Average Life of Certificates; Prepayments; Yields.................................... 13
Limited Nature of Ratings............................................................ 14
Risks Associated with Certain Mortgage Loans and Mortgaged Properties ............... 14
Balloon Payments .................................................................... 15
Obligor Default...................................................................... 15
Mortgagor Type....................................................................... 15
Credit Support Limitations........................................................... 15
Enforceability....................................................................... 16
Environmental Risks.................................................................. 16
ERISA Considerations ................................................................ 16
Certain Federal Tax Considerations Regarding Residual Certificates................... 17
Certain Federal Tax Considerations Regarding Original Issue Discount ................ 17
Consent.............................................................................. 17
Book-Entry Registration.............................................................. 17
Description of the Trust Funds....................................................... 18
Mortgage Assets...................................................................... 18
Mortgage Loans....................................................................... 18
Default and Loss Considerations with Respect to the Mortgage Loans .................. 18
Mortgage Loan Information in Prospectus Supplements.................................. 20
Mortgage Underwriting Standards and Procedures....................................... 20
Payment Provisions of the Mortgage Loans............................................. 21
MBS.................................................................................. 21
Collection Accounts.................................................................. 22
Credit Support....................................................................... 22
Cash Flow Agreements................................................................. 22
Use of Proceeds...................................................................... 22
Yield Considerations................................................................. 23
General.............................................................................. 23
Pass-Through Rate.................................................................... 23
Timing of Payment of Interest and Principal.......................................... 23
Principal Prepayments................................................................ 23
Prepayments--Maturity and Weighted Average Life ..................................... 24
Other Factors Affecting Weighted Average Life........................................ 25
Type of Mortgage Loan................................................................ 25
Foreclosures and Payment Plans....................................................... 25
Due-on-Sale and Due-on-Encumbrance Clauses........................................... 25
The Depositor........................................................................ 25
Description of the Certificates...................................................... 26
General.............................................................................. 26
Distributions........................................................................ 27
Available Funds...................................................................... 28
4
<PAGE>
PAGE
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Distributions of Interest on the Certificates........................................ 28
Distributions of Principal of the Certificates....................................... 29
Distributions on the Certificates of Prepayment Premiums or in
Respect of Equity Participations.................................................... 29
Allocation of Losses and Shortfalls.................................................. 29
Advances in Respect of Delinquencies................................................. 29
Reports to Certificateholders........................................................ 30
Termination.......................................................................... 32
Book-Entry Registration and Definitive Certificates.................................. 32
Description of the Agreements........................................................ 33
Assignment of Mortgage Assets; Repurchases........................................... 33
Representations and Warranties; Repurchases.......................................... 34
Payments on Mortgage Assets; Deposits to Collection Account.......................... 35
Collection and Other Servicing Procedures............................................ 37
Special Servicers.................................................................... 37
Sub-Servicers........................................................................ 37
Realization Upon Defaulted Whole Loans............................................... 38
Hazard Insurance Policies ........................................................... 39
Due-on-Sale and Due-on-Encumbrance Provisions........................................ 40
Retained Interest; Servicing Compensation and Payment of Expenses.................... 41
Evidence as to Compliance............................................................ 41
Certain Matters Regarding a Master Servicer, a Special Servicer and the Depositor ... 41
Event of Default .................................................................... 42
Rights Upon Event of Default ........................................................ 42
Amendment ........................................................................... 43
Duties of the Trustee................................................................ 43
The Trustee.......................................................................... 43
Description of Credit Support........................................................ 44
General.............................................................................. 44
Subordinate Certificates............................................................. 44
Cross-Support Provisions............................................................. 44
Insurance or Guarantees with Respect to the Mortgage Assets.......................... 44
Letter of Credit..................................................................... 45
Insurance Policies and Surety Bonds.................................................. 45
Certificate Guarantee Insurance...................................................... 45
Reserve Funds........................................................................ 45
Certain Legal Aspects of Mortgage Loans.............................................. 46
General.............................................................................. 46
Types of Mortgage Instruments........................................................ 46
Leases and Rents..................................................................... 46
Personalty........................................................................... 47
Installment Contracts................................................................ 47
Junior Mortgages; Rights of Senior Mortgages or Beneficiaries........................ 47
Subordinate Financing ............................................................... 49
Foreclosure.......................................................................... 49
Judicial Foreclosure................................................................. 49
Non-Judicial Foreclosure/Power of Sale............................................... 49
Limitations on Lender's Rights....................................................... 50
Rights of Redemption................................................................. 51
Anti-Deficiency Legislation.......................................................... 51
5
<PAGE>
PAGE
--------
Leasehold Risks...................................................................... 52
Bankruptcy Laws...................................................................... 52
Environmental Legislation............................................................ 54
Due-on-Sale and Due-on-Encumbrance................................................... 55
Acceleration on Default.............................................................. 55
Default Interest, Prepayment Charges and Prepayments................................. 55
Applicability of Usury Laws ......................................................... 56
Alternative Mortgage Instruments..................................................... 56
Soldiers' and Sailors' Civil Relief Act of 1940...................................... 57
Forfeitures in Drug and RICO Proceedings............................................. 57
Certain Laws and Regulations......................................................... 57
Type of Mortgaged Property........................................................... 57
Americans with Disabilities Act...................................................... 58
Federal Income Tax Consequences...................................................... 58
Federal Income Tax Consequences for REMIC Certificates............................... 58
General.............................................................................. 58
Status of REMIC Certificates......................................................... 59
Qualification as a REMIC............................................................. 59
Taxation of Regular Certificates..................................................... 61
General.............................................................................. 61
Original Issue Discount.............................................................. 61
Acquisition Premium.................................................................. 63
Variable Rate Regular Certificates................................................... 63
Deferred Interest.................................................................... 64
Market Discount...................................................................... 64
Premium ............................................................................. 65
Election to Treat All Interest Under the Constant Yield Method....................... 65
Sale or Exchange of Regular Certificates............................................. 65
Treatment of Losses.................................................................. 66
Taxation of Residual Certificates.................................................... 66
Taxation of REMIC Income ............................................................ 66
Basis and Losses..................................................................... 67
Treatment of Certain Items of REMIC Income and Expense............................... 68
Limitations on Offset or Exemption of REMIC Income................................... 69
Tax-Related Restrictions on Transfer of Residual Certificates ....................... 69
Sale or Exchange of a Residual Certificate........................................... 71
Mark to Market Regulations........................................................... 72
Taxes That May Be Imposed on the REMIC Pool.......................................... 72
Prohibited Transactions.............................................................. 72
Contributions to the REMIC Pool After the Startup Day................................ 72
Net Income from Foreclosure Property................................................. 72
Liquidation of the REMIC Pool........................................................ 73
Administrative Matters............................................................... 73
Limitations on Deduction of Certain Expenses......................................... 73
Taxation of Certain Foreign Investors................................................ 74
Regular Certificates................................................................. 74
Residual Certificates................................................................ 74
Backup Withholding................................................................... 74
Reporting Requirements............................................................... 74
6
<PAGE>
PAGE
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Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made ................................................... 75
Standard Certificates................................................................ 75
General.............................................................................. 75
Tax Status........................................................................... 76
Premium and Discount................................................................. 76
Recharacterization of Servicing Fees................................................. 77
Sale or Exchange of Standard Certificates ........................................... 77
Stripped Certificates................................................................ 77
General.............................................................................. 77
Status of Stripped Certificates...................................................... 78
Taxation of Stripped Certificates.................................................... 79
Reporting Requirements and Backup Withholding........................................ 80
Taxation of Certain Foreign Investors................................................ 80
ERISA Considerations................................................................. 81
General.............................................................................. 81
Certain Requirements Under ERISA..................................................... 81
General.............................................................................. 81
Parties in Interest/Disqualified Persons............................................. 81
Delegation of Fiduciary Duty......................................................... 81
Administrative Exemptions............................................................ 82
Governmental Plans .................................................................. 82
Unrelated Business Taxable Income; Residual Certificates............................. 82
Legal Investment..................................................................... 82
Method of Distribution............................................................... 84
Legal Matters........................................................................ 85
Financial Information................................................................ 85
Rating .............................................................................. 85
Index of Principal Definitions ...................................................... 86
</TABLE>
7
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series. An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates ......... Mortgage Pass-Through Certificates, issuable
in series (the "Certificates").
Depositor ..................... Asset Securitization Corporation, a
wholly-owned subsidiary of Nomura Asset
Capital Corporation. See "The Depositor".
Master Servicer ............... The master servicer (the "Master Servicer"),
if any, for each series of Certificates will
be named in the related Prospectus
Supplement. See "Description of the
Agreements -- Collection and Other Servicing
Procedures".
Special Servicer .............. The special servicer (the "Special
Servicer"), if any, for each series of
Certificates will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements -- Special Servicer".
Trustee ....................... The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- The Trustee".
The Trust Assets .............. Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
(a) Mortgage Assets .......... The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans and/or installment contracts
("Installment Contracts") for the sale of
commercial or multifamily properties
(collectively, the "Mortgage Loans"),
mortgage participations, mortgage
pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "MBS") or a combination
of Mortgage Loans and MBS. Except to the
extent described in the related Prospectus
Supplement, the Mortgage Loans will not be
guaranteed or insured by the Depositor or
any of its affiliates or by any governmental
agency or instrumentality or other person.
As more specifically described herein, the
Mortgage Loans will be secured by liens on,
or security interest in, properties
consisting of (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, hotels, motels,
nursing homes, hospitals or other
health-care related facilities, mobile home
parts, warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, mixed use or other types
of commercial properties (the "Commercial
Properties" and together with Multifamily
Properties, the "Mortgaged Properties"). The
Mortgaged Properties may be located in any
one of the fifty states or the District of
Columbia or such other locations as are
disclosed in the related Prospectus
Supplement. All Mortgage Loans will have
individual principal balances at origination
of not less than $25,000 and original terms
to maturity of not more than 40 years. All
Mortgage Loans will have been originated by
persons other than the Depositor, and all
Mortgage Assets will have been purchased,
either directly or indirectly, by the
Depositor on or before the date of initial
issuance of the related series of
8
<PAGE>
Certificates. As described herein and in the
Prospectus Supplement, each Mortgage Loan
may (i) provide for no accrual of interest
or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from
time to time, or that may be converted from
an adjustable to a fixed Mortgage Rate, or
from a fixed to an adjustable Mortgage Rate,
from time to time at the mortgagor's
election; (ii) provide for scheduled
payments to maturity, payments that adjust
from time to time in accommodate changes in
the Mortgage Rate or to reflect the
occurrence of certain events, and may
provide negative amortization or accelerated
amortization; (iii) be fully amortizing or
require a balloon payment due on its stated
maturity date; (iv) contain prohibitions on
prepayment or require payment of a premium
or a yield maintenance penalty in connection
with a prepayment; and (v) provide for
payments of principal, interest or both, on
due dates that occur monthly, quarterly,
semi-annually or other interval. See
"Description of the Trust Funds -- Mortgage
Assets".
(b) Collection Account ....... Each Trust Fund will include one or more
accounts (collectively, the "Collection
Account") established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will deposit
all payments and collections received or
advanced with respect to the Mortgage Assets
and other assets in the Trust Fund other
than certain fees and expenses. A Collection
Account may be maintained as an interest
bearing or a non-interest bearing account,
and funds held therein may be invested in
certain short-term, investment grade
obligations, as described in the related
Prospectus Supplement. See "Description of
the Agreements -- Payments on Mortgage
Assets; Deposits to Collection Account".
(c) Credit Support ........... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series or by
one or more other types of credit support,
such as a letter of credit, an insurance
policy on the Mortgage Loans, guarantee,
certificate guarantee insurance policy,
reserve fund or another type of credit
support, or a combination thereof (any such
coverage with respect to the Certificates of
any series, "Credit Support"). The amount
and types of coverage, the identification of
the entity providing the coverage (if
applicable) and related information with
respect to each type of Credit Support, if
any, will be described in the Prospectus
Supplement for a series of Certificates. The
Prospectus Supplement for any series of
Certificates evidencing an interest in a
Trust Fund that includes MBS will describe
any credit support that is included as part
of the trust fund evidenced or secured by
such MBS. See "Special Considerations --
Credit Support Limitations" and "Description
of Credit Support".
(d) Cash Flow Agreements ..... If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets on one
or more classes of Certificates. The
principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "Cash Flow Agreement"),
9
<PAGE>
including provisions relating to the timing,
manner and amount of payments thereunder and
provisions relating to the termination
thereof, will be described in the Prospectus
Supplement for the related series. In
addition, the related Prospectus Supplement
will provide certain information with
respect to the obligor under any such Cash
Flow Agreement. The Prospectus Supplement
for any series of Certificates evidencing an
interest in a trust fund that includes MBS
will describe any cash flow agreements that
are included as part of the trust fund
evidenced or secured by such MBS. See
"Description of the Trust Funds -- Cash Flow
Agreements".
Description of Certificates ... Each series of Certificates evidencing an
interest in a Trust Fund consisting of
Mortgage Loans will be issued pursuant to a
Pooling and Servicing Agreement and each
series of Certificates evidencing an
interest in a Trust Fund the Mortgage Assets
of which consisting of MBS will be issued
pursuant to a Trust Agreement. Pooling and
Servicing Agreements and Trust Agreements
are sometimes referred to herein as
"Agreements". Each series of Certificates
(including any class or classes of
Certificates of such series not offered
hereby) will represent in the aggregate the
entire beneficial ownership interest in the
Trust Fund. Each class of Certificates
(other than certain Stripped Interest
Certificates, as defined below) will have a
stated principal amount (a "Certificate
Balance") and (other than certain Stripped
Principal Certificates, as defined below),
will accrue interest thereon based on a
fixed, variable or adjustable interest rate
(a "Pass-Through Rate"). The related
Prospectus Supplement will specify the
Certificate Balance and the Pass-Through
Rate for each class of Certificates, as
applicable, or in the case of a variable or
adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate. Each
series of Certificates will consist of one
or more classes or subclasses of
Certificates that may (i) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes
of Certificates in respect of certain
distributions on the Certificates; (ii) be
entitled to principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iii) be
entitled to interest distributions, with
disproportionately low, nominal or no
principal distributions (collectively,
"Stripped Interest Certificates"); (iv)
provide for distributions of accrued
interest thereon only following the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such series (collectively,
"Accrual Certificates"); and/or (v) provide
for payments of principal sequentially,
based on specified payment schedules or
other methodologies, to the extent of
available funds. Any such classes or
subclasses may include classes or subclasses
of Offered Certificates. The Certificates
will not be guaranteed or insured by the
Depositor or any of its affiliates, by any
governmental agency or instrumentality or by
any other person, unless otherwise provided
in the related Prospectus Supplement. See
"Special Considerations -- Limited Assets"
and "Description of the Certificates".
<PAGE>
Distributions of Interest on
Certificates ................. Interest on each class of Offered
Certificates (other than certain classes of
Stripped Interest Certificates and Stripped
Principal Certificates) of each series will
accrue at the applicable Pass-Through Rate
on the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "Distribution Date").
Distributions with respect to interest on
Stripped Interest Certificates may be made
on each Distribution Date
10
<PAGE>
on the basis of a notional amount as
described in the related Prospectus
Supplement. Distributions of interest with
respect to one or more classes of
Certificates may be reduced to the extent of
certain delinquencies and other
contingencies described herein and in the
related Prospectus Supplement. See "Special
Considerations -- Average Life of
Certificates; Prepayments; Yields", "Yield
Considerations", and "Description of the
Certificates --Distributions of Interest on
the Certificates".
Distributions of Principal of
Certificates ................. The initial aggregate Certificate Balance of
the Certificates of each series (other than
certain classes of Stripped Interest
Certificates) will generally not exceed the
outstanding principal balance of the
Mortgage Assets as of the close of business
on the day of the month specified in the
related Trust Fund (the "Cut-off Date"),
after application of scheduled payments due
on or before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the
holder thereof is then entitled to receive
in respect of principal from future cash
flow on the assets in the related Trust
Fund. Distributions of principal will be
made on each Distribution Date to the class
or classes of Certificates entitled thereto
until the Certificate Balance of such
Certificates have been reduced to zero.
Distributions of principal of any class of
Certificates will be made on a pro rata
basis among all of the Certificates of such
class. Stripped Interest Certificates with
no Certificate Balance will not receive
distributions in respect of principal. See
"Description of the Certificates --
Distributions of Principal of the
Certificates".
Advances ...................... In connection with a series of Certificates
evidencing an interest in a Trust Fund
consisting of Mortgage Assets other than
MBS, the Master Servicer may be obligated as
part of its servicing responsibilities to
make certain advances with respect to
delinquent scheduled payments or the
Mortgage Loans in such Trust Fund. Advances
made by a Master Servicer are reimbursable
generally from subsequent recoveries in
respect of such Mortgage Loans, and in
certain circumstances, from other assets
available in the Trust Fund. The Master
Servicer will be entitled to receive
interest on its outstanding advances,
payable from amounts in the related Trust
Fund. The Prospectus Supplement for any
series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any corresponding advancing
obligation of any person in connection with
such MBS. See "Description of the
Certificates -- Advances in Respect of
Delinquencies".
Termination ................... A series of Certificates may be subject to
optional early termination through the
repurchase of the Mortgage Assets in the
related Trust Fund. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount, the
party specified therein will solicit bids
for the purchase of all of the Mortgage
Assets of the Trust Fund under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates -- Termination".
<PAGE>
Registration of Certificates .. If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances
11
<PAGE>
described herein. See "Special
Considerations --Book-Entry Registration"
and "Description of the Certificates --
Book-Entry Registration and Definitive
Certificates".
Federal Income Tax
Consequences ................. The federal income tax consequences to
Certificateholders will vary depending on
whether one or more elections are made to
treat the Trust Fund or specified portions
thereof as one or more "real estate mortgage
investment conduits" (each, a "REMIC") under
the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). The
Prospectus Supplement for each series of
Certificates will specify whether one or
more such elections will be made. See
"Federal Income Tax Consequences".
ERISA Considerations .......... A fiduciary of an employee benefit plan or
other retirement arrangement, including an
individual retirement account, or a Keogh
plan which is subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code (each a "Plan"), or a collective
investment fund in which such Plans are
invested, or an insurance company using
assets of a separate account or general
account which includes assets of Plans (or
which is deemed pursuant to ERISA to include
assets of Plans), or other persons acting on
behalf of any such Plan or using the assets
of any such Plan, which proposes to cause a
Plan to acquire any of the Offered
Certificates should carefully review with
its legal advisors whether the purchase or
holding of Offered Certificates could give
rise to a transaction that is prohibited or
is not otherwise permissible either under
ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
Legal Investment .............. The related Prospectus Supplement will
specify whether the Offered Certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as
amended. Investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus
Supplement.
Rating ........................ At the date of issuance, as to each series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
12
<PAGE>
SPECIAL CONSIDERATIONS
INVESTORS SHOULD CONSIDER, IN CONNECTION WITH THE PURCHASE OF OFFERED
CERTIFICATES, AMONG OTHER THINGS, THE FOLLOWING FACTORS AND CERTAIN OTHER
FACTORS AS MAY BE SET FORTH IN "SPECIAL CONSIDERATIONS" IN THE RELATED
PROSPECTUS SUPPLEMENT.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such
series remain outstanding. Any such secondary market may provide less
liquidity to investors than any comparable market for securities evidencing
interests in single-family mortgage loans. The market value of Certificates
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of Certificates by a holder in any secondary market that may develop may
be at a discount from 100% of their original principal balance or from their
purchase price. Furthermore, secondary market purchasers may look only
hereto, to the related Prospectus Supplement and to the reports to
Certificateholders delivered pursuant to the Agreement as described herein
under the heading "Description of the Certificates -- Reports to
Certificateholders," " -- Book-Entry Registration and Definitive
Certificates" and "Description of the Agreements -- Evidence as to
Compliance" for information concerning the Certificates. Certificateholders
will have no redemption rights. Each class of Offered Certificates of a
series will be issued in minimum denominations corresponding to Certificate
Balances or, in the case of Stripped Interest Certificates, notional amounts
specified in the related Prospectus Supplement. Nomura Securities
International, Inc., through one or more of its affiliates, currently expects
to make a secondary market in the Offered Certificates, but has no obligation
to do so.
LIMITED ASSETS
A series of Certificates will not have any claim against or security
interest in the Trust Funds for any other series. If the related Trust Fund
is insufficient to make payments on such Certificates, no other assets will
be available for payment of the deficiency. Additionally, certain amounts
remaining in certain funds or accounts, including the Collection Account and
any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event
of such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. With respect to a series of
Certificates consisting of one or more classes of Subordinate Certificates,
on any Distribution Date in respect of which losses or shortfalls in
collections on the Mortgage Assets have been incurred, the amount of such
losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in the related Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments on the Mortgage Assets in any Trust Fund (including principal
prepayments on the Mortgage Loans resulting from both voluntary and
involuntary liquidations) generally will result in a faster rate of principal
payments on one or more classes of the related Certificates than if payments
on such Mortgage Assets were made as scheduled. Thus, the prepayment
experience on the Mortgage Assets may affect the average life of each class
of related Certificates. The rate of principal payments on pools of mortgage
loans varies between pools and from time to time is influenced by a variety
of economic, demographic, geographic, social, tax, legal and other factors.
There can be no assurance as to the rate of prepayment on the Mortgage Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage rates, principal
prepayments are likely to be higher than if prevailing rates remain at or
above the rates borne by the Mortgage Loans underlying or comprising the
Mortgage Assets in any Trust Fund. As a result, the actual maturity of any
class of Certificates could occur significantly earlier than expected. A
series of Certificates may include one or more classes of Certificates with
priorities of payment and, as a result, yields on other classes of
Certificates, including classes of Offered Certificates, of such series may
be more sensitive to prepayments on Mortgage Assets. A series of Certificates
may include one or more classes offered at a significant premium or discount.
Yields on such classes of Certificates will be sensitive, and in some cases
extremely sensitive, to voluntary and involuntary prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A series of
Certificates may include one or more classes of Certificates, including
classes of Offered Certificates, that provide for distribution of principal
thereof from amounts attributable to interest accrued but not
13
<PAGE>
currently distributable on one or more classes of Accrual Certificates and,
as a result, yields on such Certificates will be sensitive to (a) the
provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See "Yield Considerations" herein and, if applicable, in the related
Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments on
the related Mortgage Assets will be made, the degree to which the rate of
such prepayments might differ from that originally anticipated or the
likelihood of early optional termination of the series of Certificates. Such
rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor purchasing a Certificate at
a significant premium might fail to recoup its initial investment under
certain prepayment scenarios. Each Prospectus Supplement will identify any
payment to which holders of Offered Certificates of the related series are
entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such series.
Such criteria are sometimes based upon an actuarial analysis of the behavior
of mortgage loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit support required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of mortgage loans accurately predicts the delinquency, foreclosure
or loss experience of any particular pool of Mortgage Assets. No assurance
can be given that values of any Mortgaged Properties have remained or will
remain at their levels on the respective dates of origination of the related
Mortgage Loans. Moreover, there is no assurance that appreciation of real
estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect
to any Trust Fund. To the extent that such losses are not covered by Credit
Support, such losses will be borne, at least in part, by the holders of one
or more classes of the Certificates of the related series. See "Description
of Credit Support" and "Rating".
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
property. See "Description of the Trust Funds -- Mortgage Assets". The
ability of a mortgagor to repay a loan secured by an income-producing
property typically is dependent primarily upon the successful operation of
such property rather than any independent income or assets of the mortgagor;
thus, the value of an income-producing property is directly related to the
net operating income derived from such property. In contrast, the ability of
a mortgagor to repay a single-family loan typically is dependent primarily
upon the mortgagor's household income, rather than the capacity of the
property to produce income; thus, other than in geographical areas where
employment is dependent upon a particular employer or an industry, the
mortgagor's income tends not to reflect directly the value of such property.
A decline in the net operating income of an income-producing property will
likely affect both the performance of the related loan as well as the
liquidation value of such property, whereas a decline in the income of a
mortgagor on a single-family property will likely affect the performance of
the related loan but may not affect the liquidation value of such property.
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants
or, of applicable, a diversity of types of business operated by such tenants.
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It is anticipated that all or a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific multifamily
or commercial property and such other assets, if any, as have been pledged to
secure the Mortgage Loan. With respect to those Mortgage Loans that provide
for recourse against the mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single-family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single-family
pool of comparable aggregate unpaid principal balance and because of the
higher principal balance of individual Mortgage Loans.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity.
Mortgage Loans with balloon payments involve a greater degree of risk because
the ability of a mortgagor to make a balloon payment typically will depend
upon its ability either to timely refinance the loan or to timely sell the
related Mortgaged Property. The ability of a mortgagor to accomplish either
of these goals will be affected by a number of factors, including the level
of available mortgage rates at the time of sale or refinancing, the
mortgagor's equity in the related Mortgaged Property, the financial condition
and operating history of the mortgagor and the related Mortgaged Property,
tax laws, rent control laws (with respect to certain Multifamily Properties
and mobile home parks), reimbursement rates (with respect to certain
hospitals, nursing homes and convalescent homes), renewability of operating
licenses, prevailing general economic conditions and the availability of
credit for commercial or multifamily, as the case may be, real properties
generally.
OBLIGOR DEFAULT
In order to maximize recoveries on defaulted Mortgage Loans, a Master
Servicer typically will have considerable flexibility to extend and modify
Mortgage Loans that are in default or as to which a payment default is
reasonably foreseeable, including in particular with respect to balloon
payments. In addition, a Master Servicer or a Special Servicer may receive a
workout fee based on receipts from or proceeds of such Mortgage Loans. While
a Master Servicer generally will be required to determine that any such
extension or modification is likely to produce a greater recovery on a
present value basis than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a
workout fee will increase the present value of receipts from or proceeds of
Mortgage Loans that are in default or as to which a default is reasonably
foreseeable. The recent foreclosure and delinquency experience with respect
to loans serviced by a Master Servicer or, if applicable, any Special
Servicer or significant Sub-Servicer may be provided in the related
Prospectus Supplement to the extent relevant.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The mortgagor's sophistication
and form of organization may increase the likelihood of protracted litigation
or bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates). Although subordination
is intended to reduce the risk to holders of Senior Certificates of
delinquent distributions or ultimate losses, the amount of subordination will
be limited and may decline under certain circumstances. Any limits with
respect to the aggregate amount of claims under any related Credit Support
may be exhausted before the
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principal of the lower priority classes of Certificates of a series has been
repaid. As a result, the impact of significant losses and shortfalls on the
Mortgage Assets may fall primarily upon those classes of Certificates having
a lower priority of payment. Moreover, if a form of Credit Support covers
more than one series of Certificates (each, a "Covered Trust"), holders of
Certificates evidencing an interest in a Covered Trust will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts. The amount of any applicable Credit Support supporting one or
more classes of Offered Certificates, including the subordination of one or
more classes of Certificates, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Certificates based
on an assumed level of defaults, delinquencies, other losses or other
factors. There can, however, be no assurance that the loss experience on the
related Mortgage Assets will not exceed such assumed levels. See " --Limited
Nature of Ratings", "Description of the Certificates" and "Description of
Credit Support".
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells,
transfers or conveys the related Mortgaged Property or its interest in the
Mortgaged Property. Mortgages may also include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary or
non-monetary default of the mortgagor. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment
default. The equity courts of any state, however, may refuse the foreclosure
of a mortgage or deed of trust when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the mortgagor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments may not be perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain
a judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or
in respect of the mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of Mortgage Loans -- Leases
and Rents".
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), a lender may be liable, as
an "owner" or "operator," for the costs of addressing releases or threatened
releases of hazardous substances that require remedial action at a property,
if agents or employees of the lender are considered to have "participated in
the management" of the mortgagor, regardless of whether the environmental
damage or threat was caused by a prior owner. Each Pooling and Servicing
Agreement will provide that the Master Servicer, acting on behalf of the
Trust Fund, may not acquire title to a Mortgaged Property securing a Mortgage
Loan or take over its operation unless the Master Servicer has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that (i) the Mortgaged Property is in compliance with
applicable environmental laws and regulations or, if not, that taking such
actions as are necessary to bring the Mortgaged Property in compliance
therewith would be in the best economic interest of the Trust Fund and (ii)
there are no circumstances or conditions that have resulted in any
contamination or, if circumstances or conditions have resulted in any
contamination or if such circumstances or conditions require remedial action,
taking such actions with respect to the affected Mortgaged Property would be
in the best economic interest of the Trust Fund. See "Certain Legal Aspects
of Mortgage Loans -- Environmental Legislation".
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject
to ERISA are urged to consult their own counsel regarding consequences under
ERISA of acquisition, ownership and disposition of the Offered Certificates
of any series. See "ERISA Considerations".
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CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
Holders of Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC Certificates". Accordingly, under
certain circumstances, holders of Residual Certificates may have taxable
income and tax liabilities arising from such investment during a taxable year
in excess of the cash received during such period. The requirement that
holders of Residual Certificates report their pro rata share of the taxable
income and net loss of the REMIC will continue until the Certificate Balances
of all classes of Certificates of the related series have been reduced to
zero, even though holders of Residual Certificates have received full payment
of their stated interest and principal. A portion (or, in certain
circumstances, all) of such Certificateholder's share of the REMIC taxable
income may be treated as "excess inclusion" income to such holder which (i)
generally, will not be subject to offset by losses from other activities,
(ii) for a tax-exempt holder, will be treated as unrelated business taxable
income and (iii) for a foreign holder, will not qualify for exemption from
withholding tax. Individual holders of Residual Certificates may be limited
in their ability to deduct servicing fees and other expenses of the REMIC. In
addition, Residual Certificates are subject to certain restrictions on
transfer. Because of the special tax treatment of Residual Certificates, the
taxable income arising in a given year on a Residual Certificate will not be
equal to the taxable income associated with investment in a corporate bond or
stripped instrument having similar cash flow characteristics and pre-tax
yield. Therefore, the after-tax yield on the Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument
having similar cash flow characteristics.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING ORIGINAL ISSUE DISCOUNT
Accrual Certificates will be, and certain of the other Classes of
Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Federal Income Tax Consequences -- Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates".
CONSENT
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of all series or a similar means of allocating decision-making
under the Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders to, certain actions, including
amending the related Agreement in certain circumstances. See "Description of
the Agreements -- Events of Default", " -- Rights Upon Event of Default" and
" -- Amendment".
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Certificateholders or their nominees. Because
of this, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time, Certificateholders will be able to exercise the
rights of Certificateholders only indirectly through DTC and its
participating organizations. See "Description of the Certificates --
Book-Entry Registration and Definitive Certificates".
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DESCRIPTION OF THE TRUST FUNDS
MORTGAGE ASSETS
The primary assets of each Trust Fund (the "Mortgage Assets") will include
(i) Multifamily and/or Commercial Loans and/or Installment Contracts
(collectively, the "Mortgage Loans") or (ii) mortgage participations,
pass-through certificates or other mortgage-backed securities evidencing
interests in or secured by one or more Mortgage Loans ("MBS"). As used
herein, "Mortgage Loans" refers to both whole Mortgage Loans and Mortgage
Loans underlying MBS. Mortgage Loans that secure, or interests in which are
evidenced by, MBS are herein sometimes referred to as Underlying Mortgage
Loans. Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "Whole Loans". The Mortgage Assets will not be guaranteed or
insured by the Depositor or any of its affiliates. The Prospectus Supplement
will describe any guarantee or insurance relating to the Mortgage Assets by
any governmental agency or instrumentality or by any other person. Each
Mortgage Asset will be selected by the Depositor for inclusion in a Trust
Fund from among those purchased, either directly or indirectly, from a prior
holder thereof (a "Mortgage Asset Seller"), which prior holder may or may not
be the originator of such Mortgage Loan or the issuer of such MBS and may be
an affiliate of the Depositor.
MORTGAGE LOANS
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse
facilities or self-storage facilities, industrial plants, mixed use or other
types of commercial properties ("Commercial Properties" and the related
loans, "Commercial Loans") located in any one of the fifty states or the
District of Columbia or such other locations as are disclosed in the related
Prospectus Supplement. The Mortgage Loans will be secured by mortgages or
deeds of trust or other similar security instruments creating a first or more
junior lien on Mortgaged Properties. Multifamily Property may include mixed
commercial and residential structures and may include apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). The
Mortgaged Properties may include leasehold interest in properties, the title
to which is held by third party lessors. The term of any such leasehold will
exceed the term of the mortgage note by at least ten years. Each Mortgage
Loan will have been originated by a person (the "Originator") other than the
Depositor. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating a lien on the Mortgaged Properties. Mortgage Loans will generally
also be secured by an assignment of leases and rents and/or operating or
other cash flow guarantees relating to the Mortgage Loan.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage Loans secured by commercial and multifamily properties are
markedly different from owner-occupied single-family home mortgage loans. The
repayment of loans secured by commercial or multifamily properties is
typically dependent upon the successful operation of such property rather
than upon the liquidation value of the real estate. The Mortgage Loans will
be non-recourse loans, which means that, absent special facts, the mortgagee
may look only to the Net Operating Income from the property for repayment of
the mortgage debt, and not to any other of the mortgagor's assets, in the
event of the mortgagor's default. Lenders typically look to the Debt Service
Coverage Ratio of a loan secured by income-producing property as an important
measure of the risk of default on such a loan. The "Debt Service Coverage
Ratio" of a Mortgage Loan at any given time is the ratio of the Net Operating
Income for a twelve-month period to the annualized scheduled payments on the
Mortgage Loan. "Net Operating Income" is typically defined as total operating
revenues (including primarily rental income and any expense reimbursement,
ancillary income, late charges and deposit forfeitures) minus total operating
expenses (including primarily expenses for advertising, general
administration, management fees and disbursements, utilities, repairs and
maintenance, insurance, real estate taxes and replacement reserves based
solely on the mortgagor's estimates of the useful lives of various assets).
Net Operating Income does not reflect capital expenditures or partnership
expenses. The Net Operating Income of a Mortgaged Property will fluctuate
over time and may be sufficient or insufficient to cover debt service on the
related Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income (and
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels,
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and mini-warehouse and self-storage facilities, tend to be affected more
rapidly by changes in market or business conditions than do properties
leased, occupied or used for longer periods, such as (typically) warehouses,
retail stores, office buildings and industrial plants. Commercial Loans may
be secured by owner-occupied Mortgaged Properties or Mortgaged Properties
leased to a single tenant. Accordingly, a decline in the financial condition
of the mortgagor or single tenant, as applicable, may have a
disproportionately greater effect on the Net Operating Income from such
Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
property tax rates and other operating expenses including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of
default on the related Mortgage Loan. As may be further described in the
related Prospectus Supplement, in some cases leases of Mortgaged Properties
may provide that the lessee, rather than the mortgagor, is responsible for
payment of certain of these expenses ("Net Leases"); however, because leases
are subject to default risks as well when a tenant's income is insufficient
to cover its rent and operating expenses, the existence of such "net of
expense" provisions will only temper, not eliminate, the impact of expense
increases on the performance of the related Mortgage Loan.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and
hospitals, the income from which and the operating expenses of which are
subject to state and/or federal regulations, such as Medicare and Medicaid,
and multifamily properties and mobile home parks, which may be subject to
state or local rent control regulation and, in certain cases, restrictions on
changes in use of the property. Low-and moderate-income housing may be
particularly subject to legal limitations and regulations but, because of
such regulations, may also be less sensitive to fluctuations in market rents
generally.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines
in rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio
of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor. The "Loan-to-Value Ratio" of a
Mortgage Loan at any given time is the ratio (expressed as a percentage) of
the then outstanding principal balance of the Mortgage Loan to the Value of
the related Mortgaged Property. The "Value" of a Mortgaged Property, other
than with respect to Refinance Loans, is generally the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such loan and (b) the sales price for such property. Refinance
Loans are loans made to refinance existing loans. The Value of the Mortgaged
Property securing a Refinance Loan is the appraised value thereof determined
in an appraisal obtained at the time of origination of the Refinance Loan.
The Value of a Mortgaged Property as of the date of initial issuance of the
related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions
and the real estate market.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date
of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of
value based upon the property's projected net cash flow), or upon a selection
from or interpolation of the values derived from such methods. Each of these
appraisal methods presents analytical challenges. It is often difficult to
find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections
of income and expense and the selection of an appropriate capitalization
rate. Where more than one of these appraisal methods are used and create
significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio (or vice versa), the analysis
of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Mortgage Loans from
single-family mortgage loans and provide insight to the risks associated with
income-producing real estate, there is no assurance that such factors will in
fact have been considered by the Originators of the Mortgage Loans, or that,
for a particular Mortgage Loan, they are complete or relevant. See "Special
Considerations -- Risks Associated with Certain Mortgage Loans and Mortgaged
Properties", " -- Balloon Payments", " -- Mortgagor Default" and "
- --Mortgagor Type".
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MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans constituting
related Trust Assets, including (i) the aggregate outstanding principal
balance and the largest, smallest and average outstanding principal balance
of the Mortgage Loans as of the applicable Cut-off Date, (ii) the type of
property securing the Mortgage Loans (e.g., Multifamily Property or
Commercial Property and the type of property in each such category), (iii)
the original and remaining terms to maturity of the Mortgage Loans, and the
seasoning of the Mortgage Loans, (iv) the earliest and latest origination
date and maturity date and weighted average original and remaining terms to
maturity of the Mortgage Loans, (v) the Loan-to-Value Ratios at origination
of the Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage Rates and
the weighted average Mortgage Rate borne by the Mortgage Loans, (vii) the
geographical distribution of the Mortgaged Properties on a state-by-state
basis, (viii) information with respect to prepayment provisions, if any, of
the Mortgage Loans, (ix) the weighted average Retained Interest, if any, (x)
with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM Loans"),
the adjustment dates, the highest, lowest and weighted average margin, and
the maximum Mortgage Rate variation at the time of any adjustment and over
the life of the ARM Loan, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including
without limitation balloon payment and other amortization provisions. The
related Prospectus Supplement will also contain certain information available
to the Depositor with respect to the provisions of leases and the nature of
tenants of the Mortgaged Properties and other information referred to in a
general manner under "Description of the Trust Funds -- Mortgage Assets --
Default and Loss Considerations with Respect to the Mortgage Loans" above. If
specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report which will
be available to purchasers of the related Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Commission within fifteen days after such initial issuance.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage
Loans may be originated by an affiliate of the Depositor in contemplation of
the transactions contemplated by this Prospectus and the related Prospectus
Supplement or may be have been originated by third-parties and acquired by
the Depositor directly or through its affiliates in negotiated transactions.
Underwriting procedures are intended to evaluate, among other things, the
income derived from the Mortgaged Property, the capabilities of the
management of the project, including a review of management's past
performance record, its management reporting and control procedures (to
determine its ability to recognize and respond to problems) and its
accounting procedures to determine cash management ability, the obligor's
credit standing and repayment ability and the value and adequacy of the
Mortgaged Property as collateral. Mortgage Loans insured by the Federal
Housing Administration ("FHA"), a division of the United States Department of
Housing and Urban Development ("HUD"), will have been originated by mortgage
lenders which are approved by HUD as an FHA mortgagee in the orginated course
of their real estate lending activities and will comply with the underwriting
policies of FHA.
The adequacy of a Mortgaged Property as security for repayment will
generally have been determined by appraisal by appraisers selected in
accordance with preestablished guidelines established by or acceptable to the
loan originator for appraisers or other appropriate market studies. If so
specified in the related Prospectus Supplement, the appraiser must have
personally inspected the property and verified that it was in good condition
and that construction, if new, has been completed. An appraisal can be based
upon, among other things, a cash flow analysis and/or a market data analysis
of recent sales of comparable properties or a replacement cost analysis based
on the current cost of constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of
real estate values generally will limit loss experiences on commercial
properties or multifamily properties. If the commercial real estate market
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans and any additional financing on
the Mortgaged Properties in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those
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now generally experienced in the mortgage lending industry. Even where Credit
Support covers all losses resulting from defaults and foreclosure, the effect
of defaults and foreclosures may be to increase prepayment experience on the
Mortgage Loans, thus shortening weighted average life and affecting yield to
maturity.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
The Mortgage Loans generally will (i) have individual principal balances
at origination of not less than $25,000, (ii) have original terms to maturity
of not more than 40 years and (iii) provide for payments of principal,
interest or both, on due dates that occur monthly, quarterly or semi-annually
or at such other interval as is specified in the related Prospectus
Supplement. Mortgage Loan may: (i) provide for no accrual of interest or for
accrual of interest thereon at an interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from time to time, or that may be
converted from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, from time to time at the mortgagor's election; (ii)
provide for scheduled payments to maturity or payments that adjust from time
to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, (iii) be fully amortizing or require a balloon
payment due on its stated maturity date; and (iv) contain prohibitions on
prepayment (a "Lock-out Period" and the date of expiration thereof, a
"Lock-out Date") or require payment of a premium or a yield maintenance
penalty (a "Prepayment Premium") in connection with a prepayment, in each
case as described in the related Prospectus Supplement. In the event that
holders of any class or classes of Offered Certificates will be entitled to
all or a portion of any Prepayment Premiums collected in respect of Mortgage
Loans, the related Prospectus Supplement will specify the method or methods
by which any such amounts will be allocated. A Mortgage Loan may also contain
provisions entitling the mortgagee to a share of profits realized from the
operation or disposition of the Mortgaged Property ("Equity Participations"),
as described in the related Prospectus Supplement. In the event that holders
of any class or classes of Offered Certificates will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
specify the terms and provisions of the Equity Participation and the method
or methods by which distributions in respect thereof will be allocated among
such Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar
agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or servicer
(the "MBS Servicer") of the underlying Mortgage Loans will have entered into
the MBS Agreement with a trustee or a custodian under the MBS Agreement (the
"MBS Trustee"), if any, or with the original purchaser of the interest in the
underlying Mortgage Loans evidenced by the MBS.
Distributions of principal and interest will be made on MBS on the dates
specified in the related Prospectus Supplement. The MBS may be issued in one
or more classes with characteristics similar to the classes of Certificates
described in this Prospectus. Principal and interest distributions will be
made on the MBS by the MBS Trustee or the MBS Servicer. The MBS Issuer or the
MBS Servicer or another person specified in the related Prospectus Supplement
may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination of other credit
support similar to that described for the Certificates under "Description of
Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function
of certain characteristics of the Mortgage Loans evidenced or secured by such
MBS and other factors and generally will have been established for the MBS on
the basis of requirements of either any Rating Agency that may have assigned
a rating to the MBS or the initial purchasers of the MBS. In addition, MBS
may consist of classes of MBS which are subordinate to other classes of MBS
of the same series.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that included MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount and type of the MBS to be included in the Trust Fund, (ii) the
original and remaining term to stated maturity of the MBS, if applicable,
(iii) the pass-through or bond rate of the MBS or formula for determining
such rates, (iv) the applicable payment provisions for the MBS, (v) the MBS
Issuer, MBS Servicer and MBS Trustee, as applicable, (vi) certain
characteristics of the credit support, if any, such as subordination, reserve
funds, insurance policies, letters of credit or guarantees relating to the
related Underlying Mortgage Loans or directly to such MBS, (vii) the
characteristics of any subordination to which
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such MBS may be subject; (viii) the terms on which the related Underlying
Mortgage Loans for such MBS or the MBS may, or are required to, be purchased
prior to their maturity, (ix) the terms on which Mortgage Loans may be
substituted for those originally underlying the MBS, (x) the servicing fees
payable under the MBS Agreement, (xi) to the extent available to the
Depositor, the type of information in respect of the Underlying Mortgage
Loans described under "Description of the Trust Funds -- Mortgage Assets --
Mortgage Loan Information in Prospectus Supplements" and (xii) the
characteristics of any cash flow agreements that are included as part of the
trust fund evidenced or secured by the MBS.
COLLECTION ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Collection Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will deposit all payments and collections received or
advanced with respect to the Mortgage Assets and other assets in the Trust
Fund. A Collection Account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be invested in
certain short-term, investment grade obligations.
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related series in the form of subordination of one or more other classes
of Certificates in such series or by one or more other types of credit
support, such as a letter of credit, insurance policy for the Mortgage Loans,
certificate guarantee insurance, guarantee, reserve fund or another type of
credit support, or a combination thereof (any such coverage with respect to
the Certificates of any series, "Credit Support"). The amount and types of
coverage, the identification of the entity providing the coverage (if
applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a series
of Certificates. See "Special Considerations -- Credit Support Limitations"
and "Description of Credit Support".
CASH FLOW AGREEMENTS
The Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for the related
series will be invested at a specified rate. The Trust Fund may also include
certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, currency exchange agreements or similar
agreements provided to reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage Assets or one or more classes of
Certificates. The principal terms of any such guaranteed investment contract
or other agreement (any such agreement, a "Cash Flow Agreement"), including,
without limitation, provisions relating to the timing, manner and amount of
payments thereunder and provisions relating to the termination thereof, will
be described in the Prospectus Supplement for the related series. In
addition, the related Prospectus Supplement will provide certain information
with respect to the obligor under any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
the Certificates from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
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YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund. See "Special
Considerations -- Average Life of Certificates; Prepayments; Yields".
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the
interest rates borne by the Mortgage Assets in the related Trust Fund. The
Prospectus Supplement with respect to any series of Certificates will specify
the Pass-Through Rate for each class of such Certificates or in the case of a
variable or adjustable Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Asset on the Pass-Through Rate of one or more classes of Certificates; and
whether the distributions of interest on the Certificates of any class will
be dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution
Date will include interest accrued during the Interest Accrual Period for
such Distribution Date. If the Interest Accrual Period ends on a date other
than a Distribution Date for the related series, the yield realized by the
holders of such Certificates may be lower than the yield that would result in
the Interest Accrual Period ended on such Distribution Date. In addition,
interest accrued for an Interest Accrual Period for one or more classes of
Certificates may be calculated on the assumption that distributions of
principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Mortgage Assets may be made on the first day
of the Interest Accrual Period for a Distribution Date and not on such
Distribution Date. Such method would produce a lower effective yield than if
interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period
for any class of Offered Certificates will be described in the related
Prospectus Supplement.
PRINCIPAL PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the mortgagors
and involuntary liquidations). The rate at which principal prepayments occur
on the Mortgage Loans will be affected by a variety of factors, including,
without limitation, the terms of the Mortgage Loans, the level of prevailing
interest rates, the availability of mortgage credit and economic,
demographic, geographic, tax, legal and other factors. In general, however,
if prevailing interest rates fall significantly below the Mortgage Rates on
the Mortgage Loans comprising or underlying the Mortgage Assets in a
particular Trust Fund, such Mortgage Loans are likely to be the subject of
higher principal prepayments than if prevailing rates remain at or above the
rates borne by such Mortgage Loans. In this regard, it should be noted that
certain Mortgage Assets may consist of Mortgage Loans with different Mortgage
Rates and the stated pass-through or pay-through interest rate of certain MBS
may be a number of percentage points higher or lower than certain of the
Underlying Mortgage Loans. The rate of principal payments on some or all of
the classes of Certificates of a series will correspond to the rate of
principal payments on the Mortgage Assets in the related Trust Fund and is
likely to be affected by the existence of Lock-out Periods and Prepayment
Premium provisions of the Mortgage Loans underlying or comprising such
Mortgage Assets, and by the extent to which the servicer of any such Mortgage
Loan is able to enforce such provisions. Mortgage Loans with a Lock-out
Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Mortgage Loans without such provisions,
with shorter Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
Conversely, if the purchaser of a Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of distributions
or principal that is slower than that actually
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experienced on the Mortgage Assets, the actual yield to maturity will be
lower than that so calculated. In either case, the effect of voluntary and
involuntary prepayments of the Mortgage Assets on the yield on one or more
classes of the Certificates of such series in the related Trust Fund may be
mitigated or exacerbated by any provisions for sequential or selective
distribution of principal to such classes.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect of an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for the related series of
certificates may affect the ultimate maturity and the weighted average life
of each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes
of the Certificates of the related series.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets
is paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
Mortgage Assets. If any Mortgage Loans comprising or underlying the Mortgage
Assets in a particular Trust Fund have actual terms to maturity of less than
those assumed in calculating final scheduled Distribution Dates for the
classes of Certificates of the related series, one or more classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Rates and maturities of the Mortgage Loans
comprising or underlying such Mortgage Assets. See "Description of the Trust
Funds".
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans.
A prepayment assumption of 100% SPA assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any pool of loans, including the
Mortgage Loans underlying or comprising the Mortgage Assets. Moreover, CPR
and SPA were developed based upon historical prepayment experience for
single-family loans. Thus, it is likely that prepayment of any Mortgage Loans
comprising or underlying the Mortgage Assets for any series will not conform
to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage
of the Initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans comprising or underlying the related Mortgage Assets are made
at rates corresponding to various prepayment rates. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average
life of the Certificates to various prepayment
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rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising
or underlying the Mortgage Assets for any series will conform to any
particular prepayment rate.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may be given considerable flexibility to modify Mortgage Loans
that are in default or as to which a default is reasonably foreseeable. Any
defaulted balloon payment or modification that extends the maturity of a
Mortgage Loan will tend to extend the weighted average life of the
Certificates, thereby lengthening the period of time elapsed from the date of
issuance of a Certificate until it is retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation
to the number of Mortgage Loans that are repaid in accordance with their
terms will affect the weighted average life of the Mortgage Loans comprising
or underlying the Mortgage Assets and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates. A number of the Mortgage Loans comprising
or underlying the Mortgage Assets may include "due-on-sale" clauses or
"due-on-encumbrance" clauses that allow the holder of the Mortgage Loans to
demand payment in full of the remaining principal balance of the Mortgage
Loans upon sale or certain other transfers of or the creation of encumbrances
upon the related Mortgaged Property. With respect to any Whole Loans, the
Master Servicer will, if required by the related Agreement, on behalf of the
Trust Fund, employ its usual practices in determining whether to exercise any
such right that the Trustee may have as mortgagee to accelerate payment of
the Whole Loan. See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale
and Due-on-Encumbrance" and "Description of the Agreements -- Due-on-Sale and
Due-on-Encumbrance Provisions".
THE DEPOSITOR
Asset Securitization Corporation, the Depositor, is a Delaware corporation
organized on June 23, 1992 for the purpose of acquiring Mortgage Assets and
selling interests therein or bonds secured thereby. It is a wholly owned
subsidiary of Nomura Asset Capital Corporation, which is in turn a
wholly-owned subsidiary of Nomura Holding America Inc., a United States-based
holding company, incorporated in Delaware, which is wholly owned by The
Nomura Securities Co., Ltd., a Japanese corporation. The Nomura Securities
Co., Ltd. is engaged in the domestic and international securities business.
The Depositor maintains its principal office at Two World Financial Center --
Building B, 21st Floor, New York, New York 10281-1198. Its telephone number
is (212) 667-9300.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes or subclasses of
Certificates that may be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") Certificates. Each
series may consist of one or more of the types of Certificates described
below.
Types of Certificates classified by interest payments can include:
<TABLE>
<CAPTION>
CATEGORY OF CLASS DEFINITION
----------------- ----------
<S> <C> <C>
Ascending Rate ........................... Certificates that have predetermined Pass-Through Rates that change one or more times
on dates determined before issuance.
Fixed Rate ............................... Certificates with Pass-Through Rates that are fixed throughout the life of such
Certificates.
Floating Rate ............................ Certificates with Pass-Through Rates that are reset periodically based on an index and
that vary directly with changes in the index.
Inverse Floating Rate .................... Certificates with Pass-Through Rates that are reset periodically based on an index and
that vary inversely with changes in the index.
Stripped Interest ........................ Certificates that receive some or all of the interest payments made on the underlying
Mortgage Loans or other Trust Fund assets and little or no principal. Stripped
Interest Certificates have either a nominal or a notional principal amount. A nominal
principal amount represents actual principal that will be paid on the class. It is
referred to as nominal since it is extremely small compared to other classes of
Certificates. A notional principal amount is the amount used as a reference to calculate
the amount of interest due on a Stripped Interest Certificate that is not entitled to
any principal.
Stripped Principal ....................... Certificates that do not receive any interest.
WAC (or Weighted Average Coupon) ........ Certificates whose Pass-Through Rate represents a blended interest rate that may
change from period to period.
Accrual .................................. Certificates that accrete all or a portion of their interest, which is added to the
outstanding principal balance. This accretion may continue until the class of
Certificates begins receiving principal payments, until some other event has occurred or
until the class is retired.
Types of Certificates classified by
allocation of principal distributions
can include:
PAC (or Planned Amortization Class) ..... Certificates that are designed to receive principal payments using a predetermined
schedule derived by assuming two constant prepayment rates for the underlying Mortgage
Loans. A PAC schedule will reflect a "structuring range" both above and below the
Prepayment Assumption for the related series. The PAC Certificates in any series may
include two or more "types". The PAC Certificates within any type have a single
structuring range. The different types have different structuring ranges and/or
different principal payment priorities.
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CATEGORY OF CLASS DEFINITION
- ----------------------------------------- ----------------------------------------------------------------------------------
Scheduled ................................ Certificates that are designed to receive principal payments using a predetermined
schedule, but that are not designated as PAC or TAC Certificates. Classes consisting of
both PAC and TAC components are also designated as Scheduled Classes.
Sequential Pay ........................... Certificates that receive principal payments in a prescribed sequence, that do not
have predetermined schedules and that under all circumstances receive payments of
principal continuously from the first Distribution Date on which they receive principal
until they are retired. Sequential Pay Certificates may receive principal payments
concurrently with one or more other classes of Sequential Pay Certificates. A single
class of Certificates that receives principal payments before or after all other classes
in the same series may be identified as a Sequential Pay Certificate.
Sticky Jump/Non-Sticky Jump .............. Certificates whose principal payment priorities change temporarily or permanently upon
the occurrence of one or more "trigger" events. A Sticky Jump Certificate "jumps" to
its new priority on the first Distribution Date when the trigger condition is met and
retains ("sticks" to) that priority until retired. If the principal payment change is
not permanent, the Certificate is referred to as a Non-Sticky Jump.
Strip .................................... Certificates that receive a constant proportion, or "strip", of the principal payments
on the underlying Mortgage Loans or other Trust Fund assets.
Support (or Companion) ................... Certificates that receive principal payments on any Payment Date only if scheduled
payments have been made on specified PAC, TAC and/or Scheduled Classes.
TAC (or Targeted Amortization Class) .... Certificates that are designed to receive principal payments using a predetermined
schedule derived by assuming a single constant prepayment rate for the underlying
Mortgage Loans. The TAC Certificates in any series may include two or more "types". The
different types have different principal payment priorities and/or have schedules that
are derived from different assumed prepayment rates.
Index Allocation Class ................... Certificates whose principal payment allocations are based on the value of an index.
</TABLE>
The Prospectus Supplement for any series including classes similar to any
of those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of classes; (ii)
the risk that Stripped Interest Certificates purchased at a premium may not
return their purchase prices under rapid prepayment scenarios and (iii) the
degree to which an investor's yield is sensitive to principal prepayment. Any
class of Certificates may be divided into two or more subclasses of
Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts specified in the related Prospectus
Supplement. The transfer of any Offered Certificates may be registered and
such Certificates may be exchanged without the payment of any service charge
payable in connection with such registration of transfer or exchange, but the
Depositor or the Trustee or any agent thereof may require payment of a sum
sufficient to cover any tax or other governmental charge. One or more classes
of Certificates of a series may be issued in definitive form ("Definitive
Certificates") or in book-entry form ("Book-Entry Certificates"), as provided
in the related Prospectus Supplement. See "Special Considerations
- --Book-Entry Registration" and "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates". Definitive Certificates will be
exchangeable for other Certificates of the same class and series of a like
aggregate Certificate Balance or notional amount but of different authorized
denominations. See "Special Considerations -- Limited Liquidity" and " --
Limited Assets".
DISTRIBUTIONS
Distributions allocable to principal and interest on the Certificates of
each series will be made by or on behalf of the Trustee on each Distribution
Date as specified in the related Prospectus Supplement from the Available
Funds for such
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series on such Distribution Date. Distributions (other than the final
distribution) will be made to the persons in whose names the Certificates are
registered (the "Record Date"), and the amount of each distribution will be
determined (the "Determination Date") as of the close of business on the date
specified in the related Prospectus Supplement. All distributions with
respect to each class of Certificates on each Distribution Date will be
allocated pro rata among the outstanding Certificates in such class. Payments
will be made either by wire transfer in immediately available funds to the
account of a Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the Trustee or
its designee no later than the date specified in the related Prospectus
Supplement (and, if so provided in the related Prospectus Supplement, holds
Certificates in the requisite amount specified therein), or by check mailed
to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or its agent specified in
the notice to Certificateholders of such final distribution.
AVAILABLE FUNDS
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Funds described below, in accordance
with the terms described in the related Prospectus Supplement. "Available
Funds" for each Distribution Date will generally equal the sum of the
following amounts:
(i) the total amount of all cash on deposit in the related Collection
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Collection Period (a
"Collection Period" with respect to any Distribution Date will, unless
otherwise specified in the applicable Prospectus Supplement, commence
on the second day of the month in which the immediately preceding
Distribution Date occurs, or the day after Cut-off Date in the case of
the first Collection Period, and will end on the first day of the
month of the related Distribution Date).
(b) all prepayments, together with related payments of the interest
thereon, Liquidation Proceeds, Insurance Proceeds, and other
unscheduled recoveries received subsequent to the related Prepayment
Period, as defined in the related Prospectus Supplement, and
(c) all amounts in the Collection Account that are due or
reimbursable to the Depositor, the Trustee, a Mortgage Asset Seller, a
Sub-Servicer or the Master Servicer or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Collection Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer with respect to interest shortfalls
resulting from voluntary and involuntary prepayments during the related
Prepayment Period; and
(v) to the extent not on deposit in the related Collection Account as of
the corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which may be a fixed, variable or adjustable Pass-Through
Rate. The related Prospectus Supplement will specify the Pass-Through Rate
for each class or, in the case of a variable or adjustable Pass-Through Rate,
the method for determining the Pass-Through Rate. Interest on the
Certificates will typically be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
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Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances,
specified in the related Prospectus Supplement, and any class of Stripped
Principal Certificates that are not entitled to any distributions of
interest) based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of the portion of the Available
Distribution Amount allocable to such class on such Distribution Date. Prior
to the time interest is distributable on any class of Accrual Certificates,
Accrued Certificate Interest on such class will be added to the Certificate
Balance thereof on each Distribution Date. With respect to each class of
Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal
to interest accrued during the related Interest Accrual Period on the
outstanding Certificate Balance thereof immediately prior to the Distribution
Date, at the applicable Pass-Through Rate, reduced to reflect prepayment
interest shortfalls as described below (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and liquidations due
to default). Accrued Certificate Interest on Stripped Interest Certificates
will be equal to interest accrued on the outstanding notional amount thereof
immediately prior to each Distribution Date, at the applicable Pass-Through
Rate, reduced as described below. The method of determining the notional
amount for any class of Stripped Interest Certificates will be described in
the related Prospectus Supplement. Reference to notional amount is solely for
convenience in certain calculations and does not represent the right to
receive any distributions of principal. The Accrued Certificate Interest on
each class of Certificates may be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in such
accrual period on the Mortgage Loans comprising or underlying the Mortgage
Assets in the Trust Fund for the related series, with such shortfall
allocated among all of the classes of Certificates of that series in the
manner specified in the related Prospectus Supplement. See "Special
Considerations -- Average Life of Certificates; Prepayments; Yields" and
"Yield Considerations".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to
receive in respect of principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a Certificate will be reduced to the extent of
distributions of principal thereon from time to time, and by the amount of
losses allocated to such Certificate incurred in respect of the related
Mortgage Assets, may be increased in respect of deferred interest on the
related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any Accrued Certificate Interest. The initial aggregate
Certificate Balance of all classes of Certificates of a series will not be
greater than the outstanding aggregate principal balance of the related
Mortgage Assets as of the applicable Cut-off Date. The initial aggregate
Certificate Balance of a series and each class thereof will be specified in
the related Prospectus Supplement. Distributions of principal will be made on
each Distribution Date to the class or classes of Certificates entitled
thereto in accordance with the provisions described in such Prospectus
Supplement until the Certificate Balance of such class has been reduced to
zero. Stripped Interest Certificates with no Certificate Balance are not
entitled to any distributions of principal.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
Prepayment Premiums or payments in respect of Equity Participations that
are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Certificates
entitled thereto in accordance with the provisions described in the related
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
With respect to a series of Certificates consisting of one or more classes
of Subordinate Certificates, on any Distribution Date in respect of which
losses or shortfalls in collections on the Mortgage Assets have been
incurred, the amount of such losses or shortfalls will be borne first by a
class of Subordinate Certificates in the priority and manner and subject to
the limitations specified in the related Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on
Mortgage Assets comprising such Trust Fund.
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ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund consisting of Mortgage Assets other than MBS, the Master Servicer,
if required by the related Agreement, will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Collection Account that are not included in
the Available Funds for such Distribution Date, in an amount equal to the
aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due
on the Whole Loans in such Trust Fund during the related Collection Period
and were delinquent on the related Determination Date, subject to the Master
Servicer's good faith determination that such advances will be reimbursable
from (a) Related Proceeds (as defined below) or (b) in the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the greater of (x)
the outstanding Certificate Balance of such Subordinate Certificates and (y)
Related Proceeds. See "Description of Credit Support".
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Advances
of the Master Servicer's funds will typically be reimbursable only out of
related recoveries on the Mortgage Loans (including amounts received under
any form of Credit Support) respecting which such advances were made (as to
any Mortgage Loan, "Related Proceeds"); provided, however, that any such
advance will be reimbursable from any amounts in the Collection Account to
the extent that the Master Servicer shall determine that such advance (a
"Nonrecoverable Advance") is not ultimately recoverable from Related
Proceeds. If advances have been made by the Master Servicer from excess funds
in the Collection Account, the Master Servicer is required to replace such
funds in the Collection Account on any future Distribution Date to the extent
that funds in the Collection Account on such Distribution Date are less than
payments required to be made to Certificateholders on such date. The
obligations of the Master Servicer to make advances may be secured by a cash
advance reserve fund or a surety bond. Information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
The Master Servicer will be entitled to receive interest at the rate
specified in the related Prospectus Supplement on its outstanding advances
and will be entitled to pay itself such interest periodically from general
collections on the Mortgage Loans prior to any payment to Certificateholders
or as otherwise provided in the related Agreement and described in such
Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to holders of any class of Certificates of a
series, a Master Servicer or the Trustee, as provided in the related
Prospectus Supplement, will forward or cause to be forwarded to each such
holder, to the Depositor and to such other parties as may be specified in the
related Agreement, a statement setting forth, in each case to the extent
applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer, any Special Servicer and any Sub-Servicer and such other
customary information as any such Master Servicer or the Trustee deems
necessary or desirable, or that a Certificateholder reasonably requests,
to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close
of business on such Distribution Date;
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(vii) the number and aggregate principal balance of Mortgage Loans in
respect of which (a) one scheduled payment is delinquent, (b) two
scheduled payments are delinquent, (c) three or more scheduled payments
are delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Mortgage Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) the aggregate amount of any interest
accrued and payable on related servicing expenses and related advances
assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related
Collection Period or Prepayment Period, as applicable (other than by
payment in full), (a) the loan number thereof, (b) the manner in which it
was liquidated, (c) the aggregate amount of liquidation proceeds received,
(d) the portion of such liquidation proceeds payable or reimbursable to
the Master Servicer in respect of such Mortgage Loan and (e) the amount of
any loss to Certificateholders;
(x) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Collection Period
or Prepayment Period, as applicable, (a) the loan number of the related
Mortgage Loan, (b) the date of acquisition, (c) the book value, (d) the
principal balance of the related Mortgage Loan immediately following such
Distribution Date (calculated as if such Mortgage Loan were still
outstanding taking into account certain limited modifications to the terms
thereof specified in the Agreement), (e) the aggregate amount of
unreimbursed servicing expenses and unreimbursed advances in respect
thereof and (f) if applicable, the aggregate amount of interest accrued
and payable on related servicing expenses and related advances;
(xi) with respect to any such REO Property sold during the related Due
Period or Prepayment Period, as applicable, (a) the loan number of the
related Mortgage Loan, (b) the aggregate amount of sale proceeds, (c) the
portion of such sales proceeds payable or reimbursable to the Master
Servicer or a Special Servicer in respect of such REO Property or the
related Mortgage Loan and (d) the amount of any loss to Certificateholders
in respect of the related Mortgage Loan;
(xii) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to
the allocation of any loss and increase in the Certificate Balance of a
class of Accrual Certificates in the event that Accrued Certificate
Interest has been added to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Prepayment Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with an adjustable Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to the next succeeding
Distribution Date as calculated in accordance with the method specified in
the related Prospectus Supplement;
(xix) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Collection Period or Prepayment Period, as
applicable.
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In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof.
The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the
holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, if any, or the Trustee, as provided in the related
Prospectus Supplement, shall furnish to each person who at any time during
the calendar year was a holder of a Certificate a statement containing the
information set forth in subclauses (i)-(iv) above, aggregated for such
calendar year or the applicable portion thereof during which such person was
a Certificateholder. Such obligation of the Master Servicer or the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Master Servicer or the
Trustee pursuant to any requirements of the Code as are from time to time in
force. See "Description of the Certificates -- Book-Entry Registration and
Definitive Certificates".
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Collection Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement
following the earlier of (i) the final payment or other liquidation of the
last Mortgage Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
purchase of all of the assets of the Trust Fund by the party entitled to
effect such termination. In no event, however, will the trust created by the
Agreement continue beyond the date specified in the related Agreement.
Written notice of termination of the Agreement will be given to each
Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee, which will be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein. If so provided in the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a specified class or classes of
Certificates by a specified percentage or amount, the party specified therein
will solicit bids for the purchase of all assets of the Trust Fund under the
circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
the Offered Certificates of one or more classes of such series will be issued
as Book-Entry Certificates, and each such class will be represented by one or
more single Certificates registered in the name of the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
their accounts, thereby eliminating the need for physical movement of
certificates. Participants include Nomura Securities International, Inc.,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Holders of Certificates that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Offered Certificates may do so only through Participants and
Indirect Participants. In addition, such Certificateholders will receive all
distributions of principal of and interest on the Offered Certificates from
the Trustee or the applicable paying agent through DTC and its Participants.
Under a book-entry format, Certificateholders will receive payments after the
related Distribution Date because, while payments are required to be
forwarded to Cede & Co. ("Cede"), as nominee for DTC, on each such date, DTC
will forward such payments to its Participants which thereafter will be
required to forward them to Indirect Participants or Certificateholders. The
only "Certificateholder" (as such term is used in the Agreement) will be
Cede, as nominee of DTC, and the Certificateholders will not be recognized by
the Trustee as Certificateholders under the Agreement. Certificateholders
will be permitted to exercise the rights of Certificateholders under the
related Agreement only indirectly through DTC and its Participants who in
turn will exercise their rights through DTC.
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Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal and interest on
the Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificateholders.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC the Certificates are credited.
Unless otherwise specified in the applicable Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificateholders or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i)
the Depositor advises the Trustee in writing that DTC is no longer willing or
able to properly discharge its responsibilities as depository with respect to
the Certificates and the Depositor is unable to locate a qualified successor
or (ii) the Depositor, at its option, elects to terminate the book-entry
system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificates.
Under surrender by DTC of the certificate or certificates representing such
Certificates and instructions for reregistration, the Trustee will issue such
Certificates in the form of Definitive Certificates, and thereafter the
Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. In the event that Definitive
Certificates are issued or DTC ceases to be the clearing agency for the
Certificates, the Agreement will provide that the applicable
Certificateholders will be notified of such event.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
consisting of Mortgage Loans will be issued pursuant to a Pooling and
Servicing Agreement among the Depositor, a Master Servicer, any Special
Servicer appointed as of the date of the Pooling and Servicing Agreement and
the Trustee. The Certificates of each series evidencing interests in a Trust
Fund consisting exclusively of MBS will be issued pursuant to a Trust
Agreement between the Depositor and a Trustee. Any Master Servicer, any such
Special Servicer and the Trustee with respect to any series of Certificates
will be named in the related Prospectus Supplement. The provisions of each
Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust Fund. A form of a
Pooling and Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any
provision of the Agreement relating to such series that materially differs
from the description thereof contained in this Prospectus. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each
Trust Fund and the related Prospectus Supplement. As used herein with respect
to any series, the term "Certificate" refers to all of the Certificates of
that series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires. The Depositor will provide
a copy of the Agreement (without exhibits) relating to any series of
Certificates without charge upon written request of a holder of a Certificate
of such series addressed to Asset Securitization Corporation, Two World
Financial Center -- Building B, 21st Floor, New York, New York 10281-1198.
Attention: Secretary.
ASSIGNMENT OF MORTGAGE ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
cause the Mortgage Assets included in the related Trust Fund to be assigned
to the Trustee, together with all principal and interest received by or on
behalf of the Depositor on or with respect to such Mortgage Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange
for the Mortgage Assets and the other assets comprising the Trust Fund for
such series. Each Mortgage Asset will be identified in a schedule appearing
as an exhibit to the related Agreement. Such schedule will include detailed
information in respect of each Mortgage Loan included in the related Trust
Fund such as
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the address of the related Mortgaged Property and type of such property, the
Mortgage Rate and, if applicable, the applicable index, margin, adjustment
date and any rate cap information, the original and remaining term to
maturity, the original and outstanding principal balance and balloon payment,
if any, the Value, Loan-to-Value Ratio and Debt Service Coverage Ratio as of
the date indicated and payment and prepayment provisions, if applicable and
in respect of each MBS included in the related Trust Fund, including without
limitation, the MBS Issuer, MBS Servicer and MBS Trustee, the pass-through or
bond rate or formula for determining such rates, the issue date and original
and remaining term to maturity, if applicable, the original and outstanding
principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, including the Mortgage Note endorsed, without
recourse, to the order of the Trustee, the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned from the
public recording office, in which case the Depositor will deliver or cause to
be delivered a copy of such Mortgage together with its certificate that the
original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage to the Trustee in recordable form. The Depositor
will promptly cause the assignment of each related Whole Loan to be recorded
in the appropriate public office for real property records, except in the
State of California or in other states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Whole Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor, the Master
Servicer, the relevant Mortgage Asset Seller or any other prior holder of the
Whole Loan.
The Trustee (or the custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
the custodian) will hold such documents in trust for the benefit of the
Certificateholders. If any such document is found to be missing or defective
in any material respect, the Trustee (or such custodian) shall take such
action as required in the Agreement, which may include immediately notifying
the Master Servicer and the Depositor. If the Mortgage Asset Seller, upon
notification, cannot cure the omission or defect within a specified number of
days after receipt of such notice, the Mortgage Asset Seller will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or,
if the related Agreement provides, substitute for such Mortgage Loan. There
can be no assurance that a Mortgage Asset Seller will fulfill this repurchase
or substitution obligation. Although the Master Servicer is obligated to use
its best efforts to enforce such obligation to the extent of its obligations
with respect to a Warranting Party as described under "--Representations and
Warranties; Repurchases", neither the Master Servicer nor the Depositor will
be obligated to repurchase or substitute for such Mortgage Loan if the
Mortgage Asset Seller defaults on its obligation. This repurchase or
substitution obligation may constitute the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document.
With respect to each MBS, the Depositor will deliver or cause to be
delivered to the Trustee (or the custodian) the original certificate or other
definitive evidence of the MBS, together with bond power or other
instruments, certifications or documents required to transfer fully the MBS
to the Trustee for the benefit of the Certificateholders in accordance with
the related MBS Agreement. The Depositor will promptly cause the Trustee to
be registered, with the applicable persons, as the holder of the MBS.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
The Depositor may make or assign certain representations and warranties
pursuant to the related Agreement with respect to each Whole Loan
constituting a Mortgage Asset in the related Trust Fund, as of a specified
date (the person making such representations and warranties, the "Warranting
Party") covering, by way of example, the following types of matters: (i) the
accuracy of the information set forth for such Whole Loan on the schedule of
Mortgage Assets appearing as an exhibit to the Agreement; (ii) the existence
of title insurance insuring the lien priority of the Whole Loan; (iii) the
authority of the Mortgage Asset Seller to sell the Whole Loan; (iv) the
payment status of the Whole Loan and the status of payments of taxes,
assessments and other charges affecting the related Mortgaged Property; (v)
the existence of customary provisions in the related Mortgage Note and
Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and
extended perils insurance coverage on the Mortgaged Property.
Any Warranting Party shall be a Mortgage Asset Seller or an affiliate
thereof or such other person acceptable to the Depositor and shall be
identified in the related Prospectus Supplement.
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Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. In the event of a breach of any such representation or warranty,
the Warranting Party may be obligated pursuant to the related Agreement to
cure such breach or repurchase or replace the affected Whole Loan as
described below. Since the representations and warranties may not address
events that may occur following the date as of which they were made, the
Warranting Party will have a cure, repurchase or substitution obligation in
connection with a breach of such a representation and warranty only if the
relevant event that causes such breach occurs prior to such date. Such party
would have no such obligations if the relevant event that causes such breach
occurs after such date. However, the Depositor will not include any Whole
Loan in the Trust Fund for any series of Certificates if anything has come to
the Depositor's attention that would cause it to believe that the
representations and warranties made in respect of such Whole Loan will not be
accurate and complete in all material respects as of the date of initial
issuance of the related series of Certificates.
Each Agreement will provide that the Master Servicer and/or Trustee will
be required to notify promptly the relevant Warranting Party of any breach of
any representation or warranty made by or on behalf of it in respect of a
Whole Loan that materially and adversely affects the value of such Mortgage
Loan or the interests therein of the Certificateholders. If such Warranting
Party cannot cure such breach within a specified period following the date on
which such party was notified of such breach, then such Warranting Party will
be obligated to repurchase such Mortgage Loan from the Trustee within a
specified period from the date on which the Warranting Party was notified of
such breach, at the Purchase Price therefor. As to any Whole Loan, the
"Purchase Price" will typically equal to the sum of the unpaid principal
balance thereof plus unpaid accrued interest thereon at the Mortgage Rate
from the date as to which interest was last paid to the end of the accrual
period in which the relevant purchase is to occur. If so provided in the
Prospectus Supplement for a series, a Warranting Party, rather than
repurchase a Mortgage Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Certificates, to cause the removal of such Mortgage Loan from the Trust Fund
and substitute in its place one or more other Whole Loans, in accordance with
the standards described in the related Prospectus Supplement. The Master
Servicer will be required under the applicable Agreement to use its best
efforts to enforce such obligations of the Warranting Party for the benefit
of the Trustee and the holders of the Certificates, following the practices
it would employ in its good faith business judgment were it the owner of such
Whole Loan. This repurchase or substitution obligation will constitute the
sole remedy available to holders of Certificates or the Trustee for a breach
of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Master Servicer will be obligated to purchase or substitute
for a Whole Loan if a Warranting Party defaults on its obligation to do so,
and no assurance can be given that Warranting Parties will carry out such
obligations with respect to Whole Loans.
With respect to a Trust Fund that includes MBS, the related Prospectus
Supplement will describe any representations or warranties made or assigned
by the Depositor with respect to such MBS, the person making them and the
remedies for breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO COLLECTION ACCOUNT
The Master Servicer, if any, and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more Collection Accounts for the collection of payments on the related
Mortgage Assets, which must be either (i) maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies
rating any class of Certificates of such series or (ii) an account or
accounts the deposits in which are insured by the Bank Insurance Fund ("BIF")
or the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC") (to the limits established by the FDIC) and
the uninsured deposits in which are otherwise secured such that the
Certificateholders have a claim with respect to the funds in the Collection
Account or a certified first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which the Collection
Account is maintained. The collateral eligible to secure amounts in the
Collection Account is limited to United States government securities and
other investment grade investments specified in the Agreement ("Permitted
Investments"). A Collection Account may be maintained as an interest bearing
or a non-interest bearing account and the funds held therein may be invested
pending each succeeding Distribution Date in Permitted Investments. Any
interest or other income earned on funds in the Collection Account will
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generally be paid to a Master Servicer or its designee as additional
servicing compensation. The Collection Account may be maintained with an
institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards set forth above. If
permitted by the Rating Agency or Agencies and so specified in the related
Prospectus Supplement, a Collection Account may contain funds relating to
more than one series of mortgage pass-through certificates and may contain
other funds respecting payments on mortgage loans belonging to the Master
Servicer or serviced or master serviced by it on behalf of others. A Master
Servicer or the Trustee will deposit or cause to be deposited in the
Collection Account for each Trust Fund on a daily basis, unless otherwise
provided in the Agreement and described in the related Prospectus Supplement,
the following payments and collections received, or advances made, by the
Master Servicer or the Trustee or on its behalf subsequent to the Cut-off
Date (other than payments due on or before the Cut-off Date, and exclusive of
any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, and on account of modification or assumption fees, on the
Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any late charges or default interest collected, and to the
extent that any class or classes of Certificates is entitled thereto, all
payments on account of Prepayment Premiums or Equity Participations, in
each case net of any portion thereof retained by a Master Servicer or a
Sub-Servicer as its servicing compensation and net of any Retained
Interest;
(iii) all proceeds of the hazard insurance policies (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the normal servicing procedures of a
Master Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) (collectively,
"Insurance Proceeds") and all other amounts received and retained in
connection with a taking of a Mortgaged Property by exercise of a power of
eminent domain or condemnation or the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise ("Liquidation Proceeds"), together with
the net proceeds on a monthly basis with respect to any Mortgaged
Properties acquired for the benefit of Certificateholders by foreclosure
or by deed in lieu of foreclosure or otherwise ("REO Properties");
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the Certificates
-- Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds -- Cash Flow Agreements";
(vii) all proceeds of any Mortgage Loan or property in respect thereof
purchased by the Master Servicer, the Depositor, any Sub-Servicer or any
Mortgage Asset Seller as described under "Description of the Agreements --
Assignment of Mortgage Assets; Repurchases"--and "--Representations and
Warranties; Repurchases", exclusive of the Retained Interest, if any, in
respect of such Mortgage Loan, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates --
Termination";
(viii) all payments required to be deposited in the Collection Account
with respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance Policies"; and
(ix) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held
in the Collection Account.
The Agreement for a series of Certificates may provide that a special
trust account (the "REO Account") will be established and maintained in order
to be used in connection with REO Properties and, if specified in the related
Prospectus Supplement, certain other Mortgaged Properties. To the extent set
forth in the Agreement, certain withdrawals from the REO Account will be made
to, among other things, (i) make remittances to the Collection Account as
required by the Agreement, (ii) pay taxes, assessments, insurance premiums,
other amounts necessary for the proper operation, management and maintenance
of the REO Properties and such Mortgaged Properties and certain third-party
expenses in accordance with the Agreement and (iii) provide for the
reimbursement of certain expenses in respect of the REO Properties and such
Mortgaged Properties.
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The amount at any time credited to the REO Account may be invested in
Permitted Investments that mature, or are subject to withdrawal or
redemption, on or before the business day on which such amounts are required
to be remitted to the Master Servicer for deposit in the Collection Account.
The income from the investment of funds in the REO Account in Permitted
Investments shall be deposited in the REO Account for remittance to the
Collection Account, and the risk of loss of funds in the REO Account
resulting from such investments will be borne by the Trust Fund, unless
otherwise specified in the applicable Prospectus Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole
Loans and will follow or cause to be followed such collection procedures as
it would follow with respect to mortgage loans that are comparable to the
Whole Loans and held for its own account, provided such procedures are
consistent with the Agreement and any related hazard insurance policy or
instrument of Credit Support included in the related Trust Fund described
herein or under "Description of Credit Support". Each Master Servicer will be
required to perform the customary functions of a servicer of comparable
loans, including collecting payments from mortgagors; maintaining hazard
insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions, although the Master Servicer is
generally required to exercise due-on-sale clauses to the extent such
exercise is permitted by law and would not adversely affect insurance
coverage; attempting to cure delinquencies; supervising foreclosures;
inspecting and managing Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the Whole Loans. The Master
Servicer will be responsible for filing and settling claims in respect of
particular Whole Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
Consistent with the general servicing standard set forth above, the Master
Servicer may, in its discretion, waive any late payment charge in respect of
a late Whole Loan payment and, only upon determining that the coverage under
any related hazard insurance policy or instrument of Credit Support will not
be affected, extend or cause to be extended the due dates for payments due on
a Whole Loan for a period not greater than that specified in the applicable
Agreement.
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the general servicing standards set
forth above so long as the modification, waiver or amendment will not (i)
affect the amount or timing of any payments of principal or interest on the
Whole Loan or (ii) in its judgment, materially impair the security for the
Whole Loan or reduce the likelihood of timely payment of amounts due thereon.
The Master Servicer also may agree to any modification, waiver or amendment
that would so affect or impair the payments on, or the security for, a Whole
Loan if (i) in its judgment, a material default on the Whole Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment will minimize the loss that might otherwise
be experienced with respect to the Whole Loan. The Master Servicer is
required to notify the Trustee in the event of any modification, waiver or
amendment of any Whole Loan.
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a special
servicer (the "Special Servicer") may be appointed to service Mortgage Loans
that are in default or otherwise require special servicing. The related
Prospectus Supplement will set forth certain information with respect to the
Special Servicer and will describe the rights, obligations and compensation
of a Special Servicer. A Master Servicer will only be responsible for the
duties and obligations of a Special Servicer to the extent set forth in the
Prospectus Supplement. A Special Servicer may be an affiliate of the
Depositor and may have other business relationships with the Depositor and
its affiliates.
SUB-SERVICERS
A Master Servicer and/or any Special Servicer may each delegate their
respective servicing obligations in respect of the Whole Loans to third-party
servicers (each, a "Sub-Servicer"), but such Master Servicer and/or Special
Servicer will remain obligated under the related Agreement. The sub-servicing
agreement between a Master Servicer and/or Special Servicer and a
Sub-Servicer (a "Sub-Servicing Agreement") must be consistent with the terms
of the related Agreement. Although each Sub-Servicing Agreement will be a
contract solely between the Master Servicer or Special Servicer, as
applicable, and the Sub-Servicer, the related Agreement will provide that, if
for any reason the Master Servicer or Special Servicer for such series of
Certificates is no longer acting in such capacity, the Trustee or any
successor Master Servicer or Special Servicer must recognize the
Sub-Servicer's rights and obligations under such Sub-Servicing Agreement.
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The Master Servicer or Special Servicer, as applicable, will be solely
liable for all fees owed by it to any Sub-Servicer, irrespective of whether
the Master Servicer's or Special Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may
be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer or Special Servicer, as applicable,
for certain expenditures which it makes, generally to the same extent the
Master Servicer or Special Servicer, as applicable, would be reimbursed under
an Agreement. See "--Retained Interest, Servicing Compensation and Payment of
Expenses".
The Master Servicer or Special Servicer, as applicable, may require any
Sub-Servicer to agree to indemnify the Master Servicer or Special Servicer
for any liability or obligation sustained by the Master Servicer or Special
Servicer in connection with any act or failure to act by the Sub-Servicer in
its servicing capacity. An Agreement may require a Sub-Servicer to maintain a
fidelity bond and an errors and omissions policy with respect to its
officers, employees and other persons acting on its behalf or on behalf of
the Master Servicer or Special Servicer.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
operating income or the diversion of that income from the service of payments
due under the Mortgage Loan, and may call into question such mortgagor's
ability to make timely payment of taxes and to pay for necessary maintenance
of the related Mortgaged Property. The Master Servicer is required to monitor
any Whole Loan which is in default, contact the mortgagor concerning the
default, evaluate whether the causes of the default can be cured over a
reasonable period without significant impairment of the value of the
Mortgaged Property, initiate corrective action in cooperation with the
mortgagor if cure is likely, inspect the Mortgaged Property and take such
other actions as it would normally take with respect to similar loans
serviced for its own portfolio. A significant period of time may elapse
before the Master Servicer is able to assess the success of such corrective
action or the need for additional initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure)
on behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the
jurisdiction in which the Mortgaged Property is located. Under federal
bankruptcy law, in certain cases the Master Servicer may not be permitted to
accelerate a Whole Loan or to foreclose on a Mortgaged Property for a
considerable period of time. See "Certain Legal Aspects of Mortgage Loans".
If so specified in the Prospectus Supplement for a series of Certificates
that includes one or more subordinate classes, any holder or holders of a
class of Subordinate Certificates having the lowest priority of payment may
purchase from the Trust Fund at the purchase price described in such
Supplement any Whole Loan as to which the number of scheduled payments
thereunder specified in such Supplement are delinquent.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to
a Mortgaged Property securing a Whole Loan by operation of law or otherwise,
if such action is consistent with the servicing standard described herein and
a default on the related Mortgage Loan has occurred or, in the Master
Servicer's judgment, is imminent. The Master Servicer may not, however,
acquire title to any Mortgaged Property or take any action that would cause
the Trust Fund to be an "owner" or an "operator" within the meaning of
certain federal or state environmental laws, unless the Master Servicer has
also previously determined, based on a report prepared by a person who
regularly conducts environmental audits (which report will be an expense of
the Trust Fund), that:
(i) The Mortgaged Property is in compliance with applicable environmental
laws or, if not, that it would be in the best economic interest of the
Trust Fund to take such actions as are necessary to cause the Mortgaged
Property to comply therewith (the cost of which actions will be an expense
of the Trust Fund); and
(ii) There are no circumstances or conditions present at the Mortgaged
Property relating to the use, management or disposal of any hazardous
substances, hazardous materials, wastes, or petroleum-based materials for
which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation, or, if such substances, materials or wastes are present for
which such action could be required, that it would be in the best economic
interest of the Trust Fund to take such actions with respect to the
Mortgaged Property (the cost of which actions will be an expense of the
Trust Fund).
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If title to any Mortgaged Property is acquired by the Trust Fund, the
Master Servicer, pursuant to the related Agreement and on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless the Trustee receives (i) an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to two years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding or (ii) an extension from the Internal Revenue Service. If the
Trust Fund acquires title to any Mortgaged Property, the Master Servicer, on
behalf of the Trust Fund, may retain an independent contractor to manage and
operate such property. The retention of an independent contractor, however,
will not relieve the Master Servicer of any of its obligations with respect
to the management and operation of such Mortgaged Property. Any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation by the Master Servicer of similar property owned by
it.
The limitations imposed by the Agreement and the REMIC provisions of the
Code (if a REMIC election has been made with respect to the related Trust
Fund) on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than
the amount that would otherwise be recovered. See "Certain Legal Aspects of
Mortgage Loans -- Foreclosure".
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Whole Loan. If the proceeds of any liquidation of the property securing the
defaulted Whole Loan are less than the outstanding principal balance of the
defaulted Whole Loan plus interest accrued thereon at the Mortgage Rate plus
the aggregate amount of expenses incurred by the Master Servicer in
connection with such proceedings and which are reimbursable under the
Agreement, the Trust Fund will realize a loss in the amount of such
difference. The Master Servicer will be entitled to withdraw or cause to be
withdrawn from the Collection Account out of the Liquidation Proceeds
recovered on any defaulted Whole Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, amounts representing its normal
servicing compensation on the Whole Loan, unreimbursed servicing expenses
incurred with respect to the Whole Loan and any unreimbursed advances of
delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under the
related instrument of Credit Support, if any, the Master Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor
under each instrument of Credit Support, and will take such reasonable steps
as are necessary to receive payment or to permit recovery thereunder with
respect to defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from
the Collection Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "--Hazard Insurance Policies" and "Description
of Credit Support".
HAZARD INSURANCE POLICIES
Any Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan to maintain, to the
extent required by such Whole Loan, a hazard insurance policy providing for
coverage of the standard form of fire insurance policy with extended coverage
customary in the state in which the Mortgaged Property is located. Such
coverage generally will be in an amount equal to the lesser of the principal
balance owing on such Whole Loan and the amount necessary to fully compensate
for any damage or loss to the improvements on the Mortgaged Property on a
replacement cost basis, but in either case not less than the amount necessary
to avoid the application of any co-insurance clause contained in the hazard
insurance policy. The ability of the Master Servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured
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under an hazard insurance policy and under any flood insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under
any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the mortgagor in accordance
with the Master Servicer's normal servicing procedures, subject to the terms
and conditions of the related Mortgage and Mortgage Note) will be deposited
in the Collection Account. The Agreement will provide that the Master
Servicer may satisfy its obligation to cause each mortgagor to maintain such
a hazard insurance policy by the Master Servicer's maintaining a blanket
policy insuring against hazard losses on the Whole Loans. If such blanket
policy contains a deductible clause, the Master Servicer will be required to
deposit in the Collection Account all sums that would have been deposited
therein but for such clause. The Master Servicer will also be required to
maintain a fidelity bond and errors and omission policy with respect to its
officers and employees 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 in failing to maintain insurance, subject to certain
limitations as to amount of coverage, deductible amounts, conditions,
exclusions and exceptions.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be
underwritten by different insurers under different state laws in accordance
with different applicable state forms, and therefore will not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and
certain other kinds of uninsured risks. When a Mortgaged Property securing a
Whole Loan is located at origination in a federally designated flood area,
each Agreement requires the Master Servicer to use its best efforts to cause
the mortgagor to acquire and maintain flood insurance in an amount equal in
general to the lesser of (i) the amount necessary to fully compensate for any
damage or loss to the improvements which are part of the Mortgaged Property
or a replacement cost basis and (ii) the maximum amount of insurance
available under the federal flood insurance program, whether or not the area
is participating in the program.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified
percentage, such clause generally provides that the insurer's liability in
the event of partial loss does not exceed the lesser of (i) the replacement
cost of the improvements less physical depreciation and (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Under the terms of the Whole Loans, mortgagors will be required to present
claims to insurers under hazard insurance policies maintained on the related
Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on
Mortgaged Properties securing the Whole Loans. However, the ability of the
Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the
Master Servicer by mortgagors.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged
Property, or due-on-sale clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon any sale or other transfer of the related
Mortgaged Property. Certain of the Whole Loans may contain clauses requiring
the consent of the mortgagee to the creation of any other lien or encumbrance
on the Mortgaged Property or due-on-encumbrance clauses entitling the
mortgagee to accelerate payment of the Whole Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. The Master Servicer,
on behalf of the Trust Fund, will determine whether to exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Whole Loan or
to withhold its consent to any transfer or further encumbrance in accordance
with the general servicing standard described herein under "Description of
the Agreements -- Collection and Other Servicing Procedures".
Any fee collected by or on behalf of the Master Servicer for entering into
an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See "Certain Legal Aspects of
Mortgage Loans -- Due-on-Sale and Due-on-Encumbrance".
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RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if
so, the owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be
deducted from mortgagor payments as received and will not be part of the
related Trust Fund.
A Master Servicer's primary servicing compensation with respect to a
series of Certificates will come from the periodic payment to it of a portion
of the interest payment on each Whole Loan. Since any Retained Interest and a
Master Servicer's primary compensation are percentages of the principal
balance of each Mortgage Asset, such amounts will decrease in accordance with
the amortization schedule of the Mortgage Loans underlying or comprising such
Mortgage Asset. The Prospectus Supplement with respect to a series of
Certificates evidencing interests in a Trust Fund that includes Whole Loans
may provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification
fees, late payment charges or Prepayment Premiums collected from mortgagors
and any interest or other income which may be earned on funds held in the
Collection Account or any Sub-Servicing Account. Any Sub-Servicer will
receive a portion of the Master Servicer's compensation as its sub-servicing
compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer may,
to the extent provided in the related Prospectus Supplement, pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment of
the fees and disbursements of the Trustee and independent accountants,
payment of expenses incurred in connection with distributions and reports to
Certificateholders, and payment of any other expenses described in the
related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Mortgage Loans and, to
the extent so provided in the related Prospectus Supplement, interest thereon
at the rate specified therein, and the fees of any Special Servicer, may be
borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Mortgage Assets which include Whole Loans will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related Cut-off Date, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with either the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of mortgage loans
under pooling and servicing agreements substantially similar to each other
(including the related Agreement) was conducted in compliance with the terms
of such agreements except for any significant exceptions or errors in records
that, in the opinion of the firm, either the Audit Program for Mortgages
serviced for FHLMC, or the Uniform Single Attestation Program for Mortgage
Bankers, requires it to report. In rendering its statement such firm may
rely, as to matters relating to the direct servicing of mortgage loans by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC
(rendered within one year of such statement) of firms of independent public
accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of a Master Servicer will be obtainable by Certificateholders without charge
upon written request to the Master Servicer at the address set forth in the
related Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER, A SPECIAL SERVICER AND THE
DEPOSITOR
The Master Servicer, if any, under each Agreement will be named in the
related Prospectus Supplement. The entity serving as Master Servicer may be
an affiliate of the Depositor and may have other normal business
relationships with the Depositor or Depositor's affiliates.
The Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only if such resignation, and the
appointment of a successor, will not result in a downgrading of the rating of
any class of
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Certificates or upon a determination that its duties under the Agreement are
no longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor servicer has assumed the Master
Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither any Master Servicer, the
Depositor nor any director, officer, employee, or agent of a Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Each Agreement will further provide that any Master
Servicer, the Depositor and any director, officer, employee or agent of a
Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the
Agreement or the Certificates, other than any loss, liability or expense
related to any specific Mortgage Loan or Mortgage Loans (unless any such
loss, liability or expense is otherwise reimbursable pursuant to the
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Agreement will provide that neither any Master
Servicer nor the Depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. Any such Master Servicer or the
Depositor may, however, in its discretion undertake any such action which it
may deem necessary or desirable with respect to the Agreement and the rights
and duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and
any liability resulting therefrom will be expenses, costs and liabilities of
the Certificateholders, and the Master Servicer or the Depositor, as the case
may be, will be entitled to be reimbursed therefor and to charge the
Collection Accounts.
Any person into which the Master Servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under the related
Agreement, provided that such person satisfies the criteria specified in the
Agreement.
If the Master Servicer retains a Special Servicer, the standard of care
for, and any indemnification to be provided to, the Special Servicer will be
set forth in the related Agreement.
EVENT OF DEFAULT
Events of Default under the related Agreement for a Trust Fund that
includes Whole Loans will be described in the applicable Prospectus
Supplement and may consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Certificateholders, or to remit to
the Trustee for distribution to Certificateholders, any required payment that
continues unremedied for five days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights, (ii) any failure by the
Master Servicer duly to observe or perform in any material respect any of its
other covenants or obligations under the Agreement which continues unremedied
for thirty days (fifteen days in the case of a failure to pay the premium for
any insurance policy or instrument of Credit Support required to be
maintained pursuant to the Agreement) after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Depositor, or to
the Master Servicer, the Depositor and the Trustee by the holders of
Certificates evidencing not less than 25% of the Voting Rights; and (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by or on behalf of the
Master Servicer indicating its insolvency or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Trustee may, and at the direction of holders of Certificates evidencing not
less than the percentage specified in the related Prospectus Supplement of
the Voting Rights the Trustee shall, terminate all of the rights and
obligations of the Master Servicer under the Agreement relating to such Trust
Fund and in and to the Mortgage Loans (other than any Retained Interest of
the Master Servicer), whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
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Agreement (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, then the Trustee
will not be so obligated) and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act,
it may or, at the written request of the holders of Certificates entitled to
at least the percentage specified in the related Prospectus Supplement of the
Voting Rights, it shall appoint, or petition a court of competent
jurisdiction for the appointment of, a loan servicing institution acceptable
to each Rating Agency. Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and any such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the Master Servicer under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given
to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for fifteen days has neglected or refused to institute any
such proceeding. The Trustee, however, is under no obligation to exercise any
of the trusts or powers vested in it by any Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates covered by such Agreement,
unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the Depositor, the Master Servicer, the
Special Servicer, if any, and the Trustee, without the consent of any of the
holders of Certificates covered by the Agreement under the circumstances
described in the related Prospectus Supplement. An Agreement may also be
amended by the Depositor, the Master Servicer, if any, and the Trustee with
the consent of the holders of Certificates evidencing not less than the
percentage specified in the related Prospectus Supplement of the Voting
Rights, for any purpose; subject to certain restrictions described in the
Prospectus Supplement and set forth in the Agreement. However, with respect
to any series of Certificates as to which one or more REMIC elections is to
be made, the Trustee will not consent to any amendment of the Agreement
unless it shall first have received an opinion of counsel to the effect that
such amendment will not cause the Trust Fund (or designated portion thereof)
to fail to qualify as a REMIC at any time that the related Certificates are
outstanding.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Mortgage Loan or related document
and is not accountable for the use or application by or on behalf of any
Master Servicer of any funds paid to the Master Servicer or its designee or
any Special Servicer in respect of the Certificates or the Mortgage Loans, or
deposited into or withdrawn from the Certificate Account or any other account
by or on behalf of the Master Servicer or any Special Servicer. If no Event
of Default has occurred and is continuing, the Trustee is required to perform
only those duties specifically required under the related Agreement. However,
upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine such
documents and to determine whether they conform to the requirements of the
Agreement.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association or trust
company serving as Trustee may have typical banking relationships with the
Depositor and its affiliates and with any Master Servicer and its affiliates.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies on the Mortgage Loans,
certificate guarantee insurance, guarantees, the establishment of one or more
reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be
structured so as to be drawn upon by more than one series to the extent
described therein.
Credit Support will generally not provide protection against all risks of
loss and will not guarantee repayment of the entire Certificate Balance of
the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, holders of Certificates of a Covered Trust will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts prior to such Covered Trust receiving any of its intended
share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and
under which such Credit Support may be terminated or replaced and (d) the
material provisions relating to such Credit Support. Additionally, the
related Prospectus Supplement will set forth certain information with respect
to the obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Special Considerations -- Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. The rights of
the holders of Subordinate Certificates to receive distributions of principal
and interest from the Certificate Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates to the
extent specified in the related Prospectus Supplement. The subordination of a
class may apply only in the event of (or may be limited to) certain types of
losses or shortfalls. The relative interests of the Senior Certificates and
the Subordinate Certificates of a Series may be subject to adjustment from
time to time on the basis of distributions received in respect thereof. The
related Prospectus Supplement will set forth information concerning the
amount of subordination of a class or classes of Subordinate Certificates in
a series, the circumstances in which such subordination will be applicable
and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE MORTGAGE ASSETS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered for various default risks by insurance
policies or guarantees, or the MBS comprising the Mortgage Assets in the
related Trust Fund will be covered by the types of Credit Support described
herein. A copy of any such material instrument for a series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related series.
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LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement
(the "L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal to the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or one or more classes of
Certificates. If so specified in the related Prospectus Supplement, the
letter of credit may permit draws in the event of only certain types of
losses. The amount available under the letter of credit will, in all cases,
be reduced to the extent of the unreimbursed payments thereunder. The
obligations of the L/C Bank under the letter of credit for each series of
Certificates will expire at the earlier of the date specified in the related
Prospectus Supplement or the termination of the Trust Fund. A copy of any
such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement. A
copy of any such instrument for a series will be filed with the Commission as
an exhibit to a Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate
guarantee insurance, if any, with respect to a series of Certificates will be
provided by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more classes of Certificates
of the applicable series, timely distributions of interest and full
distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the certificate guarantee insurance will also guarantee against
any payment made to a Certificateholder which is subsequently recovered as a
"voidable preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance for a series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Certificates of the applicable
series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a
combination thereof will be deposited, in the amounts so specified in such
Prospectus Supplement. The reserve funds for a series may also be funded over
time by depositing therein a specified amount of the distributions received
on the related Mortgage Assets as specified in the related Prospectus
Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. Reserve funds
may be established to provide limited protection against only certain types
of losses and shortfalls. Following each Distribution Date amounts in a
reserve fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent
specified in the related Prospectus Supplement and will not be available for
further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investment. Any reinvestment income or other gain from such investments will
be credited to the related Reserve Fund for such series, and any loss
resulting from such investments will be charged to such Reserve Fund.
However, such income may be payable to any related Master Servicer or another
service provider as additional compensation. Whether a Reserve Fund, if any,
for a series will be a part of the Trust Fund will be disclosed in the
related Prospectus Supplement.
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Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage
Loans. See "Description of the Trust Funds -- Mortgage Assets".
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which
may be mortgages, deeds of trust, or deeds to secure debt, depending upon the
prevailing practice and law in the state in which the Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording
does not generally establish priority over governmental claims for real
estate taxes and assessments and other charges imposed under governmental
police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast,
a deed of trust is a three-party instrument, among a trustor (the equivalent
of a mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a deed to secure debt.
Under a deed of trust, the mortgagor grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale as security for
the indebtedness evidenced by the related note. A deed to secure debt
typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. As used in this Prospectus, unless the context
otherwise requires, the term "mortgagee" means the lender and, in the case of
the deed of trust, the trustee thereunder in certain cases. In case the
mortgagor under a mortgage is a land trust, there would be an additional
party because legal title to the property is held by a land trustee under a
land trust agreement for the benefit of the mortgagor. At origination of a
mortgage loan involving a land trust, the mortgagor executes a separate
undertaking to make payments on the mortgage note. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property
is located, certain federal laws (including, without limitation, the
Soldiers' and Sailor's Civil Relief Act of 1940) and, in some cases, in 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, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no unremedied default. If the
mortgagor defaults and such default is not remedied by the mortgagor within
the cure period, if any, 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
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motel room rates are considered accounts receivable under the Uniform
Commercial Code ("UCC"); generally these rates are either assigned by the
mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the mortgagor, as security for the loans. In general, the lender
must file financing statements in order to perfect its security interest in
the rates and must file continuation statements, generally every five years,
to maintain perfection of such security interest. Even if the lender's
security interest in room rates is perfected under the UCC, the lender will
generally be required to commence a foreclosure or otherwise take possession
of the property in order to collect the room rates after a default. Even
after a foreclosure, the potential rent payments from the property may be
less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property
may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value
from personal property which does not constitute "fixtures" under applicable
state real property law, and hence, would not be subject to the lien of a
mortgage. Such property is generally pledged or assigned as security to the
lender under the UCC. In order to perfect its security interest therein, the
lender generally must file UCC financing statements and, to maintain
perfection of such security interest, file continuation statements generally
every five years.
INSTALLMENT CONTRACTS
The Mortgage Loans included in a Trust Fund may also consist of
Installment Contracts. Under an Installment Contract the seller (hereinafter
referred to in this Section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser (hereinafter
referred to in this Section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the contract is the lender obligated to
convey title to the real estate to the borrower. As with mortgage or deed of
trust financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property
under an Installment Contract for the sale of real estate to share in the
proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title
under an Installment Contract for the sale of real estate in a given state
are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the
prior rights of the senior mortgagee or beneficiary to receive rents, hazard
insurance and condemnation
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proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the Master Servicer asserts
its subordinate interest in a property in foreclosure litigation or satisfies
the defaulted senior loan. As discussed more fully below, in many states a
junior mortgagee or beneficiary may satisfy a defaulted senior loan in full,
adding the amounts expended to the balance due on the junior loan. Absent a
provision in the senior mortgage, no notice of default is required to be
given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the senior mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the senior mortgage or
deed of trust. Proceeds in excess of the amount of senior mortgage
indebtedness will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed to the extent the junior mortgage or deed of trust so
provides. The laws of certain states may limit the ability of mortgagees or
beneficiaries to apply the proceeds of hazard insurance and partial
condemnation awards to the secured indebtedness. In such states, the
mortgagor or trustor must be allowed to use the proceeds of hazard insurance
to repair the damage unless the security of the mortgagee or beneficiary has
been impaired. Similarly, in certain states, the mortgagee or beneficiary is
entitled to the award for a partial condemnation of the real property
security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor
by the mortgagee or beneficiary are to be secured by the mortgage or deed of
trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially
made under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a "future advance" clause rests, in
many other states, on state law giving priority to all advances made under
the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on
the property, to maintain and repair the property and not to commit or permit
any waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by
the mortgagee or beneificary on behalf of the trustor. All sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by
the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result
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that the value of the security for the junior mortgage or deed of trust is
diminished. For example, a senior mortgagee or beneficiary may decide not to
approve a lease or to refuse to grant to a tenant a non-disturbance
agreement. If, as a result, the lease is not executed, the value of the
mortgaged property may be diminished.
SUBORDINATE FINANCING
Where the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior
loans often do) and the senior loan does not, a mortgagor may be more likely
to repay sums due on the junior loan than those on the senior loan. Second,
acts of the senior lender that prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the mortgagor and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the
senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the mortgagor is additionally burdened.
Third, if the mortgagor defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of
a junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage and, by reason thereof, the
indebtedness has been accelerated, the mortgagee has the right to institute
foreclosure proceedings to sell the mortgaged property at public auction to
satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are other foreclosure procedures
available in some states that are either infrequently used or available only
in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated
by the service of legal pleadings upon all parties having a subordinate
interest of record in the real property and all parties in possession of the
property, under leases or otherwise, whose interests are subordinate to the
mortgage. Delays in completion of the foreclosure may occasionally result
from difficulties in locating defendants. When the lender's right to
foreclosure is contested, the legal proceedings can be costly and
time-consuming. Upon successful completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints
a referee or other officer to conduct a public sale of the mortgaged
property, the proceeds of which are used to satisfy the judgment. Such sales
are made in accordance with procedures that vary from state to state.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from
the beneficiary/lender to the trustee to sell the property upon any default
by the mortgagor under the terms of the mortgage note or the mortgage
instrument and after notice of sale is given in accordance with the terms of
the mortgage instrument, as well as applicable state law. In some states,
prior to such sale, the trustee under a deed of trust must record a notice of
default and notice of sale and send a copy to the mortgagor and to any other
party who has recorded a request for a copy of a notice of default and notice
of sale. In addition, in some states the trustee must provide notice to any
other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more
newspapers. The mortgagor or junior lienholder may then have the right,
during a reinstatment period required in some states, to cure the default by
paying the entire actual amount in arrears (without acceleration) plus the
expenses incurred in enforcing the obligation. In other states, the mortgagor
or the junior lienholder is not provided a period to reinstate the loan, but
has only the right to pay off the entire debt to prevent the foreclosure
sale. Generally, the procedure for public sale, the
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parties entitled to notice, the method of giving notice and the applicable
time periods are governed by state law and vary among the states. Foreclosure
of a deed to secure debt is also generally accomplished by a non-judicial
sale similar to that required by a deed of trust, except that the lender or
its agent, rather than a trustee, is typically empowered to perform the sale
in accordance with the terms of the deed to secure debt and applicable law.
LIMITATIONS ON LENDER'S RIGHTS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court
may alter the specific terms of a loan to the extent it considers necessary
to prevent an injustice, undue oppression or overreaching, or may require the
lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's and have required that lenders reinstate loans or recast
payment schedules in order to accommodate mortgagors who are suffering from a
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage is not monetary,
e.g., the mortgagor failed to maintain the mortgaged property adequately or
the mortgagor executed a junior mortgage on the mortgaged property. The
exercise by the court of its equity powers will depend on the individual
circumstances of each case presented to it. Finally, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a mortgagor
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to afford
constitutional protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete.
Also, a third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed
its reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) and, therefore,
could be rescinded in favor of the bankrupt's estate, if (i) the foreclosure
sale was held while the debtor was insolvent and not more than one year prior
to the filing of the bankruptcy petition and (ii) the price paid for the
foreclosed property did not represent "fair consideration" ("reasonably
equivalent value" under the Bankruptcy Code). Although the reasoning and
result of Durrett in respect of the Bankruptcy Code was rejected by the
United States Supreme Court in May 1994, the case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law which has
provisions similar to those construed in Durrett. For these reasons, it is
common for the lender to purchase the mortgaged property for an amount equal
to the lesser of fair market value and the underlying debt and accrued and
unpaid interest plus the expenses of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender
will become the owner of the property and have both the benefits and burdens
of ownership of the mortgaged property. For example, the lender will have the
obligation to pay debt service on any senior mortgages, to pay taxes, obtain
casualty insurance and to make such repairs at its own expense as are
necessary to render the property suitable for sale. Frequently, the lender
employs a third party management company to manage and operate the property.
The costs of operating and maintaining a commercial or multifamily
residential property may be significant and may be greater than the income
derived from that property. The costs of management and operation of those
mortgaged properties which are hotels, motels or restaurants or nursing or
convalescent homes or hospitals may be particularly significant because of
the expertise, knowledge and, with respect to nursing or convalescent homes
or hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a
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mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or
state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See " -- Environmental Legislation". Generally
state law controls the amount of foreclosure expenses and costs, including
attorneys' fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required
to pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans which are junior mortgage
loans, if the lender purchases the property the lender's title will be
subject to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
generally applied first to the costs, fees and expenses of sale, to unpaid
real estate taxes and assessments and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in
order of their priority, whether or not the mortgagor is in default. Any
additional proceeds are generally payable to the mortgagor. The payment of
the proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgage or a subsequent ancillary proceeding or may
require the institution of separate legal proceedings by such holders.
In connection with a series of Certificates for which an election is made
to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Regulations and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have
an interest in the property which is subordinate to the mortgage being
foreclosed, from exercise of their "equity of redemption". The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may redeem the
property by paying the entire debt with interest. In addition, in some
states, when a foreclosure action has been commenced, the redeeming party
must pay certain costs of such action. Those having an equity of redemption
must generally be made parties and joined in the foreclosure proceeding in
order for their equity of redemption to be cut off and terminated.
The equity of redemption is generally a common-law (non-statutory) right
which exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former mortgagor
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. With respect
to a series of Certificates for which an election is made to qualify the
Trust Fund or a part thereof as a REMIC, the Agreement will permit foreclosed
property to be held for more than two years if the Trustee receives (i) an
extension from the Internal Revenue Service or (ii) an opinion of counsel to
the effect that holding such property for such period is permissible under
the REMIC Regulations.
ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
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mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse.
For example, statutes in some states limit the right of the lender to obtain
a deficiency judgment against the mortgagor following foreclosure or sale
under a deed of trust. A deficiency judgment would be a personal judgment
against the former mortgagor equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Some states require the lender to exhaust the security afforded under
a mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the mortgagor. In certain other states,
the lender has the option of bringing a personal action against the mortgagor
on the debt without first exhausting such security; however, in some of these
states, the lender, following judgment on such personal action, may be deemed
to have elected a remedy and may be precluded from exercising remedies with
respect to the security. In some cases, a lender will be precluded from
exercising any additional rights under the note or mortgage if it has taken
any prior enforcement action. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that
lenders will usually proceed against the security first rather than bringing
a personal action against the mortgagor. Finally, other statutory provisions
limit any deficiency judgment against the former mortgagor following a
judicial sale to the excess of the outstanding debt over the fair market
value of the property at the time of the public sale. The purpose of these
statutes is generally to prevent a lender from obtaining a large deficiency
judgment against the former mortgagor as a result of low or no bids at the
judicial sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground
leases that secure Mortgage Loans may not contain some of these protective
provisions, and mortgages may not contain the other protections discussed in
the next paragraph. Protective ground lease provisions include the right of
the leasehold mortgagee to receive notices from the ground lessor of any
defaults by the the mortgagor; the right to cure such defaults, with adequate
cure periods; if a default is not susceptible of cure by the leasehold
mortgagee, the right to acquire the leasehold estate through foreclosure or
otherwise; the ability of the ground lease to be assigned to and by the
leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground
lessee from treating the ground lease as terminated in the event of the
ground lessor's bankruptcy and rejection of the ground lease by the trustee
for the debtor-ground lessor. As further protection, a leasehold mortgage may
provide for the assignment of the debtor-ground lessee's right to reject a
lease pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as
amended (11 U.S.C.) (the "Bankruptcy Code"), although the enforceability of
such clause has not been established. Without the protections described in
the foregoing paragraph, a leasehold mortgagee may lose the collateral
securing its leasehold mortgage. In addition, terms and conditions of a
leasehold mortgage are subject to the terms and conditions of the ground
lease. Although certain rights given to a ground lessee can be limited by the
terms of a leasehold mortgage, the rights of a ground lessee or a leasehold
mortgagee with respect to, among other things, insurance, casualty and
condemnation will be governed by the provisions of the ground lease.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings)
are automatically stayed upon the filing of the bankruptcy petition, and,
usually, no interest or principal payments are made during the course of the
bankruptcy case. The delay and the consequences thereof caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may
stay the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. The
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outstanding amount of the loan secured by the real property may be reduced to
the then-current value of the property (with a corresponding partial
reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a
general unsecured creditor for the difference between such value and the
outstanding balance of the loan. Other modifications may include the
modification or denial of enforceability of due-on-sale or due-on-encumbrance
clauses, the reduction in the amount of each scheduled payment, which
reduction may result from a reduction in the rate of interest and/or the
alteration of the repayment schedule (with or without affecting the unpaid
principal balance of the loan), and/or an extension (or reduction) of the
final maturity date. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case,
that effected the curing of a mortgage loan default by paying arrearages over
a number of years. Also, under federal bankruptcy law, a bankruptcy court may
permit a debtor through its rehabilitative plan to de-accelerate a secured
loan and to reinstate the loan even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court (provided no sale of the property had yet occurred) prior to the filing
of the debtor's petition. This may be done even if the full amount due under
the original loan is never repaid.
The Bankruptcy Code has been amended to provide that a lender's perfected
pre-petition security interest in leases, rents and hotel revenues continues
in the post-petition leases, rents and hotel revenues, unless a bankruptcy
court orders to the contrary "based on the equities of the case." Thus,
unless a court orders otherwise, revenues from a Mortgaged Property generated
after the date the bankruptcy petition is filed will constitute "cash
collateral" under the Bankruptcy Code. Debtors may only use cash collateral
upon obtaining the lender's consent or a prior court order finding that the
lender's interest in the Mortgaged Properties and the cash collateral is
"adequately protected" as such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that
the lender has no security interest in either pre-petition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personalty necessary for a
security interest to attach to hotel revenues.
To the extent that a mortgagor's ability to make payment on a mortgage
loan is dependent on its receipt of payments of rent under a lease of the
related property, such ability may be impaired by the commencement of a
bankruptcy proceeding relating to a lessee under such lease. Under the
Bankruptcy Code, the commencement of a bankruptcy proceeding in which the
lessee is the debtor results in a stay in bankruptcy against the commencement
or continuation of any state court proceeding for past due rent, for
accelerated rent, for damages or for a summary eviction order with respect to
a default under the lease that occurred prior to the filing of the lessee's
petition.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk
or an unfamiliar tenant if the lease was assigned, and any assurances
provided to the lessor may, in fact, be inadequate. If the lease is rejected,
the lessor will be treated as an unsecured creditor with respect to its claim
for damages for termination of the lease. In addition, pursuant to Section
502(b)(6) of the Bankruptcy Code, a lessor's damages for lease rejection in
respect of future rent installments are limited to the rent reserved by the
lease, without acceleration, for the greater of one year, or 15%, not to
exceed three years, of the remaining term of the lease.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise
accept. Moreover, the laws of certain states also give priority to certain
tax liens over the lien of a mortgage or deed of trust. Under the Bankruptcy
Code, if the court finds that actions of the mortgagee have been
unreasonable, the lien of the related mortgage may be subordinated to the
claims of unsecured creditors.
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Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity that is the subject of a bankruptcy
proceeding (a "debtor"). Thus, property ostensibly the property of a
non-debtor may be determined to be the property of the debtor and, as a
result, the automatic stay applicable to the debtor will extend to the
property of the other entity and the rights of creditors of the other entity
may be impaired in the fashion set forth above in the preceding paragraphs.
Depending on facts and circumstances not necessarily in existence at the time
a loan is originated or transferred to the Trust Fund, the application of any
of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders. For each mortgagor that
is described as a "special purpose entity", "single purpose entity" or
"bankruptcy-remote entity" in the Prospectus Supplement, the activities that
may be conducted by such mortgagor and its ability to incur debt are
restricted by the applicable Mortgage or the organizational documents of such
mortgagor in such manner as is intended to reduce the likelihood that a
bankruptcy proceeding would be commenced by or against such mortgagor on the
basis of activities unrelated to owning and operating the mortgaged property,
and such mortgagor has been organized and is designed to operate in such a
manner that its separate existence should be respected notwithstanding a
bankruptcy proceeding in respect of one or more affiliated entities of such
mortgagor. However, the Depositor makes no representation as to the
likelihood of the institution of a bankruptcy proceeding by or in respect of
any mortgagor or the likelihood that the separate existence of any mortgagor
would be respected if there were to be a bankruptcy proceeding in respect of
any affiliated entity of a mortgagor.
ENVIRONMENTAL LEGISLATION
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien
has priority over all existing liens (a "superlien") including those of
existing mortgages; in those states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed
to the contamination. Many states have laws similar to CERCLA. CERCLA
excludes from the definition of "owner or operator" any person "who, without
participating in the management of . . . [the] facility, holds indicia of
ownership primarily to protect his security interest" ("secured creditor
exemption").
Notwithstanding the secured creditor exemption, a lender may be held
liable under CERCLA as an owner or operator, if such lender or its employees
or agents participate in management of the property. Judicial decisions
interpreting the secured creditor exemption had varied widely, and one
decision, United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir.
1990), cert. denied, 498 U.S. 1046 (1991), had indicated that a lender's mere
power to affect and influence a borrower's operations might be sufficient to
subject the lender to CERCLA liability. However, on September 30, 1996, the
Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of
1996 (the "Lender Liability Act") became law. The Lender Liability Act
clarifies the secured creditor exemption to impose liability only on a
secured lender who exercises control over operational aspects of the facility
and thus is "participating in management". A number of environmentally
related activities before the loan is made and during its pendency, as well
as "workout" steps to protect a security interest, are identified as
permissible to protect a security interest without triggering liability. The
Lender Liability Act also identifies the circumstances in which foreclosure
and post-foreclosure activities will not trigger CERCLA liability.
The Lender Liability Act also amends the federal Solid Waste Disposal Act
to limit the liability of lenders holding a security interest for costs of
cleaning up contamination for underground storage tanks. However, the Lender
Liability Act has no effect on other federal or state environmental laws
similar to CERCLA that may impose liability on lenders and other persons, and
not all of those laws provide for a secured creditor exemption. Liability
under many of these laws 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 the property through foreclosure, deed in lieu
of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of a
property securing a loan.
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If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental contamination,
but that person or entity may be bankrupt or otherwise judgment proof. It is
possible that cleanup costs could become a liability of the Trust Fund and
occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warranting Party with respect to any Whole Loan included in a Trust Fund for
a particular series of Certificates will represent that a "Phase I
assessment" as described in and meeting the requirements of the then current
version of Chapter 5 of the Federal National Mortgage Association Multifamily
Guide has been received and reviewed. In addition, the Agreement may provide
that the Master Servicer, acting on behalf of the Trustee, will not acquire
title to a Mortgaged Property or take over its operation unless the Master
Servicer has previously determined, based on a report prepared by a person
who regularly conducts environmental audits, that (a) there are no
circumstances or conditions present at the Mortgaged Property relating to
substances for which some investigation or clean-up action could be required
or that it would be in the best economic interest of the Trust Fund to take
such actions with respect to the affected Mortgaged Property and (b) that the
Mortgaged Property is in compliance with applicable environmental laws or
that it would be in the best economic interest of the Trust Fund to take the
actions necessary to comply with such laws. See "Description of the
Agreements -- Realization Upon Defaulted Whole Loans".
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender
may accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgager becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect
to certain loans the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms subject to certain limited exceptions.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer, on behalf of the Trust Fund, will determine whether to exercise any
right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in accordance with the general servicing standard described
herein under "Description of the Agreements -- Collection and Other Servicing
Procedures".
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in a Trust Fund will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the borrower. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of any state, however, may refuse to foreclose a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the borrower may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from
the borrower may be deemed a waiver of the forfeiture clause. State courts
also may impose equitable grace periods for payment of arrearages or
otherwise permit reinstatement of the contract following a default. Not
infrequently, if a borrower under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the contract or to permit the borrower to share the proceeds upon a
foreclosure sale of the property if the sale price exceeds the debt.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid
prior to maturity or prohibit such prepayment for a specified period. In
certain states, there are or may be specific limitations upon the late
charges which a lender may collect from a mortgagor
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for delinquent payments. Certain states also limit the amounts that a lender
may collect from a mortgagor as an additional charge if the loan is prepaid.
The enforceability under the laws of a number of states of provisions
providing for prepayment fees or penalties upon, or prohibition of, an
involuntary prepayment is unclear, and no assurance can be given that, at the
time a Prepayment Premium is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such
payment, or the provisions of any such prohibition, will be enforceable under
applicable state law. The absence of a restraint on prepayment, particularly
with respect to Mortgage Loans having higher Mortgage Rates, may increase the
likelihood of refinancing or other early retirements of the Mortgage Loans.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that lenders are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" as
"interest", but may exclude payments in the form of "reimbursement of
foreclosure expenses" or other charges found to be distinct from "interest".
If, however, the amount charged for the use of the money loaned is found to
exceed a statutorily established maximum rate, the form employed and the
degree of overcharge are both immaterial. Statutes differ in their provision
as to the consequences of a usurious loan. One group of statutes requires the
lender to forfeit the interest above the applicable limit or imposes a
specified penalty. Under this statutory scheme, the borrower may have the
recorded mortgage or deed of trust cancelled upon paying its debt with lawful
interest, or the lender may foreclose, but only for the debt plus lawful
interest. A second group of statutes is more severe. A violation of this type
of usury law results in the invalidation of the transaction, thereby
permitting the borrower to have the recorded mortgage or deed of trust
cancelled without any payment and prohibiting the lender from foreclosing.
Under the Agreement, a representation and warranty will be made (or the
benefit of such a representation and warranty assigned to the Trust Fund) to
the effect that the Mortgage Loans included in a given Trust Fund complied at
origination with applicable laws, including usury laws.
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980.
The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision that
expressly rejects application of the federal law. In addition, even where
Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered
by Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title
V would hold that first mortgage loans secured by primarily residential
properties that are originated on or after January 1, 1980 are subject to
federal preemption. Therefore, in a state that has not taken the requisite
action to reject application of Title V or to adopt a provision limiting
discount points or other charges prior to origination of such mortgage loans,
any such limitation under such state's usury law would not apply to such
mortgage loans.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non-federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St
Germain Act ("Title VIII"). Title VIII provides that, notwithstanding any
state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUA") with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII provides that any state may reject applicability of
the provision of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was
in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges)
above an annual rate of 6% during the period of such mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. The
Relief Act applies to mortgagors who are members of the Army, Navy, Air
Force, Marines, National Guard, Reserves, Coast Guard and officers of the
U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service (including
reservists who are called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of loans that
may be affected by the Relief Act. Application of the Relief Act would
adversely affect, for an indeterminate period of time, the ability of any
servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application
of the Relief Act would result in a reduction of the amounts distributable to
the holders of the related series of Certificates and would not be covered by
advances or any form of Credit Support (if any) provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in
the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before
commission of the crime upon which the forfeiture is based, or (ii) the
lender was, at the time of execution of the mortgage, "reasonably without
cause to believe" that the property was used in, or purchased with the
proceeds of, illegal drug or RICO activities.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply
(together with an inability to remedy any such failure) could result in
material diminution in the value of a Mortgaged Property which could,
together with the possibility of limited alternative uses for a particular
Mortgaged Property (i.e., a nursing or convalescent home or hospital), result
in a failure to realize the full principal amount of the related Mortgage
Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. Mortgaged Properties which are hotels or motels may present
additional risk to the lender in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements which may
be terminable by the operator; and (ii) the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of
such properties.
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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which
are structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, such altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable person. In addition to
imposing a possible financial burden on the borrower in its capacity as owner
or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on
the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the borrower is subject.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material U.S.
federal income tax consequences of the purchase, ownership and disposition of
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as
regulations (the "REMIC Regulations") promulgated by the U.S. Department of
Treasury (the "Treasury") on December 23, 1992. Investors should consult
their own tax advisors in determining the federal, state, local and other tax
consequences to them of the purchase, ownership and disposition of
Certificates.
For purposes of this discussion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Assets underlying a series of Certificates, references to the Mortgage will
be deemed to refer to that portion of the Mortgage Assets held by the Trust
Fund which does not include the Retained Interest. References to a "holder"
or "Certificateholder" in this discussion generally mean the beneficial owner
of a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular series of Certificates, an election may be
made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A
Trust Fund or a portion thereof as to which a REMIC election will be made
will be referred to as a "REMIC Pool". For purposes of this discussion,
Certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes
of "Regular Certificates" and one Class of "Residual Certificates" in the
case of each REMIC Pool. Qualification as a REMIC requires ongoing compliance
with certain conditions. With respect to each series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Depositor, has advised the
Depositor that in the firm's opinion, assuming (i) the making of such an
election, (ii) compliance with the Agreement and (iii) compliance with any
changes in the law, including any amendments to the Code or applicable
Treasury regulations thereunder, each REMIC Pool will qualify as a REMIC. In
such case, the Regular Certificates will be considered to be "regular
interests" in the REMIC Pool and generally will be treated for federal income
tax purposes as if they were newly originated debt instruments, and the
Residual Certificates will be considered to be "residual interests" in the
REMIC Pool. The Prospectus Supplement for each series of Certificates will
indicate whether one or more REMIC elections with respect to the related
Trust Fund will be made, in which event references to "REMIC" or "REMIC Pool"
herein shall be deemed to refer to each such REMIC Pool. If so specified in
the applicable Prospectus Supplement, the portion of a Trust Fund as to which
a REMIC election is not made may be treated as a grantor trust for federal
income tax purposes. See "--Federal Income Tax Consequences for Certificates
as to Which No REMIC Election Is Made". For purposes of this discussion,
unless otherwise specified, the term "Mortgage Loans" will be used to refer
to Mortgage Loans, MBS and Installment Contracts.
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STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) but only in the same proportion that the
assets of the REMIC Pool would be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" (such as
single family or multifamily properties, but not commercial properties)
within the meaning of Code Section 7701(a)(19)(C)(v) or as other assets
described in Code Section 7701(a)(19)(C), and otherwise will not qualify for
such treatment. REMIC Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest on the Regular Certificates and income with
respect to Residual Certificates will be considered "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Code Section 856(c)(3)(B) in the same proportion that,
for both purposes, the assets of the REMIC Pool would be so treated. If at
all times 95% or more of the assets of the REMIC Pool qualify for each of the
foregoing respective treatments, the REMIC Certificates will qualify for the
corresponding status in their entirety. For purposes of Code Section
856(c)(5)(A), payments of principal and interest on the Mortgage Loans that
are reinvested pending distribution to holders of REMIC Certificates qualify
for such treatment. Where two REMIC Pools are a part of a tiered structure
they will be treated as one REMIC for purposes of the tests described above
respecting asset ownership of more or less than 95%. In addition, if the
assets of the REMIC include Buy-Down Mortgage Loans, it is possible that the
percentage of such assets constituting "loans . . . secured by an interest in
real property" for purposes of Code Section 7701(a)(19)(C)(v) may be required
to be reduced by the amount of the related Buy-Down Funds. Mortgage Loans wil
not qualify for the foregoing treatments to the extent they have been
defeased with Treasury obligations. Mortgage Loans will not qualify for the
foregoing treatments to the extent they have been defeased with Treasury
obligations. REMIC Certificates held by a regulated investment company will
not constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i). REMIC Certificates held by certain financial institutions
will constitute an "evidence of indebtedness" within the meaning of Code
Section 582(c)(1). The Small Business Job Protection Act of 1996 (the "SBJPA
of 1996") repealed the reserve method for bad debts of domestic building and
loan associations and mutual savings banks, and thus has eliminated the asset
category of "qualifying real property loans" in former Code Section 593(d)
for taxable years beginning after December 31, 1995. The requirement in the
SBJPA of 1996 that such institutions must "recapture" a portion of their
existing bad debt reserves is suspended if a certain portion of their assets
are maintained in "residential loans" under Code Section 7701(a)(19)(C)(v),
but only if such loans were made to acquire, construct or improve the related
real property and not for the purpose of refinancing. However, no effort will
be made to identify the portion of the Mortgage Loans of any Series meeting
this requirement, and no representation is made in this regard.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in
the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the
close of the third calendar month beginning after the "Startup Day" (which
for purposes of this discussion is the date of issuance of the REMIC
Certificates) and at all times thereafter, may consist of assets other than
"qualified mortgages" and "permitted investments". The REMIC Regulations
provide a safe harbor pursuant to which the de minimis requirement is met if
at all times the aggregate adjusted basis of the nonqualified assets is less
than 1% of the aggregate adjusted basis of all the REMIC Pool's assets. An
entity that fails to meet the safe harbor may nevertheless demonstrate that
it holds no more than a de minimis amount of nonqualified assets. A REMIC
also must provide "reasonable arrangements" to prevent its residual interest
from being held by "disqualified organizations" and must furnish applicable
tax information to transferors or agents that violate this requirement. See
"Taxation of Residual Certificates -- Tax-Related Restrictions on Transfer of
Residual Certificates -- Disqualified Organizations".
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, such as the Mortgage Certificates, regular interests in another REMIC,
such as Mortgage Certificates in a trust as to which a REMIC election has
been made, loans secured by timeshare interests and loans secured by shares
held by a tenant stockholder in a cooperative housing corporation, provided,
in general, (i) the fair market value of the real property security
(including buildings and structural components thereof) is at least 80% of
the principal balance of the related Mortgage Loan or mortgage loan
underlying the Mortgage Certificate either at origination or as of the
Startup Day (an
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original loan-to-value ratio of not more than 125% with respect to the real
property security) or (ii) substantially all the proceeds of the Mortgage
Loan or the underlying mortgage loan were used to acquire, improve or protect
an interest in real property that, at the origination date, was the only
security for the Mortgage Loan or underlying mortgage loan. If the Mortgage
Loan has been substantially modified other than in connection with a default
or reasonably foreseeable default, it must meet the loan-to-value test in
clause (i) of the preceding sentence as of the date of the last such
modification). A qualified mortgage includes a qualified replacement
mortgage, which is any property that would have been treated as a qualified
mortgage if it were transferred to the REMIC Pool on the Startup Day and that
is received either (i) in exchange for any qualified mortgage within a
three-month period thereafter or (ii) in exchange for a "defective
obligation" within a two-year period thereafter. A "defective obligation"
includes (i) a mortgage in default or as to which default is reasonably
foreseeable, (ii) a mortgage as to which a customary representation or
warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only
if such mortgage is disposed of within 90 days of discovery). A Mortgage Loan
that is "defective" as described in clause (iv) that is not sold or, if
within two years of the Startup Day, exchanged, within 90 days of discovery,
ceases to be a qualified mortgage after such 90-day period.
The REMIC Regulations provide that obligations secured by interests in
manufactured housing which qualify as "single family residences" within the
meaning of Code Section 25(e)(10) may be treated as "qualified mortgages" of
a REMIC. Under Code Section 25(e)(10), the term 'single family residence"
includes any manufactured home which has a minimum of 400 square feet of
living space and a minimum width in excess of 102 inches and which is of a
kind customarily used at a fixed location. With respect to each series with
respect to which Contracts are included in a REMIC Pool, the Depositor will
represent and warrant that each of the manufactured homes securing the
Contracts meets this definition of "single family residence".
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC Pool. A qualified reserve asset is any intangible property held for
investment that is part of any reasonably required reserve maintained by the
REMIC Pool to provide for payments of expenses of the REMIC Pool or amounts
due on the regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from
the assets in such fund for the year is derived from the sale or other
disposition of property held for less than three months, unless required to
prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally not held
beyond the close of the third calendar year following the year in which the
Trust acquired such property, with extensions granted by the Internal Revenue
Service (the "Service").
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a
REMIC Pool must be either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions, if any, are made pro rata. A regular interest is an interest
in a REMIC Pool that is issued on the Startup Day with fixed terms, is
designated as a regular interest, unconditionally entitles the holder to
receive a specified principal amount (or other similar amount), and provides
that interest payments (or other similar amounts), if any, at or before
maturity either are payable based on a fixed rate or a qualified variable
rate, or consist of a specified, nonvarying portion of the interest payments
on qualified mortgages. Such a specified portion may consist of a fixed
number of basis points, a fixed percentage of the total interest, or a fixed
or qualified variable or inverse variable rate on some or all of the
qualified mortgages minus a different fixed or qualified variable rate. The
specified principal amount of a regular interest that provides for interest
payments consisting of a specified, nonvarying portion of interest payments
on qualified mortgages may be zero. A residual interest is an interest in a
REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool
may be treated as a regular interest even if payments of principal with
respect to such interest are subordinated to payments on other regular
interests or the residual interest in the REMIC Pool, and are dependent on
the absence of defaults or delinquencies on qualified mortgages or permitted
investments, lower than reasonably expected returns on permitted investments,
unanticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a series will constitute
one or more classes of regular interests, and the Residual Certificates with
respect to that series will constitute a single class of residual interests
on which distributions are made pro rata.
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If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for
such year and thereafter. In this event, an entity with multiple classes of
ownership interests may be treated as a separate association taxable as a
corporation under Treasury regulations, and the Regular Certificates may be
treated as equity interests therein. The Code, however, authorizes the
Treasury Department to issue regulations that address situations where
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of the REMIC Pool would
occur absent regulatory relief. Investors should be aware, however, that the
Conference Committee Report to the Tax Reform Act of 1986 (the "1986 Act")
indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income
for the period of time in which the requirements for REMIC status are not
satisfied.
TAXATION OF REGULAR CERTIFICATES
GENERAL
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on a Regular Certificate will be treated as a return of
capital to the extent of the Regular Certificateholder's basis in the Regular
Certificate allocable thereto. Regular Certificateholders must use the
accrual method of accounting with regard to Regular Certificates, regardless
of the method of accounting otherwise used by such Regular
Certificateholders.
ORIGINAL ISSUE DISCOUNT
Accrual Certificates will be, and other Classes of Regular Certificates
may be, issued with "original issue discount" within the meaning of Code
Section 1273(a). Holders of any Class of Regular Certificates having original
issue discount generally must include original issue discount in ordinary
income for federal income tax purposes as it accrues, in accordance with the
constant yield method that takes into account the compounding of interest, in
advance of receipt of the cash attributable to such income. The following
discussion is based in part on Treasury regulations under Code Sections
1271-1275 (the "OID Regulations") and in part on the provisions of the 1986
Act. Regular Certificateholders should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Regular Certificates. To the extent such issues are
not addressed in such regulations, the Depositor intends to apply the
methodology described in the Conference Committee Report to the 1986 Act. No
assurance can be provided that the Service will not take a different position
as to those matters not currently addressed by the OID Regulations. Moreover,
the OID Regulations include an anti-abuse rule allowing the Service to apply
or depart from the OID Regulations where necessary or appropriate to ensure a
reasonable tax result in light of the applicable statutory provisions. A tax
result will not be considered unreasonable under the anti-abuse rule in the
absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random
lot ("Random Lot Certificates")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption
price at maturity" of the Regular Certificate over its "issue price". The
issue price of a Class of Regular Certificates offered pursuant to this
Prospectus generally is the first price at which a substantial amount of
Regular Certificates of that Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID
Regulations, the Depositor intends to treat the issue price of a Class as to
which there is no substantial sale as of the issue date or that is retained
by the Depositor as the fair market value of that Class as of the issue date.
The issue price of a Regular Certificate also includes the amount paid by an
initial Regular Certificateholder for accrued interest that relates to a
period prior to the issue date of the Regular Certificate, unless the Regular
Certificateholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a Regular Certificate always
includes the original principal amount of the Regular Certificate, but
generally will not include distributions of stated interest if such interest
distributions constitute "qualified stated interest". Under the OID
Regulations, qualified stated interest generally means interest payable at a
single fixed rate or a qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one
year or less during the entire term of the Regular Certificate. Because there
is no penalty or default remedy in the case of nonpayment of interest with
respect to a Regular Certificate, it is possible that no interest on any
Class of Regular Certificates will be
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treated as qualified stated interest. However, except as provided in the
following three sentences or in the applicable Prospectus Supplement, because
the underlying Mortgage Loans provide for remedies in the event of default it
is anticipated that the Trustee will treat interest with respect to the
Regular Certificates as qualified stated interest. Distributions of interest
on an Accrual Certificate, or on other Regular Certificates with respect to
which deferred interest will accrue, will not constitute qualified stated
interest, in which case the stated redemption price at maturity of such
Regular Certificates includes all distributions of interest as well as
principal thereon. Likewise, the Depositor intends to treat an "interest
only" class, or a class on which interest is substantially disproportionate
to its principal amount (a so-called "super-premium" class) as having no
qualified stated interest. Where the interval between the issue date and the
first Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Regular Certificate and the denominator of which is the
stated redemption price at maturity of the Regular Certificate. The
Conference Committee Report to the 1986 Act provides that the schedule of
such distributions should be determined in accordance with the assumed rate
of prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Certificates.
The Prepayment Assumption with respect to a Series of Regular Certificates
will be set forth in the related Prospectus Supplement. Holders generally
must report de minimis OID pro rata as principal payments are received, and
such income will be capital gain if the Regular Certificate is held as a
capital asset. However, under the OID Regulations, Regular Certificateholders
may elect to accrue all de minimis original issue discount as well as market
discount and market premium under the constant yield method. See "Election to
Treat All Interest Under the Constant Yield Method".
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Depositor will
treat the monthly period ending on the day before each Distribution Date as
the accrual period. With respect to each Regular Certificate, a calculation
will be made of the original issue discount that accrues during each
successive full accrual period (or shorter period from the date of original
issue) that ends on the day before the related Distribution Date on the
Regular Certificate. The Conference Committee Report to the 1986 Act states
that the rate of accrual of original issue discount is intended to be based
on the Prepayment Assumption. Other than as discussed below with respect to a
Random Lot Certificate, the original issue discount accruing in a full
accrual period would be the excess, if any, of (i) the sum of (a) the present
value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period that are included in the
Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of the Regular Certificate at
the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence is calculated based on
(i) the yield to maturity of the Regular Certificate at the issue date, (ii)
events (including actual prepayments) that have occurred prior to the end of
the accrual period and (iii) the Prepayment Assumption. For these purposes,
the adjusted issue price of a Regular Certificate at the beginning of any
accrual period equals the issue price of the Regular Certificate, increased
by the aggregate amount of original issue discount with respect to the
Regular Certificate that accrued in all prior accrual periods and reduced by
the amount of distributions included in the Regular Certificate's stated
redemption price at maturity that were made on the Regular Certificate in
such prior periods. The original issue discount accruing during any accrual
period (as determined in this paragraph) will then be divided by the number
of days in the period to determine the daily portion of original issue
discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original
issue discount must be determined according to an appropriate allocation
under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not
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below zero for any period) if the prepayments are slower than the Prepayment
Assumption. An increase in prepayments on the Mortgage Loans with respect to
a Series of Regular Certificates can result in both a change in the priority
of principal payments with respect to certain Classes of Regular Certificates
and either an increase or decrease in the daily portions of original issue
discount with respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the
anticipated payment characteristics of the Class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on
each Random Lot Certificate in a full accrual period would be its allocable
share of the original issue discount with respect to the entire Class, as
determined in accordance with the preceding paragraph. However, in the case
of a distribution in retirement of the entire unpaid principal balance of any
Random Lot Certificate (or portion of such unpaid principal balance), (a) the
remaining unaccrued original issue discount allocable to such Certificate (or
to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining unpaid principal balance of a partially redeemed
Random Lot Certificate after a distribution of principal has been received)
will be adjusted by reducing the present value of the remaining payments on
such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the unpaid principal balance thereof that was
distributed. The Depositor believes that the foregoing treatment is
consistent with the "pro rata prepayment" rules of the OID Regulations, but
with the rate of accrual of original issue discount determined based on the
Prepayment Assumption for the Class as a whole. Investors are advised to
consult their tax advisors as to this treatment.
ACQUISITION PREMIUM
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining
stated redemption price at maturity over the adjusted issue price.
Alternatively, such a subsequent purchaser may elect to treat all such
acquisition premium under the constant yield method, as described below under
the heading "Election to Treat All Interest Under the Constant Yield Method".
VARIABLE RATE REGULAR CERTIFICATES
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates", (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate", or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate". A floating rate
is a qualified floating rate if variations in the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds, where such rate is subject to a fixed multiple that is greater than
0.65 but not more than 1.35. Such rate may also be increased or decreased by
a fixed spread or subject to a fixed cap or floor, or a cap or floor that is
not reasonably expected as of the issue date to affect the yield of the
instrument significantly. An objective rate is any rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that
such information is not (i) within the control of the issuer or a related
party or (ii) unique to the circumstances of the issuer or a related party. A
qualified inverse floating rate is a rate equal to a fixed rate minus a
qualified floating rate that inversely reflects contemporaneous variations in
the cost of newly borrowed funds; an inverse floating rate that is not a
qualified inverse floating rate may nevertheless be an objective rate. A
Class of Regular Certificates may be issued under this Prospectus that does
not have a variable rate under the foregoing rules, for example, a Class that
bears different rates at different times during the period it is outstanding
such that it is considered significantly "front-loaded" or "back-loaded"
within the meaning of the OID Regulations. It is possible that such a Class
may be considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest rate, are by their terms not applicable to Regular
Certificates. However, if final regulations dealing with contingent interest
with respect to Regular Certificates apply the same principles as the OID
Regulations, such regulations may lead to different timing of income
inclusion that would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on
the sale of contingent interest Regular Certificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate
treatment of any Regular Certificate that does not pay interest at a fixed
rate or variable rate as described in this paragraph.
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Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two
or more variable rates, including a rate based on the average cost of funds
of one or more financial institutions), or a positive or negative multiple of
such a rate (plus or minus a specified number of basis points), or that
represents a weighted average of rates on some or all of the Mortgage Loans,
including such a rate that is subject to one or more caps or floors, or (ii)
bearing one or more such variable rates for one or more periods or one or
more fixed rates for one or more periods, and a different variable rate or
fixed rate for other periods qualifies as a regular interest in a REMIC.
Accordingly, unless otherwise indicated in the applicable Prospectus
Supplement, the Depositor intends to treat Regular Certificates that qualify
as regular interests under this rule in the same manner as obligations
bearing a variable rate for original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity
and future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular
Certificate based on the initial rate (or, if different, the value of the
applicable variable rate as of the pricing date) for the relevant Class.
Unless otherwise specified in the applicable Prospectus Supplement, the
Depositor intends to treat such variable interest as qualified stated
interest, other than variable interest on an interest-only or super-premium
Class, which will be treated as non-qualified stated interest includible in
the stated redemption price at maturity. Ordinary income reportable for any
period will be adjusted based on subsequent changes in the applicable
interest rate index.
Although unclear under the OID Regulations, the Depositor intends to treat
Regular Certificates bearing an interest rate that is a weighted average of
the net interest rates on Mortgage Loans or Mortgage Certificates having
fixed or adjustable rates, as having qualified stated interest. In the case
of adjustable rate Mortgage Loans, the applicable index used to compute
interest on the Mortgage Loans in effect on the pricing date (or possibly the
issue date) will be deemed to be in effect beginning with the period in which
the first weighted average adjustment date occurring after the issue date
occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount or ordinary income reportable to reflect the actual
Pass-Through Rate on the Regular Certificates.
DEFERRED INTEREST
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be Deferred Interest is includible in the stated redemption
price at maturity thereof. Accordingly, any Deferred Interest that accrues
with respect to a Class of Regular Certificates may constitute income to the
holders of such Regular Certificates prior to the time distributions of cash
with respect to such Deferred Interest are made.
MARKET DISCOUNT
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received,
in an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take
into account the Prepayment Assumption. The Conference Committee Report to
the 1986 Act provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the
sum of the interest for such period plus the remaining interest as of the end
of such period, or in the case of a Regular Certificate issued with original
issue discount, in the ratio of original issue discount accrued for the
relevant period to the sum of the original issue discount accrued for such
period plus the remaining original issue discount as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular 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 as partial distributions in reduction of the
stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid
or accrued on indebtedness incurred to purchase or carry a Regular
Certificate over the interest distributable thereon. The deferred portion of
such interest expense in any taxable year generally will not exceed the
accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later
than
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the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular
Certificateholder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such Regular
Certificateholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in
which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "Original Issue Discount") remaining after
the date of purchase. It appears that de minimis market discount would be
reported in a manner similar to de minimis original issue discount. See
"Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should
consult their own tax advisors regarding the application of these rules.
Investors should also consult Revenue Procedure 92-67 concerning the
elections to include market discount in income currently and to accrue market
discount on the basis of the constant yield method.
PREMIUM
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased
at a premium. If the Regular Certificateholder holds such Regular Certificate
as a "capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to
the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations
such as the Regular Certificates, although it is unclear whether the
alternatives to the constant yield method described above under "Market
Discount" are available. Amortizable bond premium will be treated as an
offset to interest income on a Regular Certificate rather than as a separate
deduction item. See "Election to Treat All Interest Under the Constant Yield
Method" below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD METHOD
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest,
original issue discount, de minimis original issue discount, market discount
and de minimis market discount, as adjusted by any amortizable bond premium
or acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply
or if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to
have made elections to amortize bond premium or to report market discount
income currently as it accrues under the constant yield method, respectively,
for all debt instruments acquired by the holder in the same taxable year or
thereafter. The election is made on the holder's federal income tax return
for the year in which the debt instrument is acquired and is irrevocable
except with the approval of the Service. Investors should consult their own
tax advisors regarding the advisability of making such an election.
SALE OR EXCHANGE OF REGULAR CERTIFICATES
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal the cost of the Regular Certificate to the seller, increased by
any original issue discount or market discount previously included in the
seller's gross income with respect to the Regular Certificate and reduced by
amounts included in the stated redemption price at maturity of the Regular
Certificate that were previously received by the seller and by any amortized
premium.
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Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Such
gain will be treated as ordinary income (i) if a Regular Certificate is held
as part of a "conversion transaction" as defined in Code Section 1258(c), up
to the amount of interest that would have accrued on the Regular
Certificateholder's net investment in the conversion transaction at 120% of
the appropriate applicable Federal rate under Code Section 1274(d) in effect
at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior distribution
of property that was held as a part of such transaction, (ii) in the case of
a non-corporate taxpayer, to the extent such taxpayer has made an election
under Code Section 163(d)(4) to have net capital gains taxed as investment
income at ordinary rates, or (iii) to the extent that such gain does not
exceed the excess, if any, of (a) the amount that would have been includible
in the gross income of the holder if its yield on such Regular Certificate
were 110% of the applicable Federal rate as of the date of purchase, over (b)
the amount of income actually includible in the gross income of such holder
with respect to the Regular Certificate. In addition, gain or loss recognized
from the sale of a Regular Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c). Long-term capital gains of certain non-corporate taxpayers
generally are subject to a lower maximum tax rate (28%) than ordinary income
of such taxpayers (39.6%) for property held for more than one year but not
more than 18 months, and a still lower maximum rate (20%) for property held
for more than 18 months. The maximum tax rate for corporations is the same
with respect to both ordinary income and capital gains.
TREATMENT OF LOSSES
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans allocable to a particular
class of Regular Certificates, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may
take the position that original issue discount must continue to be accrued in
spite of its uncollectibility until the debt instrument is disposed of in a
taxable transaction or becomes worthless in accordance with the rules of Code
Section 166.
To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that holders of Regular Certificates that are
corporations or that otherwise hold the Regular Certificates in connection
with a trade or business should in general be allowed to deduct as an
ordinary loss any such loss sustained during the taxable year on account of
any such Regular Certificates becoming wholly or partially worthless, and
that, in general, holders of Regular Certificates that are not corporations
and do not hold the Regular Certificates in connection with a trade or
business will be allowed to deduct as a short-term capital loss any loss with
respect to principal sustained during the taxable year on account of a
portion of any class or subclass of such Regular Certificates becoming wholly
worthless. Although the matter is not free from doubt, non-corporate holders
of Regular Certificates should be allowed a bad debt deduction at such time
as the principal balance of any class or subclass of such Regular
Certificates is reduced to reflect losses resulting from any liquidated
Mortgage Loans. The Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all Mortgage Loans remaining in the Trust Fund have been
liquidated or such class of Regular Certificates has been otherwise retired.
The Service could also assert that losses on the Regular Certificates are
deductible based on some other method that may defer such deductions for all
holders, such as reducing future cash flow for purposes of computing original
issue discount. This may have the effect of creating "negative" original
issue discount which would be deductible only against future positive
original issue discount or otherwise upon termination of the Class. Holders
of Regular Certificates are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with
respect to such Regular Certificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders the Service may take the position that
losses attributable to accrued original issue discount may only be deducted
as capital losses in the case of non-corporate holders who do not hold
Regular Certificates in connection with a trade or business. Special loss
rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Regular Certificates.
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TAXATION OF RESIDUAL CERTIFICATES
TAXATION OF REMIC INCOME
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"),
and will not be taxed separately to the REMIC Pool. The daily portions of
REMIC taxable income or net loss of a Residual Certificateholder are
determined by allocating the REMIC Pool's taxable income or net loss for each
calendar quarter ratably to each day in such quarter and by allocating such
daily portion among the Residual Certificateholders in proportion to their
respective holdings of Residual Certificates in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting,
except that (i) the limitations on deductibility of investment interest
expense and expenses for the production of income do not apply, (ii) all bad
loans will be deductible as business bad debts and (iii) the limitation on
the deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC Pool's gross income, includes interest, original issue
discount income and market discount income, if any, on the Mortgage Loans,
reduced by amortization of any premium on the Mortgage Loans, plus income
from amortization of any issue premium, if any, on the Regular Certificates,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
Regular Certificates. The REMIC Pool's deductions include interest and
original issue discount expense on the Regular Certificates, servicing fees
on the Mortgage Loans, other administrative expenses of the REMIC Pool and
realized losses on the Mortgage Loans. The requirement that Residual
Certificateholders report their pro rata share of taxable income or net loss
of the REMIC Pool will continue until there are no Certificates of any class
of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the
Mortgage Loans, on the one hand, and the timing of deductions for interest
(including original issue discount) or income from amortization of issue
premium on the Regular Certificates, on the other hand. In the event that an
interest in the Mortgage Loans is acquired by the REMIC Pool at a discount,
and one or more of such Mortgage Loans is prepaid, the Residual
Certificateholder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used
in whole or in part to make distributions in reduction of principal on the
Regular Certificates and (ii) the discount on the Mortgage Loans which is
includible in income may exceed the deduction allowed upon such distributions
on those Regular Certificates on account of any unaccrued original issue
discount relating to those Regular Certificates. When there is more than one
class of Regular Certificates that distribute principal sequentially, this
mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the Regular Certificates when distributions
in reduction of principal are being made in respect of earlier classes of
Regular Certificates to the extent that such classes are not issued with
substantial discount or are issued at a premium. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years
than in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a
series of Regular Certificates, may increase over time as distributions in
reduction of principal are made on the lower yielding classes of Regular
Certificates, whereas to the extent that the REMIC Pool includes fixed rate
Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Certificateholders must have sufficient
other sources of cash to pay any federal, state or local income taxes due as
a result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholder's after-tax rate of return. In
addition, a Residual Certificateholder's taxable income during certain
periods may exceed the income reflected by such Residual Certificateholder
for such periods in accordance with generally accepted accounting principles.
Investors should consult their own accountants concerning the accounting
treatment of their investment in Residual Certificates.
BASIS AND LOSSES
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual
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Certificate if earlier), determined without taking into account the net loss
for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the Residual Certificateholder and will be decreased (but not
below zero), first, by a cash distribution from the REMIC Pool and, second,
by the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. Any loss that is disallowed on account of this limitation
may be carried over indefinitely with respect to the Residual
Certificateholder as to whom such loss was disallowed and may be used by such
Residual Certificateholder only to offset any income generated by the same
REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not
include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration
of the income of Residual Certificateholders described above under "Taxation
of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments made by a transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual
Certificateholders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not
so provide. See "Treatment of Certain Items of REMIC Income and Expense --
Market Discount" below regarding the basis of Mortgage Loans to the REMIC
Pool and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC Pool as a capital
loss.
TREATMENT OF CERTAIN ITEMS OF REMIC INCOME AND EXPENSE
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are
subject to differing interpretations. The Depositor makes no representation
as to the specific method that it will use for reporting income with respect
to the Mortgage Loans and expenses with respect to the Regular Certificates,
and different methods could result in different timing of reporting of
taxable income or net loss to Residual Certificateholders or differences in
capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount will be determined in the same manner
as original issue discount income on Regular Certificates as described above
under "Taxation of Regular Certificates -- Original Issue Discount" and
"--Variable Rate Regular Certificates", without regard to the de minimis rule
described therein, and "--Premium.".
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates -- Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool
allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276
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applies, the accrued portion of such market discount would be recognized
currently as an item of ordinary income in a manner similar to original issue
discount. Market discount income generally should accrue in the manner
described above under "Taxation of Regular Certificates -- Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates -- Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or
mortgage loans underlying MBS that were originated after September 27, 1985
or on Agency Securities, or Private Mortgage-Backed Securities that are REMIC
regular interests under the constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. To the extent that the mortgagors with
respect to the Mortgage Loans are individuals, Code Section 171 will not be
available for premium on Mortgage Loans (including underlying mortgage loans)
originated on or prior to September 27, 1985. Premium with respect to such
Mortgage Loans may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the Service may argue that such premium should be allocated in a
different manner, such as allocating such premium entirely to the final
payment of principal.
LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject
to special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter
allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC Pool's taxable income
that will be treated as excess inclusions will be a larger portion of such
income as the adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carryforwards, on such Residual
Certificateholder's return. However, net operating loss carryovers are
determined without regard to excess inclusion income. Further, if the
Residual Certificateholder is an organization subject to the tax on unrelated
business income imposed by Code Section 511, the Residual Certificateholder's
excess inclusions will be treated as unrelated business taxable income of
such Residual Certificateholder for purposes of Code Section 511. In
addition, REMIC taxable income is subject to 30% withholding tax with respect
to certain persons who are not U.S. Persons (as defined below under
"Tax-Related Restrictions on Transfer of Residual Certificates -- Foreign
Investors"), and the portion thereof attributable to excess inclusions is not
eligible for any reduction in the rate of withholding tax (by treaty or
otherwise). See "Taxation of Certain Foreign Investors -- Residual
Certificates" below. Finally, if a real estate investment trust or a
regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by
the real estate investment trust or a regulated investment company could not
be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
Persons. The SBJPA of 1996 has eliminated the special rule permitting Section
593 institutions ("thrift institutions") to use net operating losses and
other allowable deductions to offset their excess inclusion income from
Residual Certificates that have 'significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to Residual Certificates continuously held by
thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual
Holder is
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determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deduction must be computed without regard to any
excess inclusions. These rules are effective for taxable years beginning
after December 31, 1986, unless a Residual Holder elects to have such rules
apply only to taxable years beginning after August 20, 1996.
TAX-RELATED RESTRICTIONS ON TRANSFER OF RESIDUAL CERTIFICATES
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as
defined below), a tax would be imposed in an amount equal to the product of
(i) the present value of the total anticipated excess inclusions with respect
to such Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
REMIC Regulations provide that the anticipated excess inclusions are based on
actual prepayment experience to the date of the transfer and projected
payments based on the Prepayment Assumption. The present value rate equals
the applicable Federal rate under Code Section 1274(d) as of the date of the
transfer for a term ending with the last calendar quarter in which excess
inclusions are expected to accrue. Such a tax generally would be imposed on
the transferor of the Residual Certificate, except that where such transfer
is through an agent (including a broker, nominee or other middleman) for a
Disqualified Organization, the tax would instead be imposed on such agent.
However, a transferor of a 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. The tax also may be
waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays income tax at the
highest corporate rate on the excess inclusions for the period the Residual
Certificate is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are
allocable to the interest in the Pass-Through Entity during the period such
interest is held by such Disqualified Organization, and (ii) the highest
marginal federal corporate income tax rate. Such tax would be deductible from
the ordinary gross income of the Pass-Through Entity for the taxable year.
The Pass-Through Entity would not be liable for such tax if it has received
an affidavit from such record holder that it is not a Disqualified
Organization or stating such holder's taxpayer identification number and,
during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government,
any international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if
all of its activities are subject to tax and a majority of its board of
directors is not selected by any such governmental entity), any cooperative
organization furnishing electric energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(C), and any
organization (other than a farmers' cooperative described in Code Section
521) that is exempt from taxation under the Code unless such organization is
subject to the tax on unrelated business income imposed by Code Section 511,
and (ii) "Pass-Through Entity" means any regulated investment company, real
estate investment trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
The Agreement with respect to a series of Certificates will provide that
no legal or beneficial interest in a Residual Certificate may be transferred
unless (i) the proposed transferee provides to the transferor and the Trustee
an affidavit providing its taxpayer identification number and stating that
such transferee is the beneficial owner of the Residual Certificate, is not a
Disqualified Organization and is not purchasing such Residual Certificates on
behalf of a Disqualified Organization (i.e., as a broker, nominee or
middleman thereof), and (ii) the transferor provides a statement in writing
to the Depositor and the Trustee that it has no actual knowledge that such
affidavit is false. Moreover, the Agreement will provide that any attempted
or purported transfer in violation of these transfer restrictions will be
null and void and will vest no rights in any purported transferee. Each
Residual Certificate with respect to a series will bear a legend referring to
such restrictions on transfer, and each Residual Certificateholder will be
deemed to have agreed, as a condition of ownership thereof, to any amendments
to the related Agreement required under the Code or applicable Treasury
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regulations to effectuate the foregoing restrictions. Information necessary
to compute an applicable excise tax must be furnished to the Service and to
the requesting party within 60 days of the request, and the Depositor or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor
would continue to be treated as the owner of the Residual Certificates and
thus would continue to be subject to tax on its allocable portion of the net
income of the REMIC Pool. Under the REMIC Regulations, a transfer of a
"noneconomic residual interest" (as defined below) to a Residual
Certificateholder (other than a Residual Certificateholder who is not a U.S.
Person, as defined below under "Foreign Investors") is disregarded for all
federal income tax purposes if a significant purpose of the transferor is to
impede the assessment or collection of tax. A residual interest in a REMIC
(including a residual interest with a positive value at issuance) is a
"noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest
at least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year
in which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the REMIC at or after the time
at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above under "Disqualified Organizations". The REMIC Regulations explain that
a significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its
share of the taxable income of the REMIC. A safe harbor is provided if (i)
the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found that the
transferee historically had paid its debts as they came due and found no
significant evidence to indicate that the transferee would not continue to
pay its debts as they came due in the future, and (ii) the transferee
represents to the transferor that it understands that, as the holder of the
noneconomic residual interest, the transferee may incur tax liabilities in
excess of cash flows generated by the interest and that the transferee
intends to pay taxes associated with holding the residual interest as they
become due. The Agreement with respect to each series of Certificates will
require the transferee of a Residual Certificate to certify to the matters in
the preceding sentence as part of the affidavit described above under the
heading "Disqualified Organizations". The transferor must have no actual
knowledge or reason to know that such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a "U.S. Person" (as defined below),
unless such transferee's income is effectively connected with the conduct of
a trade or business within the United States. A Residual Certificate is
deemed to have tax avoidance potential unless, at the time of the transfer,
(i) the future value of expected distributions equals at least 30% of the
anticipated excess inclusions after the transfer, and (ii) the transferor
reasonably expects that the transferee will receive sufficient distributions
from the REMIC Pool at or after the time at which the excess inclusions
accrue and prior to the end of the next succeeding taxable year for the
accumulated withholding tax liability to be paid. If the non-U.S. Person
transfers the Residual Certificate back to a U.S. Person, the transfer will
be disregarded and the foreign transferor will continue to be treated as the
owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject
to U.S. federal income tax regardless of the source of its income or a trust
if a court within the United States is able to exercise primary supervision
over the administration of such trust, and one or more such U.S. Persons have
the authority to control all substantial decisions of such trust.
SALE OR EXCHANGE OF A RESIDUAL CERTIFICATE
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates -- Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that
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Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool
terminates, and if such Residual Certificateholder holds such Residual
Certificate as a capital asset under Code Section 1221, then such Residual
Certificateholder will recognize a capital loss at that time in the amount of
such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii)
in the case of a non-corporate taxpayer, to the extent such taxpayer has made
an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to dispositions of Residual Certificates where
the seller of the Residual Certificate, during the period beginning six
months before the sale or disposition of the Residual Certificate and ending
six months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
MARK TO MARKET REGULATIONS
Prospective purchasers of the Residual Certificates should also be aware
that on December 23, 1996, the Service released final regulations (the "Mark
to Market Regulations") under Code Section 475 relating to the requirement
that a securities dealer mark to market securities held for sale to
customers. For purposes of this mark-to-market requirement, a Residual
Certificate is not treated as a security and thus may not be marked to
market.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
PROHIBITED TRANSACTIONS
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss
includible in the federal income tax returns of Residual Certificateholders,
but rather will be taxed directly to the REMIC Pool at a 100% rate.
Prohibited transactions generally include (i) the disposition of a qualified
mortgage other than for (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time)
or for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the
waiver of a due-on-sale or due-on-encumbrance clause or the conversion of an
interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate Mortgage Loan.
CONTRIBUTIONS TO THE REMIC POOL AFTER THE STARTUP DAY
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Certificateholder, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call and (v) as
otherwise permitted in Treasury regulations yet to be issued.
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NET INCOME FROM FORECLOSURE PROPERTY
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts.
Generally, property acquired by deed in lieu of foreclosure would be treated
as "foreclosure property" for a period ending with the close of the third
calendar year after the year in which the REMIC Pool acquired such property,
with a possible extension. Net income from foreclosure property generally
means gain from the sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject to the prohibited transaction rules on the sale of
its assets, provided that the REMIC Pool credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts
retained to meet claims) to holders of Regular Certificates and Residual
Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return.
The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject
to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or
credit in a unified administrative proceeding. The Residual Certificateholder
owning the largest percentage interest in the Residual Certificates will be
obligated to act as "tax matters person", as defined in applicable Treasury
regulations, with respect to the REMIC Pool. Each Residual Certificateholder
will be deemed, by acceptance of such Residual Certificates, to have agreed
(i) to the appointment of the tax matters person as provided in the preceding
sentence and (ii) to the irrevocable designation of the Master Servicer as
agent for performing the functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a
taxable year of an individual taxpayer will be reduced by the lesser of (i)
3% of the excess, if any, of adjusted gross income over $121,200 ($60,600 in
the case of a married individual filing a separate return) for 1997 (subject
to annual adjustments for inflation) or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. In the case of a REMIC Pool,
such deductions may include deductions under Code Section 212 for the
Servicer Fee and all administrative and other expenses relating to the REMIC
Pool, any similar fees paid to the issuer or guarantor of the Agency
Certificates or the Private Mortgage-Backed Securities or Contracts, or any
similar expenses allocated to the REMIC Pool with respect to a regular
interest it holds in another REMIC. Such investors who hold REMIC
Certificates either directly or indirectly through certain pass-through
entities may have their pro rata share of such expenses allocated to them as
additional gross income, but may be subject to such limitation on deductions.
In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Temporary Treasury
regulations provide that the additional gross income and corresponding amount
of expenses generally are to be allocated entirely to the holders of Residual
Certificates in the case of a REMIC Pool that would not qualify as a fixed
investment trust in the absence of a REMIC election. However, such additional
gross income and limitation on deductions will apply to the allocable portion
of such expenses to holders of Regular Certificates, as well as holders of
Residual Certificates, where such Regular Certificates are issued in a manner
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that is similar to pass-through certificates in a fixed investment trust. In
general, such allocable portion will be determined based on the ratio that a
REMIC Certificateholder's income, determined on a daily basis, bears to the
income of all holders of Regular Certificates and Residual Certificates with
respect to a REMIC Pool. As a result, individuals, estates or trusts holding
REMIC Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single Class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the
related period on Residual Certificates. Unless otherwise indicated in the
applicable Prospectus Supplement, all such expenses will be allocable to the
Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
REGULAR CERTIFICATES
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or
other Non-U.S Persons (as defined below), will be considered "portfolio
interest" and, therefore, generally will not be subject to 30% United States
withholding tax, provided that such Non-U.S. Person (i) is not a "10-percent
shareholder" within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation described in Code Section 881(c)(3)(C) and (ii) provides
the Trustee, or the person who would otherwise be required to withhold tax
from such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial
owner and stating, among other things, that the beneficial owner of the
Regular Certificate is a Non-U.S. Person and provided further, with respect
to interest income from the Regular Certificate (including OID), that such
interest is not "contingent". Interest on the Regular Certificates generally
will not be considered contingent for this purpose, but the Internal Revenue
Service may take the position that any Prepayment Penalties should be treated
as such contingent interest. If the conditions described in the second
preceding sentence are not met, a 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on
the Regular Certificate is effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Person. In the latter
case, such Non-U.S. Person will be subject to United States federal income
tax at regular rates. Prepayment Premiums distributable to Regular
Certificateholders who are Non-U.S. Persons may be subject to 30% United
States withholding tax. Investors who are Non-U.S. Persons should consult
their own tax advisors regarding the specific tax consequences to them of
owning a Regular Certificate. The term "Non-U.S. Person" means any person who
is not a U.S. Person.
RESIDUAL CERTIFICATES
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to
the conditions described in "Regular Certificates" above, but only to the
extent that (i) the Mortgage Loans (including mortgage loans underlying MBS)
were issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
whole mortgage loans will not be, but MBS and regular interests in another
REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any
exemption from the 30% withholding tax (or lower treaty rate) to the extent
of that portion of REMIC taxable income that constitutes an "excess
inclusion". See "Taxation of Residual Certificates -- Limitations on Offset
or Exemption of REMIC Income". If the amounts paid to Residual
Certificateholders who are Non-U.S. Persons are effectively connected with
the conduct of a trade or business within the United States by such Non-U.S.
Persons, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such Non-U.S. Persons will be subject to United States
federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account
for purposes of withholding only when paid or otherwise distributed (or when
the Residual Certificate is disposed of) under rules similar to withholding
upon disposition of debt instruments that have original issue discount. See
"Tax-Related Restrictions on Transfer of Residual Certificates -- Foreign
Investors" above concerning the disregard of certain transfers having "tax
avoidance potential". Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning
Residual Certificates.
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BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to
a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Service or
allowed as a credit against the Regular Certificateholder's federal income
tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are
either holders of record of Regular Certificates or beneficial owners who own
Regular Certificates through a broker or middleman as nominee. All brokers,
nominees and all other non-exempt holders of record of Regular Certificates
(including corporations, non-calendar year taxpayers, securities or
commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request
such information for any calendar quarter by telephone or in writing by
contacting the person designated in Service Publication 938 with respect to a
particular series of Regular Certificates. Holders through nominees must
request such information from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool
to each Residual Certificateholder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES
AS TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
GENERAL
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder
of a Standard Certificate of a particular series will be required to report
on its federal income tax return its pro rata share of the entire income from
the Mortgage Loans represented by its Standard Certificate, including
interest at the coupon rate on such Mortgage Loans, original issue discount
(if any), prepayment fees, assumption fees, and late payment charges received
by the Master Servicer, in accordance with such Standard Certificateholder's
method of accounting. A Standard Certificateholder generally will be able to
deduct its share of the Servicing Fee and all
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administrative and other expenses of the Trust Fund in accordance with its
method of accounting, provided that such amounts are reasonable compensation
for services rendered to that Trust Fund. However, investors who are
individuals, estates or trusts who own Standard Certificates, either directly
or indirectly through certain pass-through entities, will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, including deductions under Code Section 212 for the Servicing Fee
and all such administrative and other expenses of the Trust Fund, to the
extent that such deductions, in the aggregate, do not exceed two percent of
an investor's adjusted gross income. In addition, Code Section 68 provides
that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $121,200 ($60,600 in the case of a married
individual filing a separate return) for 1997 (subject to annual adjustments
for inflation), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Standard
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received
on such Standard Certificates with respect to interest at the pass-through
rate on such Standard Certificates. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax
liability. Moreover, where there is fixed retained yield with respect to the
Mortgage Loans underlying a series of Standard Certificates or where the
Servicing Fee is in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "Stripped
Certificates" and "Recharacterization of Servicing Fees", respectively.
TAX STATUS
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v), provided that the
real property securing the Mortgage Loans represented by that Standard
Certificate is of the type described in such section of the Code.
2. A Standard Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Trust
Fund consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation . . . which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
PREMIUM AND DISCOUNT
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount
greater than a statutory de minimis exception, including a payment of points
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser rates" on the
Mortgage Loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such
income. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of
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such accrual. However, Code Section 1272 provides for a reduction in the
amount of original issue discount includible in the income of a holder of an
obligation that acquires the obligation after its initial issuance at a price
greater than the sum of the original issue price and the previously accrued
original issue discount, less prior payments of principal. Accordingly, if
such Mortgage Loans acquired by a Standard Certificateholder are purchased at
a price equal to the then unpaid principal amount of such Mortgage Loans, no
original issue discount attributable to the difference between the issue
price and the original principal amount of such Mortgage Loans (i.e., points)
will be includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Federal Income Tax Consequences for REMIC Certificates
- -- Taxation of Regular Certificates -- Market Discount", except that the
ratable accrual methods described therein will not apply. Rather, the holder
will accrue market discount pro rata over the life of the Mortgage Loans,
unless the constant yield method is elected. Unless indicated otherwise in
the applicable Prospectus Supplement, no prepayment assumption will be
assumed for purposes of such accrual.
RECHARACTERIZATION OF SERVICING FEES
If the Servicing Fee paid to the Master Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Standard Certificate, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan
basis. If a loan-by-loan basis is appropriate, the likelihood that such
amount would exceed reasonable servicing compensation as to some of the
Mortgage Loans would be increased. Service guidance indicates that a
servicing fee in excess of reasonable compensation ("excess servicing") will
cause the Mortgage Loans to be treated under the "stripped bond" rules. Such
guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess
of such amounts is not greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of
the right to receive some or all of the interest payments on an obligation
from the right to receive some or all of the principal payments on the
obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under "--Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Standard Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interests
in a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Loans the ownership
of which is attributed to the Master Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations
treat such an arrangement as a fixed investment trust, since the multiple
classes of trust interests should be treated as merely facilitating direct
investments in the trust assets and the existence of multiple classes of
ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Standard Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
SALE OR EXCHANGE OF STANDARD CERTIFICATES
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the
Mortgage Loans and the other assets represented by the Standard Certificate.
In general, the aggregate adjusted basis will equal the Standard
Certificateholder's cost for the Standard Certificate, increased by the
amount of any income previously reported with respect to the Standard
Certificate and decreased by the amount of any losses previously reported
with respect to the Standard Certificate and the amount of any distributions
received thereon. Except as provided above with respect to market discount on
any Mortgage Loans, and except for certain financial institutions subject to
the provisions of Code Section 582(c), any such gain or loss would be capital
gain or loss if the Standard Certificate was held as a capital asset.
However, gain on the sale of a Standard Certificate will be treated as
ordinary income (i) if a Standard Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have
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accrued on the Standard Certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate in effect at
the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition
of property that was held as a part of such transaction or (ii) in the case
of a non-corporate taxpayer, to the extent such taxpayer has made an election
under Code Section 163(d)(4) to have net capital gains taxed as investment
income at ordinary income rates. Long-term capital gains of certain
non-corporate taxpayers generally are subject to a lower maximum tax rate
(28%) than ordinary income of such taxpayers (39.6%) for the property held
for more than one year but not more than 18 months, and a still lower maximum
rate (20%) for property held for more than 18 months. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
STRIPPED CERTIFICATES
GENERAL
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates".
The Certificates will be subject to those rules if (i) the Depositor or
any of its affiliates retains (for its own account or for purposes of
resale), in the form of fixed retained yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Master
Servicer is treated as having an ownership interest in the Mortgage Loans to
the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Standard Certificates -- Recharacterization of Servicing Fees" above) and
(iii) Certificates are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to the Master Servicer, to the extent that such fees
represent reasonable compensation for services rendered. See discussion above
under "Standard Certificates -- Recharacterization of Servicing Fees".
Although not free from doubt, for purposes of reporting to Stripped
Certificateholders, the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective entitlements to distributions of
each class (or subclass) of Stripped Certificates for the related period or
periods. The holder of a Stripped Certificate generally will be entitled to a
deduction each year in respect of the servicing fees, as described above
under "Standard Certificates -- General", subject to the limitation described
therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under subpart E, Part 1 of subchapter J of the Code and
not as an association taxable as a corporation or a "taxable mortgage pool"
within the meaning of Code Section 7701(i), and (ii) each Stripped
Certificate should be treated as a single installment obligation for purposes
of calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be
made in one of the ways described below under "Taxation of Stripped
Certificates -- Possible Alternative Characterizations," the OID Regulations
state, in general, that two or more debt instruments issued by a single
issuer to a single investor in a single transaction should be treated as a
single debt instrument for original issue discount purposes. The Agreement
requires that the Trustee make and report all computations described below
using this aggregate approach, unless substantial legal authority requires
otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents
a right to payments of both interest and principal may be viewed either as
issued with original issue discount or market discount (as described below),
at a de minimis
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original issue discount, or, presumably, at a premium. This treatment
suggests that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations. Further,
these final regulations provide that the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount if either (i) the initial discount with
respect to the Stripped Certificate was treated as zero under the de minimis
rule, or (ii) no more than 100 basis points in excess of reasonable servicing
is stripped off the related Mortgage Loans. Any such market discount would be
reportable as described under "Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates --Market Discount," without
regard to the de minimis rule therein, assuming that a prepayment assumption
is employed in such computation.
STATUS OF STRIPPED CERTIFICATES
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt,
counsel has advised the Depositor that Stripped Certificates owned by
applicable holders should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(5)(A), "obligation[s] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v), and interest (including original
issue discount) income attributable to Stripped Certificates should be
considered to represent "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), provided that in
each case the Mortgage Loans and interest on such Mortgage Loans qualify for
such treatment. The application of such Code provisions to Buy-Down Mortgage
Loans is uncertain. See "Standard Certificates -- Tax Status" above.
TAXATION OF STRIPPED CERTIFICATES
Original Issue Discount. Except as described above under "General", each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Based in part on the OID Regulations and
the amendments to the original issue discount sections of the Code made by
the 1986 Act, the amount of original issue discount required to be included
in the income of a holder of a Stripped Certificate (referred to in this
discussion as a "Stripped Certificateholder") in any taxable year likely will
be computed generally as described above under "Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates --
Original Issue Discount" and "--Variable Rate Regular Certificates". However,
with the apparent exception of a Stripped Certificate issued with de minimis
original issue discount as described above under "General", the issue price
of a Stripped Certificate will be the purchase price paid by each holder
thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Certificate to
such Stripped Certificateholder, presumably under the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each
Mortgage Loan represented by such Stripped Certificateholder's Stripped
Certificate. While the matter is not free from doubt, the holder of a
Stripped Certificate should be entitled in the year that it becomes certain
(assuming no further prepayments) that the holder will not recover a portion
of its adjusted basis in such Stripped Certificate to recognize an ordinary
loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Loans are prepaid could lead to the interpretation
that such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead
to different timing of income inclusion that would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted
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basis in such Stripped Certificate, as described above under "Federal Income
Tax Consequences for REMIC Certificates -- Taxation of Regular Certificates
- -- Sale or Exchange of Regular Certificates". To the extent that a subsequent
purchaser's purchase price is exceeded by the remaining payments on the
Stripped Certificates, such subsequent purchaser will be required for federal
income tax purposes to accrue and report such excess as if it were original
issue discount in the manner described above. It is not clear for this
purpose whether the assumed prepayment rate that is to be used in the case of
a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes
of Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations
less likely to be applicable. The preamble to those regulations states that
they are premised on the assumption that an aggregation approach is
appropriate for determining whether original issue discount on a stripped
bond or stripped coupon is de minimis, and solicits comments on appropriate
rules for aggregating stripped bonds and stripped coupons under Code Section
1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income
tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax
returns. Such information will include the amount of original issue discount
accrued on Certificates held by persons other than Certificateholders
exempted from the reporting requirements. The amounts required to be reported
by the Trustee may not be equal to the proper amount of original issue
discount required to be reported as taxable income by a Certificateholder,
other than an original Certificateholder that purchased at the issue price.
In particular, in the case of Stripped Certificates, unless provided
otherwise in the applicable Prospectus Supplement, such reporting will be
based upon a representative initial offering price of each class of Stripped
Certificates. The Trustee will also file such original issue discount
information with the Service. If a Certificateholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Federal Income Tax Consequences for REMIC Certificates
- -- Backup Withholding".
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442 to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States
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withholding tax, or such lower rate as may be provided for interest by an
applicable tax treaty. Accrued original issue discount recognized by the
Standard Certificateholder or Stripped Certificateholder on original issue
discount recognized by the Standard Certificateholder or Stripped
Certificateholders on the sale or exchange of such a Certificate also will be
subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Federal Income Tax Consequences for REMIC Certificates -- Taxation of
Certain Foreign Investors -- Regular Certificates".
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and on certain other retirement plans and arrangements, including
individual retirement accounts, Keogh plans, collective investment funds,
insurance company separate accounts, and some insurance company general
accounts in which such plans, accounts or arrangements are invested or other
persons acting on behalf of any such plan, account or arrangement or using
the assets of any such plan, account or arrangement, which are subject to
ERISA and Section 4975 of the Code (all of which are hereinafter referred to
for purposes of this discussion as "Plans") and on persons who are
fiduciaries with respect to such Plans. The following is a general discussion
of such requirements, and certain applicable exceptions to and administrative
exemptions from such requirements.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition
to such purchase under the requirements of ERISA, Section 4975 of the Code or
other applicable similar law whether any prohibited transaction class
exemption or any individual administrative prohibited transaction exemption
(as described below) applies, including whether the appropriate conditions
set forth therein would be met, or whether any statutory prohibited
transaction exemption is applicable, and further should consult the
applicable Prospectus Supplement relating to such Series of Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
GENERAL
In accordance with ERISA's general fiduciary standards, before investing
in a Certificate a Plan fiduciary should determine whether to do so is
permitted under the governing Plan instruments and is appropriate for the
Plan in view of its overall investment policy and the composition and
diversification of its portfolio. A Plan fiduciary should especially consider
the ERISA requirement of investment prudence and the sensitivity of the
return on the Certificates to the rate of principal repayments (including
voluntary prepayments by the mortgagors and involuntary liquidations) on the
Mortgage Loans, as discussed in "Yield Considerations" herein.
PARTIES IN INTEREST/DISQUALIFIED PERSONS
Other provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code, including, in both cases, Plan fiduciaries). The
Depositor, Master Servicer or the Trustee or certain affiliates thereof,
might be considered or might become "parties in interest" or "disqualified
persons" with respect to a Plan. If so, the acquisition or holding of
Certificates by or on behalf of such Plan could be considered to give rise to
a "prohibited transaction" within the meaning of ERISA and the Code unless an
administrative exemption described below or some other exemption is
available. Special caution should be exercised before the assets of a Plan
are used to purchase a Certificate if, with respect to such assets, the
Depositor, the Master Servicer or the Trustee or an affiliate thereof,
either: (a) has investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to give, or
regularly gives investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
DELEGATION OF FIDUCIARY DUTY
Further, if the assets included in a Trust Fund were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates
might be deemed to constitute a delegation, under ERISA, of the duty to
manage Plan assets by the fiduciary deciding to invest in the Certificates,
and certain transactions involved in the operation of the Trust Fund might be
deemed to constitute prohibited transactions under ERISA and the Code.
Neither ERISA nor the Code define the term "plan assets."
The U.S. Department of Labor (the "Department") has published final
regulations (the "Regulations") concerning whether or not a Plan's assets
would be deemed to include an interest in the underlying assets of an entity
(such as a Trust Fund) for purposes of the reporting and disclosure and
general fiduciary responsibility provisions of ERISA, as well as for
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<PAGE>
the prohibited transaction provisions of ERISA and the Code, if the Plan
acquires an "equity interest" (such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of
a Trust Fund. However, the Depositor cannot predict in advance, nor can there
be any continuing assurance, whether such exceptions may be met, because of
the factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of all classes of equity interests are held by "benefit plan
investors," which are defined as Plans, IRAs, and employee benefit plans not
subject to ERISA (for example, governmental plans). However, this exception
is tested immediately after each acquisition of an equity interest in the
entity whether upon initial issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained individual administrative ERISA prohibited transaction exemptions
which can only apply to the purchase and holding of mortgage-backed
securities which, among other conditions, are sold in an offering with
respect to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an exemption might
be applicable to a Series of Certificates, the related Prospectus Supplement
will refer to such possibility, as well as provide a summary of the
conditions to the applicability.
GOVERNMENTAL PLANS
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject
to a federal, state, or local law, which is, to a material extent, similar to
the provisions of ERISA or Code Section 4975 ("Similar Law"). 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.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of plans subject to ERISA, may give
rise to "unrelated business taxable income" as described in Code Sections
511-515 and 860E. Further, prior to the purchase of Residual Certificates, a
prospective transferee may be required to provide an affidavit to a
transferor that it is not, nor is it purchasing a Residual Certificate on
behalf of, a "Disqualified Organization," which term as defined above
includes certain tax-exempt entities not subject to Code Section 511
including certain governmental plans, as discussed above under the caption
"Federal Income Tax Consequences -- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Residual Certificates -- Tax-Related Restrictions
on Transfer of Residual Certificates -- Disqualified Organizations."
Due to the complexity of the rules under ERISA and Code Section 4975 and
the penalties imposed upon persons involved in prohibited transactions, it is
particularly important that potential investors who are Plan fiduciaries
consult with their counsel regarding the consequences under ERISA and Code
Section 4975 of their acquisition and ownership of Certificates.
The sale of Certificates to an employee benefit plan is in no respect a
representation by the Depositor or the 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 Prospectus Supplement for each Series of Certificates will specify
which, if any, of the Classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). The appropriate
characterization of those Certificates not qualifying as "mortgage related
securities" ("Non-SMMEA Certificates") under various legal investment
restrictions, and thus the ability of investors subject to these restrictions
to purchase such Certificates, may be subject to significant interpretive
uncertainties. Accordingly, investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether and to what extent the Non-SMMEA Certificates constitute legal
investments for them.
83
<PAGE>
Classes of Certificates that (i) are rated in one of the two highest
rating categories by one or more Rating Agencies and (ii) are part of a
Series evidencing interests in a Trust Fund consisting of loans originated by
certain types of Originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA. As "mortgage related securities," such
Classes will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including,
but not limited to, state-chartered savings banks, commercial banks, savings
and loan associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 cutoff for such enactments, limiting to varying
extents the ability of certain entities (in particular, insurance companies)
to invest in "mortgage related securities" secured by liens on residential,
or mixed residential and commercial properties, in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Pursuant to Section 347 of the Riegle Community Development and Regulatory
Improvement Act of 1994, which amended the definition of "mortgage related
security" to include, in relevant part, Certificates satisfying the rating
and qualified Originator requirements for "mortgage related securities," but
evidencing interests in a Trust Fund consisting, in whole or in part, of
first liens on one or more parcels of real estate upon which are located one
or more commercial structures, states were authorized to enact legislation,
on or before September 23, 2001, specifically referring to Section 347 and
prohibiting or restricting the purchase, holding or investment by
state-regulated entities in such types of Certificates. Accordingly, the
investors affected by any such state legislation, when and if enacted, will
be authorized to invest in Certificates qualifying as "mortgage related
securities" only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, the Office of the Comptroller of the Currency (the "OCC")
has 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. Section 1.5), certain "Type IV securities," defined in 12 C.F.R.
Section 1.2(l) to include certain "commercial mortgage-related securities"
and "residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean,
in relevant part, "mortgage related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors."
In the absence of any rule or administrative interpretation by the OCC
defining the term "numerous obligors," no representation is made as to
whether any Class of Certificates will qualify as "commercial
mortgage-related securities," and thus as "Type IV securities," for
investment by national banks. Federal credit unions should review National
Credit Union Administration ("NCUA") Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R. Section
Section 703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
Series, Classes or subclasses of Certificates), except under limited
circumstances. Effective January 1, 1998, the NCUA has amended its rules
governing investments by federal credit unions at 12 C.F.R. Part 703; the
revised rules will permit investments in "mortgage related securities" under
certain limited circumstances, but will prohibit investments in stripped
mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit
union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. Section 703.140.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council. The Policy Statement,
which has been adopted by the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the OCC and the Office of
Thrift
84
<PAGE>
Supervision, and by the NCUA (with certain modifications), prohibits
depository institutions from investing in certain "high-risk mortgage
securities" (including securities such as certain Series, Classes or
subclasses of the Certificates), except under limited circumstances, and sets
forth certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
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,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisors in determining whether
and to what extent the Certificates constitute legal investments for such
investors or are subject to investment, capital or other restrictions, and,
if applicable, whether SMMEA has been overridden in any jurisdiction relevant
to such investor.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series through one or more of the various methods described below.
The Prospectus Supplement for each Series of Certificates will describe the
method of offering being utilized for that Series, the public offering or
purchase price of the Certificates and the net proceeds to the Depositor from
such sale. If so specified in the Prospectus Supplement, one or more Classes
of Certificates may be offered for sale only outside of the United States and
only to non-U.S. persons and foreign branches of U.S. banks (or in such other
manner and to such other persons as may be specified therein) and will not be
offered hereby.
The Certificates will be offered through the following methods from time
to time and offerings may be made concurrently through more than one of these
methods or an offering of a particular Series of Certificates may be made
through any combination of these methods:
1. Negotiated firm commitment underwriting and public reoffering by
underwriters;
2. Placements by the Depositor to institutional investors through
affiliated or unaffiliated dealers or agents; and
3. Direct placements by the Depositor to institutional investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold.
The distribution of the Certificates may be effected from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices to be determined at the time of sale or
at the time of commitment therefor. If so specified in the related Prospectus
Supplement, the Certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting
agreement, by Nomura Securities International, Inc. ("Nomura") acting as
underwriter with other underwriters, if any, named therein. Asset
Securitization Corporation, the Depositor, is a wholly-owned subsidiary of
Nomura Asset Capital Corporation ("Nomura Capital"). Nomura and Nomura
Capital are both wholly-owned subsidiaries of Nomura Holding America Inc. See
"The Depositor" herein.
In connection with the sale of the Certificates, underwriters, dealers or
placement agents may receive compensation from the Depositor or from
purchasers of the Certificates in the form of discounts, concessions or
commissions. Underwriters, agents and dealers participating in the
distributions of the Certificates may be deemed to be underwriters in
connection with such Certificates, and any discounts or commissions received
by them from the Depositor and any profit on the resale of the Certificates
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "1933 Act").
85
<PAGE>
Any sales by the Depositor directly to investors, whether using an
affiliated or other placement agent or otherwise, may be made from time to
time in one or more transactions, including negotiated transactions, at a
fixed offering price or at varying prices to be determined at the time of
sale or the time of commitment therefor. The Prospectus Supplement with
respect to any Series of Certificates offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and dealers or purchasers
of the Certificates for such Series.
The underwriting agreement pertaining to a sale of a series of
Certificates will provide that the obligations of Nomura and any underwriters
will be subject to certain conditions precedent, that the underwriters will
be obligated to purchase all such Certificates if any are purchased, and that
the Depositor will indemnify Nomura and any underwriters against certain
civil liabilities, including liabilities under the 1933 Act, or will
contribute to payments Nomura and any underwriters may be required to make in
respect thereof.
In the ordinary course of business, Nomura and the Depositor may engage in
various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and
sales by them of Certificates. Holders of Certificates should consult with
their legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Nomura in connection with offers and sales related
to market-making transactions in Certificates previously offered hereunder in
transactions in which Nomura acts as principal. Nomura may also act as agent
in such transactions. Sales may be made at negotiated prices determined at
the time of sale.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage
loans and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood
of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might
fail to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently
of any other security rating.
86
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE(S) ON WHICH
TERMS IS DEFINED
TERM IN THE PROSPECTUS
- ------------------------------------ ---------------------
<S> <C>
1933 Act 85
1986 Act 61
Accrual Certificates 10
Accrued Certificate Interest 29
ADA 58
ARM Loans 20
Bankruptcy Code 52
BIF 35
Book-Entry Certificates 27
Cash Flow Agreement 9, 22
Cede 2, 32
CERCLA 16
Certificate Balance 10
Certificateholders 2
Certificates 8
Code 12, 58
Collection Account 9, 22
Collection Period 28
Commercial Loans 18
Commercial Properties 8, 18
Commission 2
Cooperatives 18
Covered Trust 16
CPR 24
Credit Support 1, 9, 22
Crime Control Act 57
Cut-off Date 11
Debt Service Coverage Ratio 18
Definitive Certificates 27, 33
Department 82
Determination Date 28
Disqualified Organization 70, 83
Distribution Date 10
DTC 2, 32
Equity Participations 21
ERISA 12, 82
Exchange Act 3
FDIC 35
FHA 20
Foreign Investors 71
HUD 20
Indirect Participants 32
Installment Contracts 8
Insurance Proceeds 36
L/C Bank 45
Liquidation Proceeds 36
Loan-to-Value Ratio 19
87
<PAGE>
PAGE(S) ON WHICH
TERMS IS DEFINED
TERM IN THE PROSPECTUS
- ------------------------------------ ---------------------
Lock-out Date 21
Lock-out Period 21
Master Servicer 8
MBS 1, 8, 18
MBS Agreement 21
MBS Issuer 21
MBS Servicer 21
MBS Trustee 21
Mortgage Asset Seller 18
Mortgage Assets 1, 18
Mortgage Loans 1, 8, 18
Mortgage Rate 9, 21
Mortgaged Properties 8
Mortgages 18
Multifamily Loans 18
Multifamily Properties 8, 18
NCUA 56
Net Leases 19
Net Operating Income 18
Nomura 85
Nomura Capital 85
Nonrecoverable Advance 30
Non-SMMEA Certificates 83
Offered Certificates 1
OID Regulations 61
Originator 18
Participants 32
Pass-Through Entity 70
Pass-Through Rate 10
Permitted Investments 35
Plans 82
Policy Statement 84
Prepayment Assumption 62
Prepayment Premium 21
Random Lot Certificates 61
Rating Agency 12
Record Date 28
Regular Certificateholder 61
Regular Certificates 58, 74
Regulations 82
Related Proceeds 30
Relief Act 57
REMIC 12
REMIC Certificates 58
REMIC Pool 58
REMIC Regulations 58
REO Account 36
Residual Certificateholders 67
Residual Certificates 58
88
<PAGE>
PAGE(S) ON WHICH
TERMS IS DEFINED
TERM IN THE PROSPECTUS
- ------------------------------------ ---------------------
RICO 57
SAIF 35
Senior Certificates 10, 26
Service 60
Similar Law 83
SMMEA 83
SPA 24
Special Servicer 8, 37
Standard Certificateholder 75
Standard Certificates 75
Stripped Certificateholder 79
Stripped Certificates 75, 78
Stripped Interest Certificates 10
Stripped Principal Certificates 10
Subordinate Certificates 10, 26
Sub-Servicer 37
Sub-Servicing Agreement 37
Title V 56
Title VIII 56
Treasury 58
Trust Assets 2
Trust Fund 1
Trustee 8
UCC 47
U.S. Person 71
Value 19
Voting Rights 17
Warranting Party 34
</TABLE>
89
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY NOR AN OFFER OF SUCH
SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH AN
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Executive Summary ............................. S-4
Summary of Prospectus Supplement .............. S-15
Risk Factors and Other Special Considerations S-34
Description of the Mortgage Pool .............. S-55
Description of the Offered Certificates ...... S-88
Prepayment and Yield Considerations ........... S-109
The Pooling and Servicing Agreement ........... S-119
Use of Proceeds ............................... S-149
Certain Federal Income Tax Consequences ...... S-150
ERISA Considerations .......................... S-151
Legal Investment .............................. S-154
Method of Distribution ........................ S-154
Legal Matters ................................. S-155
Rating ........................................ S-155
Characteristics of Mortgage Loans in Pool .... A-1
Characteristics or Mortgaged Properties in
Pool.......................................... B-1
Global Clearance, Settlement and Tax
Documentation Procedures ..................... C-1
Schedule of Weighted Average Net Mortgage
Pass-Through Rates ........................... D-1
PROSPECTUS
Prospectus Supplement ......................... 2
Available Information ......................... 2
Incorporation of Certain Information by
Reference .................................... 3
Table of Cotents .............................. 4
Summary of Prospectus ......................... 8
Special Considerations ........................ 13
Description of the Trust Funds ................ 18
Use of Proceeds ............................... 22
Yield Considerations .......................... 23
The Depositor ................................. 25
Description of the Certificates ............... 26
Description of the Agreements ................. 33
Description of Credit Support ................. 44
Certain Legal Aspects of Mortgage Loans ...... 46
Federal Income Tax Consequences ............... 58
ERISA Considerations .......................... 81
Legal Investment .............................. 82
Method of Distribution ........................ 84
Legal Matters ................................. 85
Financial Information ......................... 85
Rating ........................................ 85
Index of Principal Definition ................. 86
</TABLE>
<PAGE>
$1,610,665,222
(APPROXIMATE)
ASSET SECURITIZATION
CORPORATION,
DEPOSITOR
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1997-D5
[NOMURA CAPITAL LOGO]
---------------------
PROSPECTUS SUPPLEMENT
---------------------
NOMURA SECURITIES
INTERNATIONAL, INC.
OCTOBER 24, 1997
